Brokers began reporting digital asset sales to the IRS on Form 1099-DA for transactions on or after January 1, 2025, and basis reporting follows for covered transactions from January 1, 2026. For a taxpayer whose crypto activity sits entirely on one large exchange, that is mostly good news. The form arrives, the numbers are close, and the return gets easier to prepare.
The difficulty belongs to everyone else. Broker reporting covers a narrower slice of the digital asset economy than most people assume, and the IRS will be matching what it does receive against filed returns. A gap between the two is not evidence of underreporting. It is frequently evidence that the reporting system does not yet see the whole picture.
If you hold digital assets across multiple wallets, have prior-year transactions you are unsure about, or have received an IRS notice about crypto, Whiteford Tax Defense can reconstruct the record, deal with the IRS on your behalf, and tell you where you actually stand. Contact us for a confidential case evaluation.
What the new reporting does and does not capture
The IRS treats digital assets as property rather than currency, and its definition reaches cryptocurrency, stablecoins, and non-fungible tokens. Sales, exchanges, payments, and rewards can all be reportable even when no dollars ever moved through a bank account.
Form 1099-DA is the mechanism. Custodial brokers report gross proceeds on transactions effected on or after January 1, 2025 and basis on certain transactions from January 1, 2026. Real estate reporting persons treated as brokers report the fair market value of digital assets paid and received in transactions closing on or after January 1, 2026.
Three limits on that coverage matter more than the rules themselves.
Decentralized finance is out. Treasury issued regulations in late 2024 that would have treated trading front-end service providers as brokers. Congress disapproved those regulations under the Congressional Review Act, and the resolution was signed in April 2025. DeFi front-ends therefore do not issue Forms 1099-DA. If your activity runs through a decentralized exchange, no third party is reporting it, and the entire burden of getting it right sits with you.
Several common transaction types are exempt for now. Under transitional guidance, brokers are not required to report wrapping, liquidity provider transactions, staking, digital asset lending, short sales, or notional principal contracts pending further rules. Those activities can still generate taxable income. The absence of a form is not the absence of an obligation, and this is the gap most likely to produce an honest mistake.
Basis is the weak link. A broker that receives a transferred-in position often does not know what you originally paid. Gross proceeds without basis will look, on an automated screen, like a large gain. Rules now require identifying units on an account-by-account basis rather than tracking a single universal pool, and a 2024 revenue procedure let taxpayers allocate unused basis across their wallets and accounts as of January 1, 2025. If you missed that, the position is better than it looks.
Transitional relief on wallet-level identification has been extended through December 31, 2026. That is a real deadline attached to a real problem, and it is the best reason to deal with basis this year rather than next.
None of this means a Form 1099-DA is wrong. It means gross proceeds are not taxable gain, and that the distance between the two has to be documented rather than asserted.
The return question is narrower than people think
Individual, partnership, corporate, estate, and trust returns all ask whether the taxpayer received, sold, exchanged, or otherwise disposed of a digital asset or a financial interest in one.
Answering "No" is correct if you did not own digital assets, if you only held them without transacting, or if you purchased them with dollars and did nothing else. Moving assets between wallets you control is also a "No," with one trap: if you paid the transfer fee in digital assets, that fee is itself a disposition and the answer becomes "Yes." IRS guidance sets these conditions and the wording has shifted between filing seasons, so read them against the current year's Form 1040 instructions rather than from memory.
The events people miss are ordinary ones. Swapping one token for another is a taxable disposition, not a like-kind exchange. Section 1031 has been limited to real property since the 2017 tax act, which forecloses the argument outright for current years. For pre-2018 years the position was contested rather than settled, which is a different thing from unavailable. Receiving tokens for services is compensation. Mining produces income.
Staking rewards are includible when you gain dominion and control over them, a position a court upheld on the merits in June 2026 after an earlier challenge ended without a ruling. The argument that staking income waits until sale is weaker than the internet suggests. Using crypto to buy something is a sale of the crypto. Selling an NFT is a disposition like any other.
The question itself computes nothing. It tells the IRS that digital asset activity may exist and invites the agency to look.
Losses are harder to claim than people expect
A decline in market value does not by itself produce a deduction. Recognition generally requires a closed and completed transaction, which is why a position that is merely down, or locked in an account you cannot access, usually gives you nothing to deduct yet.
Frozen accounts and bankrupt platforms are the recurring version of this problem. The tax question is not whether the asset lost value but when the loss became fixed, and that often turns on the progress of a bankruptcy rather than on the market. Taxpayers who wrote off a failed platform in the year it collapsed sometimes claimed the loss in the wrong year, which is its own exposure.
Worthlessness and abandonment carry their own requirements, and for a scam or a fraudulent platform the characterization decides everything. A personal theft loss now sits under a permanent restriction rather than a temporary one: the 2025 tax act made the disaster-only limitation on casualty and theft losses permanent instead of letting it sunset, so a personal theft loss generally goes nowhere unless it traces to a federally declared disaster.
A loss on a transaction entered into for profit is analyzed on different ground. Which side of that line a particular crypto fraud falls on is a fact question, and it is the difference between a deduction and nothing at all. This is the area of digital asset tax where confident internet advice is most often wrong.
