- US brokers report crypto sales to the IRS on Form 1099-DA: gross proceeds for sales from January 1, 2025, plus cost basis for coins bought on the platform from January 1, 2026.
- Every Form 1040 asks whether you received, sold, exchanged, or otherwise disposed of a digital asset.
- Exchanges verify your identity (KYC), which links your name to the wallet addresses you withdraw to.
- Not getting a 1099 does not remove the duty to report.
- Fixing an old return before the IRS contacts you usually costs less than waiting.
Does the IRS Know About My Crypto? The Short Answer
Yes, for most people. If you bought or sold through Coinbase, Kraken, Gemini, Robinhood, or another US platform, that platform verified your identity and now reports your sales to the IRS, the same way a stock broker does. The IRS confirms the phased rollout on its digital assets page.
The idea that crypto is anonymous is wrong for almost everyone. Bitcoin and Ethereum transactions are recorded on public ledgers. Exchange records connect those ledgers to real names. Together, they give the IRS a detailed picture.
The 1099 Forms Exchanges File with the IRS
| Form | What it reports | When you get it |
|---|---|---|
| 1099-DA | Crypto sales and swaps through a broker: proceeds, and basis where required | By mid-February for the previous year |
| 1099-MISC | Rewards, promotions, or referral payments of $600 or more on some platforms | Early in the year |
| 1099-B | Crypto ETFs, futures, and some older crypto reporting | Early in the year |
| 1099-K | Payment-app and card processing activity above the reporting threshold | Early in the year |
Each of these forms goes to both you and the IRS. When you file, the IRS's automated matching compares your return with what brokers reported. A missing sale or a big mismatch usually produces a CP2000 notice proposing extra tax, often a year or more later.
No 1099 does not mean no tax. Offshore exchanges, self-custody wallets, and decentralized exchanges often send no form at all. You must still report every taxable transaction. "I didn't get a form" is not a defense.
What Changed: Form 1099-DA and Broker Reporting
The Infrastructure Investment and Jobs Act of 2021 required crypto brokers to report customer transactions. The IRS phased the rule in:
- Sales on or after January 1, 2025: brokers report gross proceeds on Form 1099-DA. The first forms went out in early 2026.
- Sales on or after January 1, 2026: brokers also report cost basis for "covered" coins, meaning coins you bought on that platform from January 1, 2026.
- Coins bought earlier or moved in from elsewhere are usually "noncovered." Your 1099-DA may show proceeds with no basis, and you supply the basis on Form 8949.
Some small-dollar transactions have relief. Brokers may skip reporting qualifying stablecoin sales up to $10,000 a year and certain NFT sales up to $600, under the optional methods in the Form 1099-DA instructions. That relief applies to the broker's form, not to your own reporting.
Our Form 1099-DA box-by-box guide explains each box. The IRS covers the form in Understanding your Form 1099-DA, and answers edge cases in its broker reporting FAQ.
The Digital Asset Question on Form 1040
Near the top of Form 1040 the IRS asks, in substance: at any time during the tax year, did you (a) receive a digital asset as a reward, award, or payment for property or services, or (b) sell, exchange, or otherwise dispose of a digital asset?
| What you did this year | Answer |
|---|---|
| Only bought crypto with dollars and held it | No |
| Moved coins between your own wallets | No |
| Sold, swapped, or spent any crypto | Yes |
| Received staking, mining, airdrop, or payment in crypto | Yes |
You sign your return under penalty of perjury. Answering "No" when the true answer is "Yes" can turn a tax problem into a willfulness problem, which carries much heavier penalties.
How the IRS Traces Crypto on the Blockchain
Every Bitcoin and Ethereum transaction is public. IRS Criminal Investigation and other agencies use blockchain analytics firms such as Chainalysis, TRM Labs, and Elliptic to cluster addresses, follow funds between wallets, and link them to exchange accounts.
A typical trail: you buy on Coinbase (identity verified), withdraw to a personal wallet (address now linked to you), then send from that wallet to an offshore exchange. Each hop is visible on the chain. Mixers and privacy tools do not reliably break this, and using them can draw attention on its own.
