RESOLVING THE LEDGER
This is one outlet's own report from CNBC — the article as it was filed. Other outlets are covering the same event; open the full story to compare every source side by side.
See the full story · 2 sourcesMany crypto investors haven't been paying their taxes correctly — and the Internal Revenue Service may soon know about it.
Determining tax on transactions involving digital assets is a notoriously difficult exercise, often much more so than for traditional financial assets like stocks and bonds, according to accountants.
"[Data] suggests a significant portion of taxpayers may be out of compliance," Erin Collins, the IRS' National Taxpayer Advocate, said of cryptocurrency owners in a report to Congress in June.
However, this is often unintentional on the part of taxpayers, "due to confusion or lack of guidance, not willful neglect," Collins wrote.
Yet, crypto transactions are now increasingly visible to the IRS, experts said.
That's due to a new requirement for digital asset brokers to issue a tax form — Form 1099-DA, Digital Asset Proceeds From Broker Transactions — to investors that outlines gross proceeds from various transactions.
That requirement took effect during the 2025 tax year, for transactions occurring on or after Jan. 1, 2025.
That visibility raises the odds "that the IRS will identify discrepancies," potentially exposing investors to enforcement actions, Collins wrote.
And, unfortunately for taxpayers, "the IRS isn't going to accept 'It was difficult, so I didn't do it'" as an appropriate response, said Laura Walter, a certified public accountant and founder of Crypto Tax Girl, a firm that specializes in digital asset taxation.
Much of the tax-reporting infrastructure for traditional assets like stocks and bonds doesn't yet exist for crypto, experts said.
That makes it difficult for investors to determine basic — yet pertinent — information such as the initial purchase price, also known as the "cost basis," and the date of purchase.
Cost basis determines one's investment profit, known as a capital gain. The holding period determines whether an investor pays short- or long-term capital gains tax.
Such information is "everything" when it comes to taxing financial assets, said Troy Lewis, a certified public accountant and professor of accounting and tax at Brigham Young University.
The current crypto tax reporting landscape isn't unlike that of stocks and other securities roughly a decade or more ago, Lewis said.
Starting in 2011, the IRS required brokers and custodians to report cost-basis and holding-period information for stock and mutual fund investors on Form 1099-B. The rules were phased in over several years to encompass other asset classes.
Investors can generally take the amount reported on their 1099-B and plug it into their tax return relatively easily, experts said.
The crypto tax ecosystem is starting to move in that direction, but it's not there yet, Lewis said. That puts the responsibility largely on the taxpayer's shoulders, he said.
Crypto investors who engage in relatively simple transactions — for example, making one bitcoin purchase, holding it on a single platform and selling it for a profit down the road — shouldn't have a difficult time determining the tax they owe on that transaction, Lewis said.
However, transactions can "get complicated very quickly," he said.
"Transactions involving sales, exchanges, staking, mining, airdrops, and transfers often require difficult determinations related to cost basis, income recognition, and character," Collins, the National Taxpayer Advocate, wrote in her recent report to Congress.
For example, crypto investors generally buy it on one platform like Coinbase , but then move it off the platform to a personal digital wallet to which they alone have access, Walter said. Such behavior is often in response to crypto companies like BlockFi , Celsius and FTX filing for bankruptcy and posing investors with the possibility of losing money if that happens, Walter said.
Investors typically have multiple digital wallets on multiple platforms — since platforms may support certain tokens but not others — and then transfer between them, Walter said. Many people buy in and out of certain crypto frequently, perhaps selling out of bitcoin to buy ether or vice versa, trying to take advantage of volatile price moves, she said.
Ultimately, some clients have to account for hundreds of taxable transactions in a given tax year, Walter said.
"It becomes messy really quickly," she said.
Lewis said he thinks so-called DeFi lending is the most challenging and "troubling" aspect of crypto taxation. This involves borrowing and lending crypto without relying on a financial intermediary, such as a bank.
There can be many "small executing contracts" to facilitate that lending, without an intermediary to keep tax records, Lewis said.
Despite the complexity, taxpayers still need to comply with IRS rules or risk financial penalties, experts said.
Lewis said he recommends that crypto investors start preserving transaction histories now. They shouldn't assume that an exchange will retain that information indefinitely, he said.
They should track every wallet, exchange, transfer, fee and transaction in one place, he said. Investors who engage in DeFi activity and crypto-to-crypto exchanges should record the respective dollar value and transaction time, he said.
There is also crypto tax software that can help investors sort through the tax morass, Walter said. Among the best ones are CoinTracking, Koinly and Summ, she said.
Investors should choose one that supports all the digital wallets and exchanges they use, since not all of them do, Walter said.
Ultimately, doing something to track crypto transactions will be better than doing nothing, she said.
"It's overwhelming, but try not to be fearful and avoidant," Walter said. "You're not the only person in this boat. There are lots of people."
Got a confidential news tip? We want to hear from you.
Get this delivered to your inbox, and more info about our products and services.
Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial ...
AIPROPX is an independent multi-source news index — we track, compare, and connect coverage from across the web into one place you won't find anywhere else.