Crypto Tax Regulation Delays Explained: How Postponed Rules…

KEY TAKEAWAYS

1. The IRS has delayed full crypto cost basis reporting requirements until 2026, while gross proceeds reporting for all digital asset broker transactions started in early 2025 under existing federal law.
2. In August 2023, Senator Elizabeth Warren and three colleagues cited studies estimating that the crypto tax gap could reach at least $50 billion annually, urging the Treasury Department and the IRS to strengthen crypto tax enforcement.
3. Form 1099-DA is the new dedicated federal tax reporting form designed for cryptocurrency transactions, requiring all registered digital asset exchanges to report detailed user transaction data directly to the IRS.
4. The Infrastructure Investment and Jobs Act of 2021 expanded the legal broker definition to include all crypto exchanges and platforms, setting the framework for comprehensive digital asset tax reporting requirements.
5. Major exchanges like Coinbase and Kraken have implemented 1099-DA reporting systems and issued forms covering the 2025 tax year.

The federal government has struggled to tax cryptocurrency transactions for years. Billions of dollars in potential tax revenue remain uncollected each year. New reporting rules aim to close this growing gap in compliance.

The Internal Revenue Service (IRS) finalized regulations under T.D. 10000 in July 2024 that established a phased approach to digital asset broker reporting.

Gross proceeds reporting applies to digital asset sales from January 1, 2025, while cost basis reporting applies to covered digital assets acquired on or after January 1, 2026. This transition gave brokers additional time to implement the required reporting systems.

Form 1099-DA represents the government's primary tool for tracking crypto trades. Exchanges like Coinbase and Kraken are already preparing for full compliance. Traders need to understand how these rules will affect their obligations.

Why the IRS Delayed Crypto Tax Reporting Rules

The Infrastructure Investment and Jobs Act of 2021 changed crypto taxation. Congress expanded the definition of broker to include cryptocurrency exchange platforms. This law required exchanges to report user transactions to federal authorities.

The phased reporting requirements gave exchanges time to implement the technical systems needed to report digital asset transactions. Brokers must report gross proceeds for covered sales beginning in 2025, while cost basis reporting applies to covered digital assets acquired from January 1, 2026. The transition required platforms to adapt their reporting processes to the new federal standards.

IRS Notice 2025-7 provided temporary relief to taxpayers for determining which cryptocurrency units they sold during 2025 from assets held with a custodial broker. When brokers lacked systems to support specific identification, taxpayers could use their own books and records, including a standing order, to identify the units sold rather than automatically relying on the first-in, first-out (FIFO) method.

The notice did not extend brokers' reporting deadlines or delay the cost basis reporting requirements established under the final regulations.

Gross proceeds reporting started in 2025 as the first compliance phase. Full cost basis reporting was pushed back to the 2026 tax year. This phased timeline reflects the complexity of tracking crypto transaction histories.The delay also addressed concerns about data accuracy in early reports. Incorrect cost basis information could lead to widespread errors on returns. The IRS preferred a gradual approach over rushing flawed data collection.Industry groups lobbied heavily for extended deadlines on compliance requirements overall. Their argument centered on the technical difficulty of retroactive transaction tracking. The IRS ultimately agreed that more preparation time would improve accuracy.

First in, first out (FIFO) can apply as the default method for determining which cryptocurrency units are sold when a taxpayer does not adequately identify the units.

For 2025, IRS Notice 2025-7 allowed taxpayers with assets held by custodial brokers to identify the units sold using their own books and records, including a standing order, even when their brokers lacked specific-identification tools. Taxpayers should maintain adequate records to support their chosen identification method.

These delays have significant implications for both traders and government revenue. Every year without full reporting allows billions in taxes to go uncollected. The regulatory updates timeline remains a closely watched issue in crypto markets.

How the Tax Gap Puts Billions in Revenue at Risk

In August 2023, Senator Elizabeth Warren and three colleagues cited outside studies estimating that the crypto tax gap was at least $50 billion annually. In a letter to the Treasury Department and the IRS, they called for stronger enforcement measures to address unreported cryptocurrency income.

The crypto tax gap represents the difference between taxes owed and taxes actually collected. In August 2023, Senator Elizabeth Warren and Senators Bob Casey, Richard Blumenthal, and Bernie Sanders cited outside studies estimating that the gap could reach at least $50 billion annually. They urged the Treasury Department and the IRS to strengthen enforcement against crypto tax evasion.

Traditional financial institutions have reported customer transactions to the IRS for decades. Banks and brokerages file 1099 forms that help ensure proper tax compliance. Crypto exchanges operated without similar requirements until the recent legislative changes.The lack of reporting created opportunities for accidental and intentional evasion. Many traders simply did not know they owed taxes on crypto gains. Others deliberately avoided reporting profits from their digital asset trading activity.Federal budget projections now account for increased revenue from crypto tax enforcement. The IRS expects billions in additional collections once full reporting takes effect. These projected revenues are factored into government spending and deficit reduction plans.Each year of delayed implementation means another year of lost tax revenue. The government must balance thorough preparation against the cost of postponed collection. Finding this balance has proven challenging for regulators and lawmakers working together.International cooperation on crypto taxation adds another layer of complexity to enforcement. Several countries have implemented their own digital asset reporting frameworks since 2024. The United States risks falling behind its global peers on tax compliance.Closing the crypto tax gap requires effective policy and strong technical systems. The IRS has introduced digital asset reporting requirements intended to improve tax compliance. However, claims that the agency has increased funding for digital asset enforcement in recent years are not substantiated by the available evidence.The effect of the new reporting rules on tax collections will depend on implementation, enforcement capacity, and taxpayer compliance.

