DeFi Broker Tax Rules: January 2026 Compliance Guide

By Chanté Eliaszadeh | October 15, 2025

The IRS has finalized sweeping tax reporting requirements for digital asset brokers, with compliance deadlines now just weeks away. On June 28, 2024, the Treasury Department and IRS released final regulations in Treasury Decision 10000¹ requiring certain crypto platforms to file Form 1099-DA and report customer transactions beginning with sales occurring on or after January 1, 2025.

While Congress used the Congressional Review Act to nullify controversial DeFi platform reporting rules in April 2025², the core custodial broker regulations remain fully in effect. Centralized exchanges, hosted wallet providers, payment processors, and digital asset kiosks must now implement comprehensive reporting systems or face penalties up to $3.5 million annually.

This guide breaks down exactly who must comply, what information must be reported, technical challenges platforms face, and the concrete steps your company must take before the January 2026 reporting deadline.

Background: Infrastructure Act Mandate

The reporting requirements stem from Section 80603 of the Infrastructure Investment and Jobs Act, which amended Internal Revenue Code Section 6045 to explicitly include digital assets within broker reporting obligations.³ The statute defined "digital assets" as "any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology" and expanded the definition of "broker" to encompass entities facilitating digital asset transactions.

Congress mandated these changes to address the tax gap in cryptocurrency transactions. The Joint Committee on Taxation estimated that expanded information reporting on digital assets could generate $28 billion in additional tax revenue over 10 years by improving voluntary compliance and IRS enforcement capabilities.

The IRS published proposed regulations in August 2023, received over 44,000 public comments (many opposing DeFi platform reporting), and issued final regulations on July 9, 2024.⁴

Who Is a "Broker" Under the New Rules?

The final regulations impose reporting obligations on custodial brokers—entities that have custody or control over customers' digital assets and can verify customer identities.

Entities Subject to Reporting Requirements

1. Custodial Digital Asset Trading Platforms (Centralized Exchanges)

Platforms that custody digital assets on behalf of customers and facilitate buying, selling, or exchanging digital assets qualify as brokers. This includes all major U.S. centralized exchanges:

• Coinbase, Kraken, Gemini, Bitstamp
• Bittrex (before bankruptcy), Binance.US
• Any platform where users deposit assets into platform-controlled wallets

2. Hosted Wallet Providers

Services that control private keys on behalf of users and can initiate transactions must report if they facilitate sales or exchanges:

• PayPal, Venmo (crypto features)
• Cash App (Block/Square)
• Robinhood Crypto
• Any "custodial wallet" service

3. Digital Asset Payment Processors

Processors that settle transactions in digital assets and have capacity to verify buyer and seller identities:

• BitPay (if custodial)
• Coinbase Commerce
• Payment processors converting crypto to fiat for merchants

4. Digital Asset Kiosks (Bitcoin ATMs)

Physical kiosks facilitating digital asset purchases or sales where the operator maintains custody during transactions:

• Coin Cloud, Bitcoin Depot, Coinme kiosks
• Two-way ATMs enabling both purchases and sales

5. Certain Stablecoin Issuers

Issuers who regularly redeem their stablecoins for fiat currency may qualify as brokers for redemption transactions:

• USDC redemptions (Circle)
• USDT redemptions (Tether, if facilitating direct redemptions)
• Other fiat-backed stablecoin issuers offering redemption services

Who Is NOT a Broker: Important Exemptions

The regulations explicitly exclude entities that do not have custody or cannot verify customer identities:

Non-Custodial Protocols and Smart Contracts:

• Decentralized exchange protocols (Uniswap, SushiSwap, Curve)
• Automated market makers (AMMs) operating autonomously on-chain
• Decentralized lending protocols (Aave, Compound)
• Smart contracts with no custodial control

Non-Custodial Wallet Providers:

• MetaMask, Trust Wallet, Ledger Live (software only)
• Hardware wallet manufacturers
• Self-custody solutions where users control private keys

Blockchain Miners and Validators:

• Bitcoin miners processing transactions
• Ethereum validators
• Block producers on other networks

Software Developers:

• Protocol developers who create but do not operate platforms
• Open-source contributors to DeFi protocols

The IRS clarified: "The final regulations do not treat operators of digital protocols or developers of protocol software as brokers."⁵

Form 1099-DA Requirements

Brokers must file Form 1099-DA, "Digital Asset Proceeds From Broker Transactions," to report qualifying sales and exchanges.