The IRS has also used John Doe summonses, court-approved orders that let it demand records on unnamed customers. It has used them against Coinbase, Kraken, and Circle to find people who never reported crypto.
What You Must Report on Your Tax Return
- Sales, swaps, and purchases made with crypto go on Form 8949 and then Schedule D, with proceeds, basis, and holding period.
- Crypto income (staking, mining, airdrops, payment for work) goes on Schedule 1, or on Schedule C if you run it as a business.
- Foreign accounts: under current FinCEN guidance, an account holding only crypto is not reportable on the FBAR. A foreign exchange account that also holds cash can be. FinCEN has said it plans to add crypto, so check the current rule every year. Large foreign holdings may separately require Form 8938.
Our crypto taxes for beginners guide walks through Form 8949 step by step, with 2026 rates and worked examples.
What Happens If You Don't Report
| Consequence | What it means |
|---|---|
| Interest | Charged on unpaid tax from the original due date until you pay |
| Accuracy-related penalty | Generally 20% of the underpayment when you substantially understate your tax |
| Civil fraud penalty | 75% of the underpayment caused by fraud |
| Criminal prosecution | Willful tax evasion under 26 U.S.C. § 7201 can mean fines and up to 5 years in prison |
Most crypto cases never reach the criminal stage. They start with a letter. The IRS has sent tens of thousands of educational letters (Letters 6173, 6174 and 6174-A) to people it believed held crypto. Take any letter seriously and answer by the stated deadline.
How to Fix Unreported Crypto From Past Years
- Gather records for every year involved: exchange exports, wallet histories, and any 1099s.
- Calculate each year's gains, losses, and income. Losses help too: reporting them can lower your tax.
- File Form 1040-X for each affected year, with corrected Form 8949 and schedules.
- Pay the tax and interest, or ask for an installment agreement if you can't pay all at once.
- Get professional help if the amounts are large, several years are involved, or the non-reporting could look willful. A CPA or tax attorney can explain options such as the IRS voluntary disclosure practice.
How to Check Your Form 1099-DA Before You File
Your 1099-DA is the IRS's copy of your activity, so make sure your return agrees with it, or explains why it doesn't. Work through it line by line:
- Match the totals. Add up the gross proceeds on every 1099-DA you received. Your Form 8949 proceeds for those accounts should equal that total, or you should be able to explain the difference.
- Look for "basis not reported." For coins bought before 2026 or transferred in, the broker often leaves basis blank. If you enter nothing, you'll be taxed on the full proceeds. Supply the correct basis from your own records.
- Check transfers. A transfer from one of your exchanges to another is not a sale. If a broker reported one as a sale, keep evidence that both accounts belong to you.
- Check fees. Transaction costs reduce proceeds or increase basis. Make sure they aren't double counted or missed.
- Ask for a corrected form if the broker's figures are plainly wrong. If it won't reissue, report the correct numbers and use the Form 8949 adjustment column to explain.
What Brokers Don't See
Form 1099-DA covers activity through custodial brokers. It usually does not capture:
- Swaps made from a self-custody wallet on a decentralized exchange
- Peer-to-peer payments and sales to friends
- Staking rewards earned directly on-chain
- Activity on offshore exchanges that don't serve US customers officially
- NFT trades on marketplaces that aren't brokers
All of this is still taxable. The IRS can see much of it through blockchain analytics, so the practical risk is a 1099-DA that tells only part of the story. Report every taxable transaction, whether or not a form exists.
Got an IRS Letter About Crypto? Here's What to Do
| Letter | What it usually means | First step |
|---|---|---|
| Letter 6173 | The IRS believes you had crypto and may not have reported it; a response is required | Respond by the deadline, with amended returns if needed |
| Letter 6174 / 6174-A | An educational reminder that you may have unreported crypto | Review past returns and fix anything missing; no reply required |
| CP2000 | Your return doesn't match what brokers reported | Agree and pay, or disagree in writing with records |
| Audit notice | An examination of one or more years | Collect records and consider professional representation |
Never ignore a letter. Missing the deadline turns a proposed change into an assessment. Check any letter against your IRS online account, because scammers send fake IRS letters and texts too. The real IRS doesn't demand payment in crypto or gift cards.
