Will I owe tax on the full proceeds amount?

No—if you can substantiate your cost basis. You owe tax only on your actual gain (proceeds minus cost basis). Gather your acquisition records, calculate your basis, and report the correct gain on Form 8949. Missing basis on the 1099-DA does not mean zero basis.

How do I respond to a CP2000 notice for crypto?

Respond within 30 days with: Form 8949 showing your calculated gains with correct cost basis, supporting acquisition documentation, and a brief explanation letter. Many CP2000 proposed amounts are reduced to zero with proper cost basis documentation.

Crypto Cost Basis Guide: What to Do When Your 1099-DA Shows No Basis

Q: Why doesn't my 1099-DA show cost basis?

Brokers are only required to report cost basis for 'covered' digital assets—those acquired after the basis reporting effective date and held continuously in the same account. For other assets, brokers report proceeds only. This is by regulatory design—not an error.

Quick Answer

A Form 1099-DA showing large gross proceeds without cost basis is common—brokers report sales but aren't always required to report acquisition costs. Calculate your gain using your own records and report on Form 8949. Missing basis ≠ tax on 100% of proceeds. Substantiate your acquisition costs to avoid inflated CP2000 notices.

Key Points

Missing cost basis on Form 1099-DA is often by design—not an error or oversight.
Brokers are required to report gross proceeds but may not be required to report cost basis for all assets.
Cost basis reporting applies only to "covered" digital assets acquired after the effective date.
The IRS may calculate your tax assuming zero basis if you don't substantiate your records.
CP2000 notices commonly arise from unreconciled 1099-DA data showing large proceeds.
Proper documentation can materially reduce or eliminate proposed tax.
Specific Identification can dramatically reduce taxes compared to FIFO—but requires proper documentation.

Why Your 1099-DA Shows No Cost Basis

Under Treasury Decision T.D. 10000, the IRS phased Form 1099-DA implementation deliberately:

Brokers must report gross proceeds for all sales
Brokers are only required to report cost basis for "covered digital assets"
"Covered" means assets acquired after the basis reporting effective date AND held continuously in the same account

This is regulatory design, not a broker mistake. Most Form 1099-DAs for older assets will show proceeds without basis information.

What "Covered Digital Assets" Means

Brokers must report cost basis for covered assets only:

Assets acquired on or after the basis reporting effective date
Assets held continuously within the same broker account since acquisition

Noncovered assets include anything acquired before the effective date or transferred into the broker from an external wallet. For these, you must always calculate your own basis.

The Zero-Basis Problem

Here's what happens when you don't address missing basis:

Your Form 1099-DA shows $100,000 in gross proceeds
You report $15,000 in capital gains (your actual gain based on $85,000 cost basis)
The IRS automated system sees an $85,000 discrepancy
Without your basis records, the IRS assumes $0 basis
You receive a CP2000 notice proposing tax on $100,000 of "unreported" gains

This happens frequently with crypto. The proposed tax is often 5-10x higher than what's actually owed.

FIFO vs. Specific Identification: A Critical Choice

One of the most powerful tools in a crypto investor's arsenal is "Specific Identification." This allows you to choose which coin you are selling, optimizing for tax outcomes.

Comparison Example

Scenario: You bought 1 BTC years ago for $3,000 and 1 BTC recently for $90,000. You want to sell 1 BTC today at $92,000.

The difference in this example: $87,000 of taxable income—potentially $20,000+ in federal tax alone.

Specific Identification Requirements

To use Specific Identification:

You must identify the specific units being sold at the time of sale
You must document which lot you're selling
You must maintain records proving the identification
Depending on current regulations, you may need to notify your broker of the selection at the time of sale

Check current IRS guidance (including any applicable Notices) for whether you can document specific identification in your own records or must communicate to your broker. Rules may change over time.

Immediate Action Steps

If your Form 1099-DA shows gross proceeds without cost basis, take these steps:

Step 1: Don't Panic—Don't Assume the IRS Is Correct

Missing basis does not mean you owe tax on full proceeds. The IRS system generates proposed amounts based on incomplete data. You have the right to substantiate your actual basis.

Step 2: Gather Your Acquisition Records

Collect documentation proving what you paid for each asset:

Exchange purchase history: Download transaction CSVs from every exchange you've used
Wallet transaction logs: Export complete history from hardware and software wallets
Bank/credit card statements: Showing payments to exchanges
Email confirmations: Purchase receipts from exchanges
Tax software exports: From crypto tax tools like Awaken or Koinly.

Step 3: Match 1099-DA Transactions to Your Records

For each transaction reported on the 1099-DA:

Identify the specific sale or disposition
Find the corresponding acquisition (when you bought it)
Calculate your cost basis: purchase price + transaction fees
Determine your actual gain or loss

Step 4: Prepare Form 8949

Report your transactions on Form 8949 with columns for:

Description of property (e.g., "1.5 BTC")
Date acquired
Date sold
Proceeds (from 1099-DA)
Cost basis (from your records)
Gain or loss

Transfer totals to Schedule D of your Form 1040.

