Form 1099-DA Explained: How IRS Crypto Reporting Works for Digital Assets
Quick Answer
Form 1099-DA requires custodial brokers like Coinbase and Kraken to report gross proceeds from digital asset sales. Cost basis reporting is phased in and applies only to "covered" assets acquired after the effective date and held continuously in the same account. Taxpayers must reconcile their own acquisition records to calculate accurate gains on Form 8949 and Schedule D. If you file using only the data on your 1099-DA without supplementing cost basis, you may dramatically overpay your taxes.
Key Points
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Form 1099-DA applies to custodial crypto brokers under IRC §6045—not DeFi protocols (after the Congressional Review Act repeal).
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Gross proceeds reporting applies to all sales through custodial brokers.
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Cost basis reporting applies only to "covered digital assets"—those acquired after the effective date and held continuously in the same account.
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Missing basis on Form 1099-DA does not mean tax is owed on full proceeds—you calculate your own basis.
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IRS data matching increases the risk of CP2000 notices if reporting is inconsistent.
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The compliance landscape is bifurcated: centralized activity is fully surveilled; DeFi relies entirely on self-reporting.
What Is Form 1099-DA?
Form 1099-DA ("Digital Assets") is the IRS information return created under Treasury Decision T.D. 10000 to expand third-party reporting for cryptocurrency transactions. It functions similarly to Form 1099-B for securities but is tailored to digital asset mechanics.
The form's purpose is to improve IRS visibility into digital asset transactions, increase reporting consistency across the industry, and reduce underreporting through automated data matching.
Form 1099-DA does not change how crypto is taxed—it changes how transactions are reported to the IRS.
Who Must Issue Form 1099-DA?
Form 1099-DA applies primarily to custodial brokers:
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Centralized cryptocurrency exchanges (Coinbase, Kraken, Gemini, etc.)
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Platforms that hold digital assets on behalf of users
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Certain payment processors handling digital asset transactions
Brokers must also collect and report the taxpayer identification number (TIN) of account holders.
DeFi Broker Rule Repeal
The Congressional Review Act repealed the DeFi broker reporting expansion (H.J.Res.25). This was the first cryptocurrency bill and first tax-related CRA disapproval resolution ever signed into law.
The compliance bifurcation:
Critical point: A lack of broker reporting does not eliminate your tax obligations on DeFi activity.
The Phased Implementation: Proceeds vs. Basis
The IRS recognized that tracking the original cost (basis) of crypto bought years ago and transferred between wallets was a technological challenge for brokers. As a result, implementation was phased:
This phased approach under T.D. 10000 is intentional—it gives brokers time to implement basis tracking systems.
⚠️ The Trap for the Unwary
This phased implementation creates a dangerous false sense of security:
Scenario: You receive a Form 1099-DA. It shows you sold 1 BTC for $95,000. The "cost basis" box is blank or marked "non-covered."
The trap: If you simply enter this form into your tax software without manually calculating and supplementing the cost basis, you will be taxed on the full $95,000 as pure profit.
The reality: You bought that Bitcoin for $40,000. Your actual taxable gain is $55,000—not $95,000. But without your records, neither the IRS nor your tax software knows this.
The fix: You must maintain rigorous self-maintained records (via software like CoinTracker, Koinly, or CoinLedger) to substantiate basis. Proactively calculate and report your basis to prove your actual profit.
Covered vs. Noncovered Digital Assets
This distinction is critical for understanding what basis information brokers will report.
Covered Digital Assets
Generally includes assets:
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Acquired on or after the basis reporting effective date
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Held continuously within the same broker account
For covered assets, brokers must report both proceeds AND cost basis.
Noncovered Digital Assets
Includes:
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Assets acquired before the basis reporting effective date
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Assets transferred into the broker account from external wallets
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Assets where the broker lacks acquisition information
For noncovered assets, brokers report proceeds only. You must calculate and report your own cost basis.
Why This Triggers CP2000 Notices
When your Form 1099-DA shows $50,000 in gross proceeds but you report only $5,000 in capital gains (because your cost basis was $45,000), the IRS automated matching system flags this as a $45,000 discrepancy.
Without your cost basis documentation, the IRS may assume your basis is zero and propose tax on the full $50,000 proceeds. This is why CP2000 notices for crypto often show dramatically inflated proposed tax.