Reporting Timeline: Phased Implementation

For 2025 Tax Year (Forms Issued in Early 2026):

Brokers must report gross proceeds only for sales of digital assets occurring on or after January 1, 2025:

• Box 1e (Date Sold): Date of sale or exchange
• Box 1f (Gross Proceeds): Total proceeds from sale, reduced by transaction costs paid to broker
• Box 1a-c: Digital asset identifier, name, and number of units sold

Basis reporting is voluntary for 2025—brokers may report cost basis information if available, but are not required to do so. Most brokers are not expected to report basis for 2025 transactions due to implementation challenges.

For 2026 Tax Year and Beyond (Forms Issued in 2027+):

Starting January 1, 2026, brokers must report both gross proceeds and adjusted basis for "covered securities":

• Box 1d (Acquisition Date): When customer acquired the digital asset
• Box 1g (Adjusted Basis): Customer's cost basis in the asset
• Box 2: Checkbox indicating basis is being reported to IRS
• Box 6 (Gain or Loss): Calculated gain or loss, categorized as short-term or long-term

Covered Securities vs. Noncovered Securities

Covered Securities: Digital assets acquired on or after January 1, 2026 through the same broker effectuating the sale. Brokers must report basis.

Noncovered Securities: Assets acquired before January 1, 2026, or acquired through a different broker, or transferred from self-custody. Basis reporting is voluntary for these assets, and brokers checking Box 9 are protected from penalties if basis information is incorrect.

Form 1099-DA Technical Specifications

Filing Deadlines:

• To IRS: February 28 (paper) or March 31 (electronic) following the calendar year
• To Customers: January 31 following the calendar year
• Electronic filing is mandatory for brokers filing 250 or more forms

DeFi Protocol Exemptions and the Congressional Nullification

Original DeFi Front-End Regulations

The IRS initially attempted to extend broker reporting requirements to "front-end service providers" for DeFi protocols—entities that provide user interfaces for interacting with decentralized protocols, even if they do not custody assets.

In December 2024, the Treasury Department released separate final regulations (TD 10005) that would have required DeFi front-end operators to:

• Collect know-your-customer (KYC) information from users
• Track blockchain transactions conducted through their interfaces
• File Form 1099-DA reporting on users' decentralized trading activity
• Comply beginning with transactions on or after January 1, 2027

Congressional Review Act Nullification

The crypto industry and privacy advocates mounted fierce opposition to the DeFi rules, arguing they were technologically unworkable and would drive development overseas. On March 4, 2025, the Senate passed House Joint Resolution 25 under the Congressional Review Act, nullifying the DeFi broker regulations.⁶ President Trump signed the resolution on April 10, 2025, officially repealing the rules.

Effect of Nullification:

• DeFi front-end service providers are not subject to Form 1099-DA reporting
• Protocols operating without custodial control remain exempt
• The IRS is prohibited from issuing substantially similar regulations in the future
• The Congressional Review Act creates a strong precedent against future DeFi reporting mandates

Current State: Custodial vs. Non-Custodial Bright Line

The regulatory landscape now reflects a clear distinction:

Must Report (Custodial):

• Centralized exchanges with custody (Coinbase, Kraken)
• Hosted wallets controlling private keys (PayPal, Cash App)
• Payment processors with custodial features
• Bitcoin ATMs with custody during transactions

Need Not Report (Non-Custodial):

• Pure DeFi protocols (Uniswap, Aave, Compound)
• Front-end interfaces to DeFi protocols (app.uniswap.org)
• Non-custodial wallet software (MetaMask)
• Self-custody solutions

Gray Area Requiring Analysis:

• Hybrid models with limited custody
• Protocols with multisig governance controls
• Cross-chain bridges with temporary custody
• Staking-as-a-service providers