How IRS Crypto Enforcement Has Grown
| Year | Development |
|---|---|
| 2014 | Notice 2014-21 treats virtual currency as property |
| 2016–2017 | A John Doe summons forces Coinbase to hand over records on thousands of customers |
| 2019 | The IRS sends more than 10,000 crypto letters (6173, 6174, 6174-A); Revenue Ruling 2019-24 covers forks and airdrops |
| 2020 | A crypto question appears on the front page of Form 1040 |
| 2021 | The Infrastructure Act creates crypto broker reporting |
| 2023 | Revenue Ruling 2023-14 confirms staking rewards are income |
| 2025 | Brokers begin reporting gross proceeds on Form 1099-DA |
| 2026 | Basis reporting begins for coins bought on a platform from January 1, 2026 |
Each step has closed a gap. For individuals, reporting accurately now is simpler and cheaper than hoping a transaction goes unnoticed.
Example: How a 1099-DA Mismatch Plays Out
Maria bought 1 ETH on Kraken in 2023 for $1,800, moved it to Coinbase in 2025, and sold it on Coinbase in March 2026 for $3,200.
- What Coinbase reports: proceeds of $3,200 on her 2026 Form 1099-DA, with basis blank. The coin wasn't bought on Coinbase, so it's "noncovered."
- If Maria reports nothing: the IRS matching program sees $3,200 of proceeds missing from her return. About a year later she gets a CP2000 proposing tax on the full $3,200 plus interest, possibly with a penalty.
- If Maria reports only the 1099-DA figures: without a basis, she pays tax on $3,200 instead of $1,400.
- What she should do: list the sale on Form 8949 in the section for 1099-DA sales without reported basis, with proceeds of $3,200 and basis of $1,800 from her Kraken purchase record. Her long-term gain is $1,400. She keeps the Kraken export and the transfer record in case the IRS asks.
This is the most common crypto tax mistake of the 1099-DA era: coins moved between platforms arrive without a basis, and the owner has to supply it.
Self-Custody, Privacy, and What's Legal
Holding crypto in your own wallet is legal, and so is valuing privacy. What matters for tax purposes is reporting. A few points people get wrong:
- Self-custody isn't a tax shelter. Moving coins to a hardware wallet isn't taxable, but selling or swapping from that wallet is, even though no broker reports it.
- Privacy tools don't change the tax. Mixers and privacy coins don't make a gain non-taxable. Some mixing services have been sanctioned or prosecuted, and using them can create legal problems of its own.
- Peer-to-peer sales count. Selling Bitcoin to a friend for cash is a disposal like any other.
- Records protect you. For self-custody, your own wallet history is the only record. Export it regularly and label your addresses.
To keep keys safe while you do this, see our guides on hot vs cold wallets and seed phrases.
Frequently Asked Questions
What if I used a foreign exchange — does the IRS still know?
You must report worldwide income as a US citizen or resident. Foreign exchanges usually don't file US 1099s, but blockchain analytics can link transfers from US exchanges to them. Under current FinCEN guidance a crypto-only foreign account isn't reported on the FBAR, but a foreign account that also holds cash can be, and Form 8938 may apply to large holdings.
I only held crypto — I never sold. Do I need to report?
If you only bought with dollars and held, you have no taxable event and can answer "No" to the Form 1040 digital asset question. If you received any crypto through staking, an airdrop, or as payment, that is income you must report even if you never sold it.
I lost money on crypto. Should I still report?
Yes, and it usually works in your favor. Capital losses offset capital gains, and up to $3,000 of net losses a year can reduce other income, with the rest carried forward. Your broker may already have reported the sale proceeds, so leaving the sale off your return can trigger a notice.
When did Form 1099-DA start?
Form 1099-DA covers sales made on or after January 1, 2025, and the first forms were sent in early 2026. From 2026, brokers also report cost basis for coins bought on their platform from January 1, 2026.
Sources
Written by Asad Shaikh
Founder of StartCryptoNow. Nine years researching, trading, and teaching crypto; BSCS from Virtual University of Pakistan. Every tax figure is checked against IRS and state revenue publications. Our editorial policy.