Form 1099-DA Requirements in 2026: What Crypto Exchanges Must Report and How Taxpayers Should Prepare

The IRS’s long-anticipated crypto tax reporting regime is now a compliance reality. Form 1099-DA — the dedicated information return for digital asset transactions — represents the most significant expansion of third-party tax reporting since FATCA. Centralized exchanges filed their first round of 1099-DAs covering tax year 2025 gross proceeds earlier this year, and the framework’s second phase — mandatory cost basis reporting — applies to all digital asset dispositions occurring on or after January 1, 2026.

Whether you operate a crypto exchange, advise digital asset clients, or hold cryptocurrency on a centralized platform, understanding the crypto 1099-DA requirements is no longer optional. This guide covers who must file, what must be reported at each phase, the new wallet-by-wallet cost basis rules, backup withholding obligations, and the significant gaps that remain — particularly for DeFi.

Key Takeaways

• Gross proceeds reporting is live. Centralized exchanges and hosted wallet providers filed Form 1099-DA for tax year 2025 transactions, covering gross proceeds, transaction dates, and asset identification.
• Cost basis reporting begins for 2026 transactions. For digital asset sales occurring on or after January 1, 2026, brokers must also report adjusted cost basis using a mandatory wallet-by-wallet (account-by-account) allocation method, with FIFO as the default lot identification method.
• No de minimis threshold exists. Unlike Form 1099-K (which has a $600 reporting threshold under current rules), Form 1099-DA has no minimum dollar threshold — every reportable disposition triggers a filing obligation.
• The DeFi broker rule was repealed via the CRA. Congress used the Congressional Review Act to repeal the IRS’s final rule extending broker reporting to DeFi front-ends. Decentralized platforms currently have no 1099-DA filing obligation, and the CRA procedurally bars a substantially similar rule absent new legislation.
• Transferred-in assets default to $0 basis. Crypto moved onto an exchange from an external wallet receives a $0 cost basis unless the taxpayer provides a transfer statement — creating potential for significantly overstated gains on the 1099-DA.

What Is Form 1099-DA?

Form 1099-DA (“Digital Asset Proceeds from Broker Transactions”) is the IRS’s purpose-built information return for cryptocurrency and digital asset dispositions. It replaces the inconsistent prior practice where some exchanges voluntarily issued Forms 1099-K, 1099-B, or 1099-MISC for crypto activity — forms not designed for digital assets and often confusing to both taxpayers and the IRS.

The statutory authority for Form 1099-DA traces to the Infrastructure Investment and Jobs Act of 2021 (Pub. L. 117-58, § 80603), which amended 26 U.S.C. § 6045 to explicitly include “digital assets” within the definition of covered securities subject to broker reporting. The IRS published implementing regulations in Treasury Decision 9989 (89 FR 44547, July 2024), establishing the detailed requirements for centralized brokers.

Who Qualifies as a “Broker” Under the Final Rules?

Under TD 9989, a “broker” for digital asset reporting purposes includes any person who, in the ordinary course of a trade or business, effectuates sales of digital assets on behalf of others. The regulations identify several categories:

• Centralized exchanges — Coinbase, Kraken, Gemini, and similar platforms
• Hosted wallet providers — custodial services that facilitate dispositions
• Digital asset kiosks — Bitcoin ATMs and similar machines
• Certain payment processors — entities that settle merchant transactions in digital assets
• Real estate reporting persons — who receive digital assets as consideration for real property, subject to the separate requirements under 26 U.S.C. § 6045(e)

DeFi Platforms: The CRA Repeal and Its Consequences

In December 2024, the IRS finalized a separate rule extending broker classification to “digital asset middlemen” — a category designed to capture DeFi front-end service providers. In early 2025, Congress passed a joint resolution under the Congressional Review Act (5 U.S.C. §§ 801–808) repealing this rule. The resolution received bipartisan support and was signed into law — marking a historic use of the CRA to overturn an IRS regulation.

The practical consequences are significant:

• No current filing obligation for decentralized exchanges, DeFi protocols, or self-hosted wallet interfaces.
• Procedural bar on reissuance: The CRA prohibits the IRS from promulgating a “substantially similar” rule without new statutory authorization from Congress.
• Legislative path required: Any future DeFi reporting mandate must come through congressional action, not Treasury rulemaking — a substantially higher political threshold.
• Taxpayer obligations unchanged: The absence of third-party reporting does not reduce the taxpayer’s duty to report gains, losses, and income from DeFi activity on their return.