Compliance Implementation Timeline

Brokers should follow this month-by-month roadmap to achieve compliance:

October 2025 - Immediate Assessment

Action Items:

1. Conduct Broker Status Analysis

   • Determine if your platform qualifies as custodial broker
   • Document custody model and transaction flows
   • Identify any exemptions that may apply

2. Inventory Systems and Data

   • Review transaction recording systems
   • Assess customer identification and verification processes
   • Evaluate data retention policies and historical data availability

3. Estimate Implementation Costs

   • Small platforms (<10,000 customers): $50,000-$150,000
   • Medium platforms (10,000-100,000 customers): $150,000-$500,000
   • Large platforms (>100,000 customers): $500,000-$2,000,000

4. Engage Legal and Tax Counsel

   • Obtain regulatory compliance advice specific to your business model
   • Assess state-level tax reporting obligations
   • Review backup withholding requirements

Cost Estimate: $15,000-$50,000 (legal consultation, initial assessment)

November 2025 - System Design and Vendor Selection

Action Items:

1. Select Compliance Technology Solution

   • Evaluate crypto tax reporting software vendors (CoinTracker, TaxBit, Lukka, CryptoWorth)
   • Assess build vs. buy decision for Form 1099-DA generation
   • Review API integration requirements with existing systems

2. Design Customer Data Collection Processes

   • Implement Form W-9 collection for U.S. customers
   • Design Form W-8 processes for non-U.S. customers
   • Create backup withholding procedures for customers who fail to provide TIN

3. Plan Transaction Tracking Infrastructure

   • Design systems to capture acquisition dates for all incoming transfers
   • Implement cost basis tracking for 2026 compliance
   • Create data models for wash sale loss tracking

4. Begin Hiring or Training Compliance Staff

   • Tax reporting manager or director
   • Compliance analysts for data quality review
   • Customer support representatives trained on tax forms

Cost Estimate: $80,000-$200,000 (software licenses, initial development, staffing)

December 2025 - System Implementation

Action Items:

1. Deploy Form 1099-DA Generation System

   • Build or configure software to populate all required form fields
   • Implement validation rules to catch data errors
   • Test form generation with sample data

2. Integrate Transaction Data Feeds

   • Connect trading systems to tax reporting databases
   • Implement real-time or daily transaction capture
   • Build reconciliation processes to ensure completeness

3. Create Customer Communication Materials

   • Draft website explanations of tax reporting changes
   • Prepare email notifications about upcoming Form 1099-DA
   • Develop FAQ addressing common customer questions

4. Conduct Internal Testing

   • Generate test forms for sample transactions
   • Validate accuracy of gross proceeds calculations
   • Test IRS filing formats (FIRE system compatibility)

Cost Estimate: $100,000-$400,000 (development, testing, customer communications)

January 1, 2026 - Compliance Effective Date

Action Items:

1. Begin Real-Time Reporting Data Capture

   • All transactions on or after January 1, 2026 must be tracked for Form 1099-DA
   • Ensure systems capture date sold, gross proceeds, units sold for every transaction
   • Implement real-time data quality monitoring

2. Send Customer Notifications

   • Email all customers explaining new reporting requirements
   • Provide instructions for ensuring accurate information
   • Remind customers that Forms 1099-DA will be issued in January 2027

3. Monitor IRS Guidance

   • Watch for additional IRS notices clarifying technical issues
   • Join industry working groups coordinating implementation approaches
   • Track any legislative developments affecting reporting requirements

January 31, 2026 - First Reporting Deadline (2025 Tax Year)

Action Items:

1. Generate Forms 1099-DA for 2025 Tax Year

   • Report gross proceeds for all sales occurring January 1 - December 31, 2025
   • Include only required fields (boxes 1a-c, 1e-f)
   • Voluntary basis reporting if data available

2. Furnish Forms to Customers

   • Mail or electronically deliver by January 31, 2026
   • Provide corrected forms if errors discovered (Form 1099-DA corrections)