What Form 1099-DA Means for Crypto Traders

Form 1099-DA is the first tax form designed specifically for crypto. It requires exchanges to report user transaction data directly to the IRS. This form brings cryptocurrency reporting in line with traditional financial asset standards.The form captures gross proceeds from every crypto sale or exchange transaction. Starting in 2026, it will also include cost basis information for traders. This data allows the IRS to verify the accuracy of individual tax returns.

Coinbase, Kraken, and other major exchanges have implemented systems for 1099-DA reporting and begun issuing forms covering the 2025 tax year. Coinbase issued its 2025 forms by March 17, 2026, reporting gross proceeds under the initial federal requirements. Smaller exchanges must also adapt their reporting processes to meet the applicable federal requirements.

Traders should expect to receive 1099-DA forms from their exchange platforms. The information on these forms must match what traders report on returns. Any discrepancies between exchange reports and filed returns could trigger an audit.The FIFO method became the default for calculating crypto gains and losses. Under first in, first out, the earliest purchased tokens are sold first. Traders who prefer specific identification must actively elect that method before filing.Record keeping becomes even more critical under the new reporting framework rules. Traders should maintain detailed logs of every purchase, sale, and transfer transaction. Accurate records help ensure reported gains match the data exchanges send out.Tax software providers have started integrating 1099-DA data into their existing platforms. These tools help traders reconcile exchange reports with their own transaction records. Using dedicated crypto tax software can reduce errors and simplify the filing.The transition to full 1099-DA reporting marks a significant shift in compliance. Crypto traders can no longer rely on self-reporting without independent verification checks. The era of minimal oversight on digital asset taxation is ending now.

Regulatory Outlook for Crypto Taxation in 2026 and Beyond

The year 2026 marks the start of full cost basis reporting requirements. Exchanges must provide complete transaction history data on every 1099-DA form filed. This milestone represents the final phase of the current regulatory implementation plan.Congress continues to debate additional legislation related to digital asset tax policy. Some lawmakers want stricter reporting requirements for decentralized finance protocol transactions. Others argue that excessive regulation could push crypto innovation to other countries.

The IRS's digital asset enforcement capacity has faced staffing changes. In May 2025, Seth Wilks and Raj Mukherjee, two leaders of the agency's digital-assets office, left under the deferred-resignation programme, and Trish Turner took over. These departures occurred amid broader IRS workforce reductions, making claims of an expanding crypto enforcement division difficult to substantiate.

Global tax authorities are developing coordinated approaches to digital asset reporting standards. Cross-border cooperation could help prevent traders from avoiding taxes through foreign exchanges. International frameworks for crypto taxation continue to evolve alongside the domestic rules.Stablecoin transactions may receive separate regulatory treatment under proposed new tax rules. Lawmakers are considering different reporting thresholds for stablecoins compared to other tokens. This distinction could affect how exchanges categorize and report various digital assets.Privacy concerns remain a significant point of debate in crypto tax discussions. Some traders argue that detailed transaction reporting violates their financial privacy rights. Regulators counter that tax compliance requires the same transparency as traditional finance.The coming years will determine how effectively the government can tax crypto. Success depends on clear rules, adequate technology, and consistent enforcement across platforms. Traders should prepare now by organizing records and understanding their tax obligations.

FAQs

What is Form 1099-DA? Form 1099-DA is the new IRS tax form designed for reporting cryptocurrency transactions. Exchanges must use it to report users' digital asset sales and trades to federal tax authorities annually.

Why did the IRS phase in crypto tax reporting? Under final regulations issued in July 2024, gross proceeds reporting for covered digital asset sales began on January 1, 2025, while cost basis reporting applies to covered digital assets acquired from January 1, 2026. The phased implementation gave brokers time to adapt their systems.

What is the crypto tax gap? The crypto tax gap is the difference between cryptocurrency taxes owed and taxes actually collected. In August 2023, Senator Elizabeth Warren and three colleagues cited outside studies estimating that the annual gap was at least $50 billion.What is FIFO in crypto taxation? FIFO stands for first in, first out. Under this method, the earliest acquired cryptocurrency units are treated as sold first when determining gains or losses, unless the taxpayer adequately identifies different units.How does IRS Notice 2025-7 affect crypto traders? IRS Notice 2025-7 provided temporary relief for taxpayers identifying cryptocurrency units sold from assets held with custodial brokers during 2025. It allowed taxpayers to use their own books and records, including a standing order, to identify the units sold when brokers lacked specific-identification tools. The notice did not extend brokers' reporting deadlines or postpone cost basis reporting requirements.

Which exchanges are reporting transactions on Form 1099-DA? Major exchanges, including Coinbase and Kraken, have implemented systems for Form 1099-DA reporting. Exchanges have begun issuing forms for the 2025 tax year, with Coinbase issuing its forms by March 17, 2026.

When will full crypto tax reporting begin? Gross proceeds reporting for covered digital asset sales began on January 1, 2025. Cost basis reporting applies to covered digital assets acquired on or after January 1, 2026.

References

1. IRS Notice 2025-7
2. Infrastructure Investment and Jobs Act
3. Senator Warren Letter on Crypto Tax Gap
4. IRS Digital Assets Information