Tax Season 2026: How Form 1099-DA Will Transform Cryptocurrency Tax Enforcement
KEY TAKEAWAYS
- Form 1099-DA took effect January 1, 2025 — first standardized digital asset reporting for custodial brokers
- DeFi platforms permanently exempt — following April 2025 Congressional repeal
- Significant gaps remain — requiring supplemental on-chain analytics for comprehensive compliance
A New Era in Digital Asset Reporting
Tax Season 2026 marks a turning point moment for U.S. tax administration. Form 1099-DA ("Digital Asset Proceeds From Broker Transactions") will provide the IRS and state agencies their first standardized data source for cryptocurrency transactions.
Yet 1099-DA represents both a breakthrough and a challenge. While it dramatically improves visibility into custodial exchange activity, a substantial portion of the digital asset economy will continue to operate outside its scope.
What Form 1099-DA Reports
Beginning with 2025 transactions (reported in 2026), custodial brokers must report gross proceeds, customer identity, asset type, and transaction dates. Cost basis reporting becomes mandatory for assets acquired on or after January 1, 2026.
Transition relief: Per Notice 2024-56, the IRS will not impose penalties for 2025 transactions if brokers make a "good faith effort" to comply.
Critical Update: The DeFi Broker Rule Repeal
On April 10, 2025, President Trump signed H.J.Res.25 into law — the first cryptocurrency bill ever signed into U.S. law — permanently repealing IRS DeFi broker reporting requirements. Under the Congressional Review Act, the IRS cannot issue similar rules without new Congressional authorization. The Congressional Budget Office projected this will reduce federal revenue by $4.5 billion through 2035.
This means decentralized exchanges, DeFi protocols, liquidity pools, and non-custodial wallets are definitively exempt from 1099-DA reporting. Centralized exchanges, custodial wallet providers, and digital asset payment processors remain subject to reporting.
The Compliance Gaps Tax Authorities Must Address
1. DeFi and DEX Activity
Token swaps on decentralized exchanges, liquidity pool rewards, and yield farming all generate taxable income but will not be reported following the legislative repeal. Recent enforcement cases demonstrate the stakes: one taxpayer in Pennsylvania pleaded guilty to underreporting over $13 million in DeFi-related gains from selling NFTs.
2. The Pseudonymity Problem
Wallet addresses reveal no personal information. Users maintain multiple wallets, operate under aliases, and use ENS domains that obscure identity. Tax authorities need identity inference capabilities, not just identity declarations.
3. Cost Basis Challenges
When taxpayers transfer crypto between exchanges or wallets, the receiving platform often cannot report an accurate cost basis. Assets acquired before 2026 are "noncovered securities" with no mandatory basis reporting.
4. NFT and Creator Income
While custodial NFT sales are reportable, most NFT activity occurs on decentralized marketplaces now exempt from reporting. Creator royalties — taxable as ordinary income — flow through smart contracts without broker involvement.
Note on Staking/Mining: Per IRS instructions, staking rewards and mining income are intentionally excluded from 1099-DA — they're reported on Form 1099-MISC. This is by design, not a gap.
Strategic Implications for Tax Agencies
- Expect behavioral adaptation. As custodial exchanges become transparent, some taxpayers will migrate to exempt DeFi platforms.
- 1099-DA alone won't support comprehensive enforcement. Agencies need on-chain analytics for transaction reconstruction, wallet clustering, and identity attribution.
- Build crypto enforcement programs now. This includes staff training, policy development, and analytics partnerships.
Bridging the Enforcement Gap
Comprehensive crypto enforcement requires capabilities beyond 1099-DA: identity resolution linking wallets to real taxpayers, unified multi-wallet profiles, full transaction reconstruction with audit-ready evidence, and detection of unreported revenue streams including NFT royalties and DeFi income.
IVIX's crypto compliance platform provides these capabilities, helping federal and state agencies detect unreported digital asset activity and close the compliance gap that 1099-DA cannot address.
Conclusion
Form 1099-DA represents a significant advance in digital asset tax enforcement — but it's not the complete solution. With DeFi permanently outside reporting requirements and the $4.5 billion projected revenue impact, tax authorities must supplement broker reporting with on-chain analytics to fully understand taxpayer behavior and enforce compliance effectively.
Request an IVIX demo — Prepare your agency for Tax Season 2026 and beyond.
This article is for informational purposes only and does not constitute legal or financial advice.