What Must Be Reported? The Two-Phase Rollout

The crypto 1099-DA requirements phase in across two stages, reducing implementation burden on exchanges while giving the IRS progressively richer data:

Phase 1 — Gross Proceeds (Tax Year 2025 Forward)

For dispositions of digital assets on or after January 1, 2025, brokers must report:

• Gross proceeds from the sale, exchange, or other disposition
• Date and time of the transaction
• Digital asset name and quantity disposed
• Taxpayer name and TIN (Social Security number or EIN)
• Transaction identification information (where available)

Phase 2 — Cost Basis (Tax Year 2026 Forward)

For dispositions on or after January 1, 2026, brokers must additionally report:

• Adjusted cost basis of the digital asset sold
• Date of acquisition
• Whether the gain or loss is short-term (held ≤ 1 year) or long-term (held > 1 year)
• The lot identification method used (FIFO default or specific identification)

Phase 2 is where compliance complexity increases dramatically — and where the wallet-by-wallet tracking rules create the most friction.

How Does Wallet-by-Wallet Cost Basis Tracking Work?

The final regulations require brokers to track cost basis on a wallet-by-wallet (account-by-account) basis, treating each custodial account as a distinct cost basis universe. This creates several important consequences:

Default $0 basis for transferred-in assets. When a customer transfers crypto into a brokerage account from an external wallet, the broker has no visibility into the original acquisition cost. Under the regulations, the transferred asset receives a cost basis of $0 unless the taxpayer provides a transfer statement documenting the original purchase price and date.

FIFO is the default lot identification method. Unless the taxpayer makes a specific identification election at or before the time of sale, the broker applies first-in, first-out ordering. This means the earliest-acquired lots are deemed sold first — which may not be tax-optimal for the taxpayer.

Concrete example: A taxpayer purchased 1 BTC at $30,000 on a self-custodied wallet in 2023, then transferred it to Coinbase in 2026. Without a transfer statement, Coinbase reports a $0 basis. If the taxpayer sells that BTC for $95,000, the 1099-DA shows a $95,000 gain. The taxpayer’s actual gain is $65,000 — but the burden falls on the taxpayer to report the correct basis on Form 8949 and maintain records to substantiate the $30,000 cost if questioned.

Transfer statements are the remedy — but not required. Taxpayers may provide cost basis information to their broker via a transfer statement, and brokers may accept and use it. However, brokers are not obligated to solicit transfer statements, and there is no standardized format mandated by the IRS at this time.

Backup Withholding and TIN Requirements

An often-overlooked aspect of the 1099-DA requirements is the backup withholding framework under 26 U.S.C. § 3406. Brokers must:

• Solicit TINs from all customers. Accounts lacking a valid TIN are subject to backup withholding at the rate of 24% on gross proceeds.
• Withhold on B-notices: If the IRS issues a “B-notice” indicating a TIN mismatch, the broker must begin backup withholding after a second notice.
• Deposit withheld amounts with the IRS on the standard semi-weekly or monthly deposit schedule under 26 U.S.C. § 6302.

For exchanges that historically operated with minimal KYC for smaller accounts, backup withholding obligations significantly increase operational and compliance costs.

What Are the Penalties for Non-Compliance?

Brokers that fail to comply with 1099-DA filing obligations face penalties under the general information return framework:

• Failure to file with the IRS (26 U.S.C. § 6721): Per-return penalties with tiered amounts based on how late the filing is corrected — currently ranging from $60 to over $300 per return (inflation-adjusted annually), with aggregate annual caps exceeding $3.5 million for large filers.
• Failure to furnish to recipient (26 U.S.C. § 6722): Parallel penalty structure for failing to provide the 1099-DA to the taxpayer.
• Intentional disregard: If the failure is willful, the penalty increases to the greater of a higher per-return amount or 10% of the aggregate amount required to be reported, with no annual cap.

For taxpayers, a 1099-DA that is filed with the IRS but not properly reflected on the taxpayer’s return will trigger the IRS’s Automated Underreporter (AUR) program, typically resulting in a CP2000 notice proposing additional tax, interest, and potential accuracy-related penalties under 26 U.S.C. § 6662.

