The 1099-DA Is Here and Your Exchange Is Snitching Wrong: What You Actually Need to Do

If you traded crypto on any U.S. exchange in 2025, you're about to get a nasty surprise in your mailbox — or maybe you already have. It's called Form 1099-DA, and it's the IRS's shiny new tool for tracking your digital asset transactions. The problem? It's almost certainly wrong.

I've been filing crypto taxes since 2014. I've watched every half-baked attempt by the IRS to shoehorn crypto into existing financial reporting frameworks. The 1099-DA might be the most chaotic one yet, and if you don't understand what's happening, you could end up overpaying by thousands — or worse, catching an audit flag for something that isn't even your fault.

Let me break down what's actually going on.

What Is the 1099-DA?

Starting this tax season, crypto exchanges like Coinbase, Kraken, and Gemini are required to file Form 1099-DA ("Digital Asset Proceeds From Broker Transactions") with the IRS. This form reports every sale, swap, or exchange of digital assets you made during 2025.

Think of it like the 1099-B you'd get from a stock brokerage — except crypto isn't stocks, and the data is fundamentally incomplete.

Here's the Problem: Gross Proceeds Only, No Cost Basis

For 2025 transactions, exchanges are only required to report gross proceeds — how much you received when you sold. They are not reporting your cost basis (what you originally paid for the asset).

Why does this matter? Because without cost basis, every sale looks like pure profit to the IRS.

Say you bought 1 ETH at $3,200 and sold it at $3,400. Your actual gain is $200. But your 1099-DA only shows "$3,400 in proceeds." To the IRS matching algorithm, it looks like you made $3,400 in gains — unless you correct it yourself.

Coinbase has been vocal about this. They literally cannot report accurate cost basis in many cases. If you transferred BTC from a Ledger to Coinbase and then sold, Coinbase has no idea what you paid for it. They're sending the IRS a form that says you received money, but with zero context about your actual profit or loss.

The Cost Basis Problem Gets Worse With DeFi

The 1099-DA only covers centralized exchanges acting as "brokers." If you've been doing anything on-chain — swapping on Uniswap, providing liquidity on Aave, bridging between L2s, minting NFTs — none of that appears on any 1099-DA.

But here's the catch: you still owe taxes on those transactions. The IRS doesn't care that no one reported it. You're expected to track it yourself.

So you're dealing with two problems at once:

Your exchange-reported data is incomplete and potentially misleading
Your DeFi activity isn't reported at all, but is still taxable

What You Need to Do Right Now

1. Don't Just File What the 1099-DA Says

This is the biggest mistake I'm seeing people make. They get the 1099-DA, plug the numbers into TurboTax, and call it a day. That's how you overpay by thousands of dollars.

You need to reconcile every transaction with your actual cost basis. For each sale reported on your 1099-DA, you need to document what you originally paid.

2. Pull Your Transaction History From Every Exchange and Wallet

Go to every exchange you've used — Coinbase, Kraken, Gemini, Binance.US, whatever — and download your full transaction history as CSV files. Do the same for on-chain wallets using a block explorer or a tool that can parse your wallet address.

You need:

Every buy (date, amount, price)
Every sell (date, amount, price)
Every transfer between wallets (so you don't accidentally treat a transfer as a taxable event)
Every swap, LP deposit/withdrawal, bridge transaction

3. Use Dedicated Crypto Tax Software

I've tested most of them over the years. Tools like Koinly, CoinTracker, TokenTax, and Awaken Tax can import your exchange CSVs and wallet addresses, match transactions, and calculate your actual cost basis using FIFO, LIFO, or specific identification methods.

This isn't optional anymore. With the IRS now receiving 1099-DA data, they will flag discrepancies between what your exchange reported and what you file. Crypto tax software is your defense.

4. File Form 8949 With Corrected Data

When you file your taxes, you'll use Form 8949 to report each digital asset transaction with the correct cost basis. If your 1099-DA shows proceeds of $3,400 and you know your cost basis was $3,200, you report both numbers on Form 8949, showing your actual gain of $200.

The IRS has explicitly said taxpayers are responsible for correcting incomplete 1099-DA data. It's annoying, but it protects you.

5. Don't Ignore DeFi Transactions

Just because Uniswap didn't send you a form doesn't mean the IRS won't find out. On-chain data is public and permanent. The IRS has been investing in blockchain analytics tools from Chainalysis since 2020. Assume they can trace your wallet activity.

Report your DeFi transactions on Form 8949 alongside your exchange trades. Your crypto tax software should handle this if you've imported your wallet addresses.

What Changes in 2026 (Starting Next Year)

The rules get tighter. Beginning with transactions in 2026, exchanges will be required to report cost basis — but only for assets purchased on that same exchange after January 1, 2026. So the cost basis gap will slowly close, but it won't help you this year.

There's also the wallet-transfer tracking requirement that the IRS has been fighting over. If finalized, exchanges may need to report when you transfer crypto to an external wallet — not the sale, just the movement. The crypto privacy implications are real, but that's a fight for another post.

The Real Risk: Doing Nothing

A survey by Awaken Tax found that over half of U.S. crypto holders are worried about IRS penalties this year. That tracks with reality — historically, under 20% of crypto holders report their transactions correctly.

The IRS has been patient with crypto tax enforcement, mostly because they didn't have the data. Now they do. The 1099-DA gives them a paper trail for every exchange-based transaction. If you sold crypto in 2025 and don't report it, the IRS matching system will flag it.

Penalties for underreporting include:

20% accuracy-related penalty on underpaid tax
Potential fraud penalties if the IRS thinks you're intentionally hiding income
Interest on unpaid amounts, compounding daily

My Take

Look, I've been doing this for over a decade. I've seen every cycle of the IRS trying to figure out crypto — from the early days when no one reported anything to the current era of 1099-DAs and blockchain surveillance.

The 1099-DA rollout is messy. The forms are incomplete. The burden falls on you to fix what the exchanges can't report correctly. That's frustrating, and frankly, it's a policy failure. They designed a reporting system that doesn't account for how crypto actually works — transfers between wallets, DeFi protocols, cross-chain activity.

But here's the reality: complaining about it won't protect you from a penalty. The smart move is to spend a weekend with your transaction history and a crypto tax tool, reconcile everything, and file correctly. If your situation is complex — multiple exchanges, heavy DeFi usage, staking rewards, airdrops — hire a CPA who specializes in crypto. It's worth the $500–$1,500 to avoid a $10,000 problem.

DYOR. And in this case, DYOR means "do your own reconciliation."

This post is for educational purposes only and does not constitute tax or financial advice. Consult a qualified tax professional for your specific situation.