3. File Forms with IRS

   • Electronic filing due March 31, 2026
   • Paper filing due February 28, 2026 (generally not permitted for large filers)

Safe Harbor for 2025 Transactions: The IRS provided penalty relief for 2025 tax year reporting. Brokers who make "good faith efforts" to file accurately and timely will not face penalties even if forms contain errors, provided they file by the later of (1) one year after the original deadline or (2) when the IRS first contacts the broker about an examination.⁷

Ongoing Compliance (2026 and Beyond)

Quarterly Actions:

• Review transaction data quality
• Update software for IRS format changes
• Train staff on evolving requirements
• Monitor customer TIN validation rates

Annual Actions:

• Generate and file Forms 1099-DA by deadlines
• Conduct internal audit of reporting accuracy
• File backup withholding reports (Form 945)
• Review compliance costs and process improvements

Technical Challenges and Solutions

Implementing Form 1099-DA reporting presents significant technical challenges, particularly for platforms that historically prioritized user privacy or did not track acquisition data.

Challenge 1: Identifying Digital Assets with Token Identifiers

Problem: Form 1099-DA requires a 9-character alphanumeric "Digital Token Identifier" in Box 1a, but no official registry of identifiers exists. Different brokers may use different identifiers for the same asset.

Solution: Many platforms are coordinating on using identifiers based on:

• CoinMarketCap IDs (e.g., Bitcoin = "1" → "CMC00001")
• CoinGecko IDs
• Ticker symbols with disambiguation (e.g., "BTC-001" for Bitcoin)
• Contract addresses for ERC-20 tokens (first 9 characters)

The IRS has not mandated a specific identifier standard, creating risk of customer confusion if different brokers report the same asset with different identifiers.

Challenge 2: Tracking Cost Basis for Transferred Assets

Problem: When customers transfer digital assets from self-custody wallets or other platforms, the receiving broker has no way to determine acquisition date or cost basis. For covered securities (acquired after January 1, 2026 through the broker), brokers must report basis, but transfers break the chain of custody.

Solution: Brokers are implementing several approaches:

Approach A: Treat Transfers-In as Noncovered Securities

• Mark all transferred-in assets as noncovered (Box 9 checked)
• Report basis voluntarily only if customer provides reliable documentation
• Protect broker from penalties for incorrect basis

Approach B: Request Customer Basis Information

• Collect Form 8949 equivalents from customers at time of transfer
• Verify information against blockchain records where possible
• Use customer-provided basis but mark as noncovered

Approach C: Use Transfer Date as Acquisition Date

• For assets acquired on or after January 1, 2026, use transfer-in date as acquisition date
• Use fair market value on transfer date as basis
• Disclose method to customer

The IRS has indicated it will provide further guidance on basis determination for transferred assets.

Challenge 3: Identifying Wash Sales Across Wallets

Problem: Wash sale rules disallow losses when substantially identical securities are purchased within 30 days before or after a sale. Customers may trigger wash sales by trading the same digital asset across multiple platforms or in self-custody wallets, which individual brokers cannot detect.

Solution: Most brokers are taking a conservative approach:

• Track wash sales only within the broker's own platform
• Do not attempt to identify wash sales occurring on other platforms or in self-custody
• Clearly disclose limitations to customers
• Recommend customers consult tax professionals

The IRS may eventually require cross-platform wash sale tracking, but has not yet mandated coordination among brokers.

Challenge 4: Calculating Proceeds for Complex Transactions

Problem: Many digital asset transactions do not fit traditional securities models:

• Crypto-to-crypto swaps: Exchanging ETH for USDC creates a taxable event, but determining "proceeds" requires valuing the received asset
• Liquidity pool transactions: Adding liquidity creates new LP tokens; withdrawing involves complex calculations
• Staking rewards: Unclear whether receipt triggers reporting, and how to value
• Forks and airdrops: New assets received with zero basis

Solution: The IRS issued Notice 2024-57 providing temporary exemptions from reporting for certain complex transactions:⁸

Exempt Transactions (No Form 1099-DA Required Until Further Guidance):

1. Wrapping and unwrapping transactions (e.g., WETH ↔ ETH)
2. Liquidity provider transactions (adding/removing liquidity from DEX pools)
3. Staking transactions (depositing/withdrawing staked assets)
4. Digital asset lending transactions
5. Short sales of digital assets
6. Notional principal contracts (derivatives settled in crypto)

Brokers must still track these transactions internally but need not report on Form 1099-DA until the IRS issues clarifying guidance.