The solution: Respond with Form 8949 showing your correct cost basis and supporting acquisition records.
Rev. Proc. 2024-28: The Transition Safe Harbor
Revenue Procedure 2024-28 provides a one-time safe harbor for allocating pre-transition unused basis across wallets and accounts.
Two allocation methods available:
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Specific Unit Allocation: Assign basis to specific identified units in specific wallets
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Global Allocation: Distribute basis proportionally across all wallets holding the same asset
Important limitations:
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Global allocation methodology must have been documented before the transition deadline
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Allocations are irrevocable once made
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Must be finalized by the earlier of: first disposition of that asset, or your return due date (with extensions)
Notice 2024-57: Transaction Reporting Relief
Notice 2024-57 provides temporary broker reporting relief for certain transaction types:
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Wrapping and unwrapping transactions
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Liquidity provider transactions
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Staking transactions
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Lending transactions
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Short sales
Important distinction: This is reporting relief for brokers—not tax relief for taxpayers. You must still report these transactions correctly on your return.
Practical Steps for Taxpayers
If you expect or receive a Form 1099-DA with missing cost basis:
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Do not assume the IRS calculation is correct—missing basis ≠ zero basis
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Gather acquisition records: Exchange purchase history, wallet transaction logs, bank/credit card statements showing purchases
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Identify which transactions are reported: Match 1099-DA entries to your records
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Calculate your actual cost basis: Original purchase price plus transaction fees
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Reconcile proceeds to your own data: Verify the gross proceeds amount is accurate
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Prepare Form 8949: Report each transaction with your calculated basis
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Preserve documentation: Keep records for at least 7 years
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Respond promptly to any CP2000: Include basis documentation with your response
When Professional Review Is Appropriate
Professional review is commonly appropriate if:
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You used multiple exchanges or wallets
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Assets were transferred into custodial platforms from self-custody
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You receive a Form 1099-DA showing large proceeds
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You anticipate IRS data mismatches
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You received a CP2000 notice
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You plan significant dispositions
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Records span multiple years with incomplete documentation
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You have significant DeFi activity without third-party reporting
Schedule a Consultation
Form 1099-DA increases visibility, not certainty. Reconciling broker reporting with your own records is now essential. Schedule a consultation to determine whether your crypto reporting is defensible before filing.
Frequently Asked Questions
Is Form 1099-DA replacing Form 1099-B?
No. Form 1099-DA is a separate form specific to digital assets. Form 1099-B continues to apply to traditional securities.
Will all crypto transactions be reported on 1099-DA?
No. Only transactions handled by custodial brokers are reported. DeFi transactions, self-custody transfers, and peer-to-peer sales are not reported—but remain taxable.
Does Form 1099-DA change how crypto is taxed?
No. It changes reporting, not tax law. Crypto remains taxed as property with capital gains treatment.
What if my 1099-DA shows proceeds but no cost basis?
This is expected for many assets. You report the correct amounts on Form 8949 using your own acquisition records. Missing basis on the 1099-DA does not mean you owe tax on full proceeds.
Why doesn't my 1099-DA show cost basis?
Brokers are only required to report basis for "covered" assets—those acquired after the effective date and held continuously in the same account. For other assets, you must calculate your own basis.
Will the IRS assume my basis is zero?
Only if you fail to substantiate it. When responding to a CP2000 or filing your return, provide documentation of your acquisition cost.
What is a covered digital asset?
A covered digital asset is one acquired on or after the basis reporting effective date and held continuously within the same broker account since acquisition. For covered assets, brokers must report both proceeds and cost basis.
The Bigger Picture
Form 1099-DA represents a structural shift toward institutional-style reporting for cryptocurrency. The compliance advantage is not avoiding reporting—it's being able to explain and document it.
Taxpayers who can substantiate their cost basis with records remain protected. Those who cannot may face inflated CP2000 assessments that require significant time and cost to unwind.
Next Steps
Receiving a Form 1099-DA showing gross proceeds without cost basis does not mean your taxes are automatically higher—but it does mean your reporting must be precise and defensible.
If your crypto history spans multiple years, wallets, or platforms, reviewing your cost basis tracking approach before filing can prevent unnecessary IRS correspondence.
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.