Crypto taxpayers are rude awakening.
We’ve been in Bitcoin for over 16 years, but taxpayers and CPAs still pretend that tax guidance is still unclear or even does not exist. The IRS is preparing for historic compliance reviews for crypto spaces, with taxpayers not knowing what they are for.
Last year, the IRS released the 2024-28 revenue process, fundamentally changing the way cryptocurrencies should be tracked from a tax perspective. Provide clear guidance for taxpayers to obtain compliant safe ports and deadlines for migration. The rules are clear, expectation is set, and the IRS quietly position itself to issue a wave of compliance reviews for those still on the beach.
This calculation has begun as we see unprecedented 6174, 6174-A and 6173 letters sent by the IRS.
Usually, this time of year is quiet. But over the past few weeks, our phones have been ringing taxpayers constantly, receiving these notifications from the IRS asking them to “or whatever.” It’s not just us – comprehensive crypto tax companies are reporting the same activity, showing that the IRS knows taxpayers are engaging in crypto tax evasion, here they have collected things that have not been able to collect in the past decade.
The IRS pairs Rev-Proc 24-28 strategically with the issuance of new Form 1099-DA, positioning the IRS as blind taxpayers and CPAs who have ignored compliance. The tax year in 2025 will be critical, as the IRS now has a large amount of ammunition available for auditing. Gone are the days when taxpayers can postpone taxpayers to days like “Well, the guidance is not clear, so I do my best”. “The IRS has made it clear that the guidance is clear and outlines non-compliant fines, but the taxpayers and the CPA still think we are in the wild west.
Most importantly, brokers will issue Form 1099-DAS to taxpayers and the IRS, but there is one major takeaway: The form does not include the cost basis for the 2025 tax year, and in the years that will almost include the incorrect cost basis.
This means that when you transfer assets to the exchange and then sell, the sales are reported – but the exchange doesn’t know what you originally paid. In the absence of this information, the table defaults to a cost-based $0. For IRS or traditional CPA, it looks like pure profit.
Suppose you buy 1 ETH for $2,200, move it to Coinbase, and sell it for $2,500. If Coinbase has no cost base, the table shows a gain of $2500. Your actual gain is $300, but the IRS won’t know unless you track the base yourself. They will assume the worst.
A common problem
This is not a one-time situation. This will affect hundreds of thousands of taxpayers.
If these bloated gains are not corrected, they will result in unnecessary taxation or trigger audits. And many CPAs won’t catch it, because most CPAs still can’t handle cryptocurrencies correctly. They don’t understand how wallets work. They confuse the transfer with the sale. They completely missed the Stage Rewards and Defi events. Clients consider their CPA the most important among them. CPA hypothesis 1099 is accurate. No one conducted a double check.
That’s where the problem arises. That’s exactly what the IRS is counting on.
Old defense – not clear guidance – no longer sticking. The IRS is direct. Expectations are elucidated. Now is the time to fix the issue before receiving the execution letter.
Encryption is no longer an edge case. Thousands of Americans have purchased, sold, fixed, loaned or transferred digital assets. Most people have poor job records. Some have not even tried it. The result is a tax system filled with under-reported income, inconsistent declarations and tax collectors seeking revenge.
The most common mistakes are not complicated. Transfers between wallets are marked as sales. Assets appear on exchanges without any cost basis. Points rewards and airdrops were not reported. Defi activity is completely missing. Year after year, taxpayers and professionals rely on CSV exports that have never been designed for tax reports.
These are not fringe cases. They are common among crypto investors. And, on a large scale, they add up to a compliance issue, that is, the IRS is now fully capable of pursuing.
This is no longer related to grey areas or technology. It’s about the growing mismatch of taxpayers consider crypto taxes to be effective and how the IRS is now expecting to handle them. This gap is risk lifespan, and under established guidance, the IRS will not cause any effort.