Challenge 5: Complying with State Reporting Requirements

Problem: Form 1099-DA includes boxes for state tax reporting (Boxes 14-16), but states have varying requirements for information returns. Some states conform to federal tax treatment of digital assets; others do not.

Solution:

California: Participates in IRS Combined Federal/State Filing (CF/SF) Program. Brokers can file both federal and state returns simultaneously. California requires 1099 forms for residents and part-year residents, and treats cryptocurrency as property subject to state income tax.

New York: Does not participate in CF/SF program and does not require separate state 1099 filing. However, New York taxes cryptocurrency as property, and brokers should be aware customers will owe state tax on gains.

Other States: Brokers should consult state-specific requirements. Many states conform to federal reporting rules, but some (like New York) proposed separate cryptocurrency transaction taxes (not enacted as of October 2025).

Practical Approach:

• Focus first on federal Form 1099-DA compliance
• Use Boxes 14-16 for California and other participating states
• Monitor state legislative developments for new requirements

Penalties for Non-Compliance

Brokers face substantial penalties for failure to comply with reporting requirements.

Failure to File Correct Information Returns (IRC § 6721)

Brokers who fail to file Form 1099-DA with the IRS, or who file forms with incorrect information, face penalties:

Penalty Tiers (2025 amounts, adjusted annually for inflation):

Example: A mid-size exchange with 50,000 customers failing to file Forms 1099-DA would face $15.5 million in potential penalties ($310 × 50,000), capped at $3,783,000.

Failure to Furnish Correct Payee Statements (IRC § 6722)

Separate penalties apply for failing to provide Forms 1099-DA to customers:

Combined exposure: Brokers face penalties under both Section 6721 (filing with IRS) and Section 6722 (furnishing to customers), with separate caps—meaning total annual penalties can reach $7.5 million.

Intentional Disregard

If the IRS determines a broker intentionally disregarded filing requirements, penalties increase dramatically:

• Minimum penalty: $630 per form (2025 amount)
• No annual cap on penalties
• Potential criminal penalties under IRC § 7203 (willful failure to file)

Additional Enforcement Mechanisms

Backup Withholding (24%): If a broker fails to collect a customer's taxpayer identification number (TIN), the broker must withhold 24% of gross proceeds and remit to the IRS. Failure to withhold creates additional liability for the broker.

IRS Examinations: Non-compliance with reporting requirements increases likelihood of IRS examination, which can identify other tax issues.

Reputational Risk: Public disclosure of non-compliance can damage customer trust and create competitive disadvantages.

Safe Harbor Provisions and Penalty Relief

The IRS recognized the challenges of implementing new reporting systems and provided transitional penalty relief.

Notice 2024-56: Good Faith Compliance Safe Harbor

For Forms 1099-DA reporting transactions occurring in calendar year 2025 (filed in 2026), the IRS will not impose penalties under IRC Sections 6721 or 6722 if:⁷

Requirements:

1. Good Faith Effort: Broker makes "good faith effort" to file Forms 1099-DA accurately and timely
2. Extended Deadline: Forms filed by the later of:
   • One year after the original filing deadline (January 31, 2027 for 2025 transactions), OR
   • The date the IRS first contacts the broker concerning an examination

What "Good Faith" Means:

The IRS has not defined "good faith" with precision, but tax practitioners interpret it to include:

• Implementing reasonable systems to capture required data
• Filing forms even if some data fields are incomplete or estimated
• Correcting errors promptly when discovered
• Cooperating with IRS inquiries
• Demonstrating documented compliance efforts

What Does NOT Qualify:

• Intentionally ignoring reporting requirements
• Failing to implement any reporting systems
• Refusing to correct known errors
• Providing false or fraudulent information

Notice 2024-57: Temporary Exemptions for Complex Transactions

As noted above, the IRS exempted six categories of complex transactions from reporting requirements until further guidance is issued. Brokers who do not report these transactions will not face penalties, even if the IRS later determines reporting was required.

