A recent survey conducted by Awaken Tax among 1,000 American digital asset investors reveals a significant level of anxiety regarding potential tax penalties from the IRS. Over half of the respondents expressed concern about facing fines as new transparency regulations governing cryptocurrency exchanges come into effect. This shift marks a transition from self-disclosure to automatic reporting of transactions, which is being implemented through the introduction of Form 1099-DA, known as the “Digital Asset Proceeds From Broker Transactions.”
The regulations, aimed at curbing crypto tax evasion, require brokers—including major exchanges like Coinbase—to report all crypto sales and exchanges that occurred in 2025 to the IRS. The initiative is designed to provide tax authorities with a comprehensive view of investors’ gains and losses by making customer data available from exchanges for the first time. This data sharing allows the IRS to cross-reference what brokers report with taxpayers’ filings, potentially reducing discrepancies.
Andrew Duca, the founder of Awaken Tax, critiqued the new rules as a “blunt instrument,” arguing that they were crafted without a solid understanding of the complexities within the cryptocurrency space. Duca pointed out that treating digital assets similarly to stocks fails to account for the unique behaviors of crypto users, who frequently move assets among various wallets and engage with decentralized finance (DeFi) protocols. These activities often involve sophisticated trading strategies that complicate accurate tax reporting.
A key limitation of the reporting system is that companies like Coinbase can only provide information on the proceeds from cryptocurrency sales, without knowing the tax basis, which includes the original purchase price and any associated acquisition costs. This gap can lead to inaccurate reporting to the IRS, as Duca explained. For instance, if an investor sends Bitcoin from a cold storage wallet to Coinbase for sale, the exchange lacks insight into what the investor originally paid for that Bitcoin, leading to potentially erroneous tax forms being submitted.
Coinbase acknowledges the confusion these changes may generate. The responsibility now falls on cryptocurrency holders to “patch” any missing data related to their acquisition costs and accurate tax basis through the IRS’s updated Form 8949, a process that adds another layer of complexity for investors.
Duca also highlighted the concerning trend of low compliance rates in crypto tax reporting, noting that less than 20% of crypto holders accurately report their tax obligations. He expressed skepticism about the effectiveness of the new regulations, stating they were hastily implemented as a means to drastically increase compliance from 20% to 80% within a year. “It’s really not been thought out well and is kind of horrible for crypto users,” Duca remarked. “But it’s what they could do the quickest and the easiest.”
The impending rollout of these new tax reporting rules will likely elicit further discussions among investors, tax professionals, and lawmakers as they navigate the evolving landscape of cryptocurrency taxation.