Step 5: Preserve Documentation

Keep all supporting records for at least 7 years:

Original exchange and wallet exports
Your calculations and methodology notes
Any correspondence with exchanges
Screenshots of purchase confirmations

How to Respond to a CP2000 Notice

A CP2000 notice is an automated underreporter notice—not an audit. The IRS is proposing additional tax based on a discrepancy between your return and broker-reported data.

Response deadline: 30 days from notice date (60 days if foreign address)

How to respond:

Review the proposed changes carefully
Prepare Form 8949 showing your correct cost basis
Include supporting acquisition documentation
Write a brief explanation letter
Mail your response to the address on the notice

Many CP2000 proposed amounts are reduced to zero with proper cost basis documentation.

Using Rev. Proc. 2024-28 Safe Harbor

If you had crypto across multiple wallets before the transition date, Revenue Procedure 2024-28 provided a one-time safe harbor to allocate your unused basis across wallets.

If you documented your allocation before the deadline:

Use that allocated basis for subsequent dispositions
Applicable IRS Notices may allow you to substantiate basis from your own records

If you missed the documentation deadline:

You must use specific identification for each unit sold
Match each disposal to a specific acquisition with documentation
FIFO (first-in, first-out) applies as the default if you cannot specifically identify lots

Common Reasons Proceeds Look Inflated

Sometimes the 1099-DA itself contains errors or misclassifications:

Transfers misread as sales: Moving crypto between your own wallets shouldn't be reported as proceeds
Duplicates across brokers: Same transaction reported by multiple platforms
Stablecoin conversions: USDC ↔ USD may show as "proceeds" even though there's no economic gain
Partial fills: Large orders filled in multiple transactions may be double-counted

If you believe the 1099-DA is incorrect, contact the issuing broker to request a corrected form.

When Professional Help Is Needed

Consider professional assistance if:

You received a CP2000 proposing significant tax ($5,000+)
Your Form 1099-DA shows very large proceeds ($100,000+)
Assets moved across multiple wallets and exchanges over several years
You have incomplete or missing acquisition records
You're unsure how to calculate or document your cost basis
The response deadline is approaching and you're not prepared
You need to optimize lot selection using Specific Identification

Schedule a Consultation

If your Form 1099-DA shows gross proceeds but no cost basis, early reconciliation can prevent inflated tax bills and IRS correspondence. Schedule a consultation to determine whether your basis can be substantiated before issues escalate.

Frequently Asked Questions

Why doesn't my 1099-DA show cost basis?

Brokers are only required to report cost basis for "covered" assets—those acquired after the basis reporting effective date and held continuously in the same account. This is by design—not an error.

Will the IRS assume my basis is zero?

Only if you fail to substantiate it. When filing your return or responding to a CP2000, provide documentation of your acquisition cost.

Can I calculate my own cost basis?

Yes—and you must. Taxpayers are always responsible for determining and documenting their cost basis, regardless of what appears on broker forms.

Is this an exchange error?

No. Missing basis on Form 1099-DA typically reflects regulatory design, not a broker mistake.

What if I can't find my original purchase records?

Reconstruct what you can using bank statements, exchange account history, email confirmations, and blockchain explorers. Document your methodology. Incomplete records with reasonable estimates are better than claiming zero basis.

Do I need to amend prior years?

Not necessarily. If your prior returns were correct, focus on documenting your basis for current transactions. Only amend if you discover actual errors in prior filings.

What is the difference between FIFO and Specific Identification?

FIFO (First-In, First-Out) sells your oldest coins first—often triggering larger gains on older, lower-basis purchases. Specific Identification lets you choose which exact coins to sell, potentially minimizing taxes by selling higher-basis lots. Check current IRS guidance for documentation requirements.

The Bigger Picture

Form 1099-DA marks a shift from self-reported crypto compliance to institutional-style data matching. The risk is not trading—it's documentation failure.

Taxpayers who can substantiate basis remain protected. Those who cannot may face inflated assessments that require significant time and cost to unwind.

Next Steps

If your 1099-DA shows proceeds without cost basis, this is not a crisis—but it is a compliance moment. Acting early gives you control over the narrative and the numbers.

Start gathering your acquisition records now, before you file your return. If you anticipate issues or need help with cost basis reconstruction, professional review before filing is far less expensive than responding to an IRS notice after the fact.

About the Author

Greg Monaco, CPA is a New Jersey-licensed CPA and the founder of Monaco CPA. He focuses on cryptocurrency tax compliance, cost basis reconstruction, and IRS correspondence matters for clients nationwide.