Voluntary Basis Reporting Protection

For noncovered securities (assets acquired before January 1, 2026 or transferred from another broker/wallet), brokers who voluntarily report basis information are protected from penalties if the basis is incorrect, provided they:

• Check Box 9 indicating the asset is a noncovered security
• Make a reasonable effort to determine correct basis
• Use customer-provided information or publicly available data

State Tax Implications and Conformity

While Form 1099-DA is a federal form, state tax authorities will use the information for state income tax enforcement.

States That Conform to Federal Digital Asset Treatment

Most states treat cryptocurrency as property for income tax purposes, following the IRS framework:

Full Conformity States (Examples):

• California
• New York
• Illinois
• Massachusetts
• Georgia

These states will automatically apply federal gain/loss calculations and use Form 1099-DA data in state income tax audits.

States with Special Rules or Proposed Taxes

New York: Proposed but did not enact a 0.2% excise tax on cryptocurrency transactions (Assembly Bill 8966, 2025). The bill would have applied to all crypto sales and transfers by New York residents, creating an additional reporting burden separate from federal Form 1099-DA. The proposal failed, but demonstrates state-level interest in additional crypto taxation.

Wyoming: Enacted crypto-friendly legislation treating certain digital assets as exempt from property tax. However, income tax treatment follows federal rules (Wyoming has no state income tax on individuals).

No Income Tax States: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax, eliminating state reporting concerns for brokers.

Practical State Compliance Strategy

For Brokers:

1. Focus on Federal Compliance First: State requirements generally follow federal Form 1099-DA
2. Use Combined Federal/State Filing: For California and other participating states, file through IRS CF/SF program
3. Monitor State Legislation: Track bills proposing special cryptocurrency taxes or reporting
4. Document Customer State Residency: Maintain accurate records of customer addresses for state nexus determination
5. Consult State Tax Counsel: In states with unique rules, obtain specialized advice

For Customers:

Brokers should educate customers that:

• Form 1099-DA gross proceeds will be reported to state tax authorities in most states
• Customers are responsible for calculating state income tax liability
• State tax rates vary (California top rate: 13.3%; New York: 10.9% plus potential NYC tax)
• Some states may not conform to all federal digital asset tax rules

Action Items Before January 2026 Deadline

For Custodial Brokers (Must Comply)

Immediate Actions (October-November 2025):

1. Confirm Broker Status

   • Conduct legal analysis determining custodial broker status
   • Document custody model and exemptions analysis
   • Engage regulatory counsel for compliance opinion

2. Assess Data and Systems

   • Inventory transaction data from January 1, 2025 forward
   • Review customer identification and TIN collection processes
   • Evaluate current tax reporting capabilities

3. Budget and Plan

   • Obtain board or executive approval for implementation budget ($50K-$2M+)
   • Create project plan with milestones
   • Assign compliance lead and project manager

4. Select Vendors and Technology

   • Evaluate crypto tax reporting software vendors (RFP process)
   • Assess build vs. buy decision for Form 1099-DA systems
   • Contract with chosen vendors (negotiate SLAs and liability terms)

System Implementation (December 2025):

5. Deploy Reporting Infrastructure

   • Integrate transaction feeds with tax reporting database
   • Configure Form 1099-DA generation software
   • Implement customer TIN collection and validation
   • Build backup withholding procedures

6. Test and Validate

   • Generate test Forms 1099-DA with sample data
   • Conduct end-to-end testing of data flows
   • Validate calculations for accuracy
   • Test IRS FIRE system file submissions

7. Train Staff

   • Train compliance team on reporting requirements
   • Educate customer support on tax form inquiries
   • Prepare executive leadership for oversight role

Customer Communications (January 2026):