Key Gaps in the Current Framework

Despite the breadth of the new reporting regime, significant coverage gaps remain:

• DeFi transactions: Following the CRA repeal, swaps on decentralized exchanges, lending, liquidity provision, and yield farming fall entirely outside the 1099-DA framework.
• Peer-to-peer transfers: Direct wallet-to-wallet transactions between individuals are not reportable by either party (though gains remain taxable).
• Non-US exchanges: Foreign platforms without sufficient US nexus are not subject to 1099-DA requirements. US taxpayers using foreign exchanges should be aware that accounts holding digital assets may trigger FBAR filing obligations (FinCEN Form 114) if aggregate foreign account values exceed $10,000, and FATCA reporting (Form 8938) at higher thresholds. FinCEN proposed rules applying FBAR to foreign digital asset accounts; taxpayers should verify current requirements with a tax advisor.
• Staking and mining rewards: The initial receipt of staking or mining rewards is taxable income (likely reported via 1099-MISC or 1099-NEC). The subsequent disposition of those rewards triggers 1099-DA reporting — but basis tracking for non-purchased assets received as income adds complexity.
• NFTs and complex digital assets: The treatment of NFTs, wrapped tokens, and bridged assets under the 1099-DA framework remains uncertain in several scenarios, and IRS guidance is thin.

Practical Implications

For Exchanges and Brokers

• Systems readiness: Exchanges must operate per-wallet cost basis tracking capable of FIFO calculations, specific identification elections, and transfer statement ingestion — at scale across millions of accounts.
• TIN compliance programs: Robust TIN solicitation and backup withholding processes must be in place before the first 1099-DA filing cycle.
• Customer education: Proactively notify customers about the $0 basis default for transferred-in assets and provide clear mechanisms to submit transfer statements.
• Filing deadlines: 1099-DAs must be furnished to recipients by January 31 and filed with the IRS by February 28 (paper) or March 31 (electronic), consistent with other information returns under 26 U.S.C. § 6045.

For Individual Taxpayers

• IRS matching is coming: The IRS will cross-reference 1099-DA data against Form 8949 and Schedule D filings. Discrepancies will generate CP2000 notices — expect a wave of these beginning in 2027 as TY 2025 data is processed.
• Correct your basis proactively: If a 1099-DA reports $0 basis for an asset you purchased elsewhere, you can — and should — report the correct basis on Form 8949 with a notation explaining the discrepancy. Maintain records to substantiate your position.
• Choose your lot method deliberately: Understand the tax impact of FIFO (the default) versus specific identification before executing sales. Once FIFO applies by default, retroactive changes are limited.
• DeFi users face elevated risk: Without third-party reporting, DeFi-heavy taxpayers bear full self-reporting responsibility. The absence of a 1099-DA does not reduce audit risk — it may increase it, as the IRS is aware of the reporting gap.

For Legal and Tax Practitioners

• Client advisory priority: Advise clients to audit exchange account records and prepare transfer statements for any externally-acquired crypto currently held on exchanges.
• Anticipate CP2000 volume: Build capacity for responding to automated notices driven by 1099-DA/8949 mismatches, particularly around basis discrepancies.
• Monitor IRS guidance: Additional revenue rulings, FAQs, or notices addressing the open cost basis computation questions are likely as the framework matures.

What to Do Now

1. Exchanges: Confirm cost basis tracking systems are fully operational for 2026 dispositions. Test transfer statement intake workflows and backup withholding processes before year-end.
2. Investors who transferred crypto onto exchanges: Gather documentation of your original purchase price, date, and source wallet for every asset currently held on a centralized platform. Submit transfer statements to your exchange now — before you sell.
3. Tax professionals: Educate clients on the $0 basis default and specific identification elections. Calendar the January 31, 2027 deadline when the first cost-basis-inclusive 1099-DAs will arrive.
4. DeFi users: Implement comprehensive transaction tracking now. Consider dedicated crypto tax software (e.g., CoinTracker, Koinly, TokenTax) to capture every taxable event across protocols.
5. All taxpayers: Review any 1099-DAs received for TY 2025, reconcile against personal records, and address discrepancies on your 2025 return before filing.

Conclusion

The Form 1099-DA requirements represent a watershed moment for cryptocurrency tax compliance in the United States. With gross proceeds reporting already in effect and cost basis tracking now applying to 2026 transactions, the centralized exchange ecosystem is subject to the same information reporting framework as traditional securities brokers under 26 U.S.C. § 6045. The IRS will, for the first time, have comprehensive data to match against individual returns at scale.

The CRA repeal of the DeFi broker rule leaves a meaningful gap — but one that Congress, not Treasury, must close. For the majority of US retail investors who trade through centralized platforms, the message is clear: proactive record-keeping, timely cost basis documentation, and informed tax planning are no longer optional. The era of crypto opacity with the IRS is over.

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This article is for informational and educational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship. Laws and regulations in the cryptocurrency space change rapidly — consult a qualified attorney for advice specific to your situation and jurisdiction. Seth Goettelman is licensed to practice law in Wisconsin and Florida.