8. Notify Customers
   • Send email explaining new Form 1099-DA reporting
   • Publish website FAQ and knowledge base articles
   • Request updated Forms W-9 from customers missing TINs
   • Provide instructions for ensuring accurate information

First Filing (January-March 2026):

9. Generate and File Forms 1099-DA

   • Produce forms for all 2025 transactions by January 15, 2026
   • Furnish to customers by January 31, 2026
   • File with IRS by March 31, 2026 (electronic) or February 28, 2026 (paper)
   • Retain copies and supporting documentation for 7 years

10. Monitor and Correct

    • Track customer inquiries and disputes
    • Issue corrected Forms 1099-DA if errors discovered
    • Implement lessons learned for 2026 tax year
    • Monitor IRS notices and guidance updates

For DeFi Protocols and Non-Custodial Services (Exempt)

Recommended Actions:

1. Document Exemption Status

   • Prepare legal memorandum explaining why entity is not a custodial broker
   • Maintain documentation of non-custodial architecture
   • Create FAQ for users explaining no Form 1099-DA will be issued

2. Educate Users

   • Publish clear notice that protocol does not issue tax forms
   • Direct users to crypto tax software (CoinTracker, Koinly, etc.)
   • Provide resources on self-reporting obligations

3. Consider Voluntary Tools

   • Explore offering read-only portfolio tracking for users
   • Partner with crypto tax software providers for user benefit
   • Build transaction history export tools

4. Monitor Regulatory Developments

   • Track any new legislative proposals affecting DeFi reporting
   • Engage with industry advocacy groups (Blockchain Association, DeFi Education Fund)
   • Prepare for potential future regulatory changes

For All Digital Asset Companies

Strategic Considerations:

1. Assess Competitive Implications

   • Compliance costs may favor larger platforms with economies of scale
   • Non-compliant competitors create unfair advantages (until enforcement)
   • Consider strategic partnerships or acquisitions to share compliance infrastructure

2. Evaluate Business Model Changes

   • Some platforms may pivot to non-custodial models to avoid reporting
   • Others may embrace compliance as competitive advantage (institutional customers require it)
   • International expansion may reduce U.S. reporting burden but creates other regulatory issues

3. Plan for 2026 Basis Reporting

   • 2025 is "gross proceeds only" but 2026 requires full basis reporting
   • Begin tracking acquisition dates and basis for all 2026 transactions now
   • Design customer onboarding to capture basis information for transferred assets

4. Engage Industry Coordination

   • Join industry working groups developing best practices
   • Coordinate on standardized digital asset identifiers
   • Share lessons learned on implementation challenges

Looking Ahead: The Future of Digital Asset Tax Reporting

The January 2026 compliance deadline marks the beginning of a new era of cryptocurrency tax enforcement, not the end of regulatory evolution.

Expected IRS Guidance and Refinements

The IRS has signaled it will issue additional guidance addressing:

• Standardized digital asset identifiers to ensure consistency across brokers
• Basis tracking for transferred assets, including potential transfer statements between brokers
• Wash sale coordination across platforms
• Complex transaction reporting for DeFi activities, staking, and lending (currently exempt)
• Foreign broker reporting and cross-border information exchange

Potential Legislative Developments

Congress may revisit digital asset taxation, particularly if implementation reveals gaps or issues:

• De minimis exemption: Some proposals would exempt small transactions (e.g., under $200) from reporting to reduce compliance burden
• Like-kind exchange treatment: Historically proposed (but not enacted) to treat crypto-to-crypto swaps as non-taxable exchanges
• Expanded DeFi reporting: Future Congresses may attempt to reimpose DeFi reporting requirements (though Congressional Review Act creates obstacles)

International Coordination

The U.S. is not alone in implementing crypto tax reporting. International coordination efforts include:

• OECD Crypto-Asset Reporting Framework (CARF): Requires automatic exchange of tax information on crypto assets between jurisdictions, similar to FATCA for traditional financial accounts
• EU DAC8 Directive: Requires crypto service providers in EU to report customer transactions to tax authorities
• Global coordination on standards: Likely to see convergence on reporting formats and digital asset identifiers

U.S. brokers with international operations should anticipate coordinating compliance with multiple jurisdictions.

Enforcement Priorities

Once reporting systems are operational, expect the IRS to:

• Match Forms 1099-DA against individual tax returns and issue automated notices for underreported income
• Conduct broker examinations to verify reporting accuracy and completeness
• Target high-dollar noncompliance with cryptocurrency audits and enforcement actions
• Pursue criminal cases for willful evasion in high-profile scenarios

The tax gap in cryptocurrency is estimated at billions of dollars annually. Form 1099-DA reporting will dramatically improve the IRS's ability to close that gap.

Conclusion: Prepare Now for Unavoidable Compliance

The IRS digital asset broker reporting requirements are not optional, and the January 2026 compliance deadline is rapidly approaching. Custodial platforms, hosted wallets, payment processors, and digital asset kiosks must implement comprehensive reporting systems now or face penalties up to $3.5 million annually and significant reputational damage.

For companies subject to reporting requirements, the path forward is clear:

1. Confirm your broker status and document exemptions if applicable
2. Implement Form 1099-DA systems by year-end 2025
3. Begin capturing required data starting January 1, 2026
4. Leverage safe harbor provisions for good faith compliance efforts
5. Plan for full basis reporting starting in 2026

For DeFi protocols and non-custodial services, maintain careful documentation of exempt status and educate users about their self-reporting obligations.

The cryptocurrency industry's era of limited tax visibility is ending. Companies that prepare proactively will gain competitive advantages through compliance readiness, institutional customer trust, and reduced regulatory risk.

If your platform maintains custody of customer digital assets and facilitates sales or exchanges, consult experienced tax and regulatory counsel now. The cost of implementation is manageable with planning; the cost of non-compliance is potentially catastrophic.

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Disclaimer: This article provides general information for educational purposes only and does not constitute legal or tax advice. Cryptocurrency tax regulation is evolving rapidly. Consult qualified legal counsel and tax professionals for advice on your specific situation.

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Footnotes

1. Treasury Decision 10000, 89 Fed. Reg. 56480 (July 9, 2024), available at https://www.federalregister.gov/documents/2024/07/09/2024-14114/gross-proceeds-and-basis-reporting-by-brokers-and-determination-of-amount-realized-and-basis-for ↩

2. H.J. Res. 25, Congressional Review Act Resolution Disapproving IRS DeFi Broker Regulations (signed April 10, 2025), available at https://www.congress.gov/bill/119th-congress/house-joint-resolution/25 ↩

3. Infrastructure Investment and Jobs Act, Pub. L. No. 117-58, § 80603, 135 Stat. 429, 1339-40 (2021) ↩

4. IRS, Final regulations and related IRS guidance for reporting by brokers on sales and exchanges of digital assets (June 28, 2024), available at https://www.irs.gov/newsroom/final-regulations-and-related-irs-guidance-for-reporting-by-brokers-on-sales-and-exchanges-of-digital-assets ↩

5. U.S. Department of the Treasury, Treasury Department, IRS Issue Final Regulations and Transitional Guidance for Digital Asset Industry Applicable to Decentralized Finance Platforms (Dec. 27, 2024), available at https://home.treasury.gov/news/press-releases/jy2762 ↩

6. House Ways & Means Committee, House Passes Ways & Means Legislation to Rollback Biden Administration's Midnight Crypto Rule in Bipartisan Vote (March 12, 2025), available at https://waysandmeans.house.gov/2025/03/12/house-passes-ways-means-legislation-to-rollback-biden-administrations-midnight-crypto-rule-in-bipartisan-vote/ ↩

7. IRS Notice 2024-56, Transitional Penalty Relief for Information Reporting and Backup Withholding Requirements for Digital Asset Brokers (June 28, 2024), available at https://www.irs.gov/pub/irs-drop/n-24-56.pdf ↩ ↩²

8. IRS Notice 2024-57, Temporary Exceptions from Information Reporting Requirements for Certain Digital Asset Transactions (June 28, 2024), available at https://www.irs.gov/pub/irs-drop/n-24-57.pdf ↩