One asymmetry runs the taxpayer's way. The wash sale rule that stops stock investors from harvesting a loss and buying back within thirty days is written to reach stock and securities, and it does not currently reach digital assets. Proposals to extend it have circulated for years and it remains a live legislative target, so the advantage is real today and should not be assumed permanent.
Why this lands differently in the Mid-Atlantic
Three features of this region make digital asset tax problems more common and more tangled than the national picture suggests.
Mining and infrastructure. Northern Virginia holds the largest concentration of data center capacity in the world, and Maryland and Pennsylvania have absorbed the overflow. Mining and hosting arrangements built around that infrastructure involve equipment owners, hosting providers, pool operators, and power contracts, and the tax characterization follows the actual contractual relationships rather than the label anyone puts on the payment. Whether a receipt is business income, investment income, or compensation is a question about the arrangement, not about the word "mining."
Platforms and licensing. New York regulates digital asset business activity through a licensing regime that has no counterpart in most states, and a business operating across the corridor can face materially different obligations in New York than in Virginia or Delaware. Delaware remains the formation jurisdiction of choice for token issuers and crypto ventures, which puts entity-level questions in a different state from the operations they govern.
State conformity turns one adjustment into several, and Pennsylvania is the outlier. Most states in the region compute taxable income starting from a federal figure, so a federal crypto adjustment tends to flow through to the state return on its own. Pennsylvania does not work that way. It taxes income by class, and a loss on crypto nets only against gains in the property class. It cannot offset wages.
A Pennsylvania taxpayer with a large trading loss and a salary can therefore get federal relief and no state relief at all, which is the kind of surprise that arrives after the return is filed. Virginia's fixed-date conformity adds a timing wrinkle when federal law changes mid-year. And a taxpayer who lives in one jurisdiction, works in another, and holds an interest in an entity formed in a third can face three revisions from a single IRS change, on three different timelines.
Automated enforcement needs matching taxpayer service
Automated matching only works if the IRS can reach the taxpayer, and the agency's ability to do that rests on account information it still maintains largely by hand.
The AICPA wrote to IRS Taxpayer Services on August 24, 2026 to make exactly that point about something as basic as a name or address change. Those updates take six to eight weeks and sometimes longer, because the process still depends on paper filings and manual review. Form 8822 and Form 8822-B go in on paper; a business name change requires a signed letter with supporting state documentation.
The AICPA's members report the predictable consequences: notices mailed to the wrong address, rejected correspondence, delayed refunds, additional interest, lost appeal rights, and escalated collection activity. The letter recommends electronic submission through existing online accounts, automated verification against state corporation registries and the Postal Service change-of-address database, visible status tracking, and manual review reserved for requests that actually look risky.
That is not a tangent. A crypto mismatch surfaces as a notice, the notice starts a clock, and the clock runs whether or not the notice reached you. A taxpayer who moved, or whose business changed its name, can lose a response window to a filing cabinet. Pairing automated detection with manual account maintenance is the combination most likely to turn a recordkeeping problem into a collection matter.
The IRS is right to require accurate crypto reporting, and a transaction does not escape tax because it happened on a blockchain. The agency should build the other half: usable ways to correct broker data, explain wallet transfers, document basis, and resolve a mismatch before an automated notice becomes an assessment.
What to do before the IRS raises it
Records are easiest to gather before anyone asks for them, and exchanges do not keep them forever.
- Pull your transaction histories now. Export from every platform you have used, including ones you no longer trade on. Accounts close, platforms fail, and systems get replaced.
- Collect the forms you received. Forms 1099-DA, 1099-B, 1099-MISC, and 1099-K may each cover part of the picture, and none of them covers all of it.
- Map transfers between your own wallets. These are the transactions most likely to look like unreported sales on an automated screen, and the easiest to document if you do it early.
- Reconcile proceeds against basis. Gross volume is not gain. Confirm whether you made a wallet-by-wallet basis allocation as of January 1, 2025. If you did not, transitional relief on wallet-level identification runs through December 31, 2026, which makes this a this-year problem rather than a someday problem.
- Separate the buckets. Personal investment, business activity, mining, and services received are taxed differently, and the distinction is a fact question about what you were doing.
- Review prior returns. Look for omitted swaps, rewards, staking income, and NFT sales, particularly in years before broker reporting existed.
- Preserve valuation support and fee records. Fair market value at the moment of a transaction, and the fees paid, both affect the result.
- Get advice before responding to an examination request or a summons. What you say early in a crypto matter tends to define the rest of it.
Where prior returns contain errors, the right correction depends on the facts. An amended return resolves some situations. Where several years, substantial amounts, missing records, or potential penalties are involved, the response needs to be structured deliberately, and the choice between correcting quietly and disclosing formally is a legal judgment rather than an accounting one.
Why Whiteford
Whiteford's Tax Section handles federal tax controversies at the administrative and judicial levels, and the firm's digital asset experience spans the tax, transactional, regulatory, and litigation sides of the subject.
Michael March, Co-Chair of the Tax Section, has managed civil tax controversies through examination, the IRS Independent Office of Appeals, and the United States Tax Court, and has represented individuals before the Department of Justice in federal district courts across Maryland, Virginia, West Virginia, Delaware, Florida, and the District of Columbia. The firm's broader bench includes lawyers handling fintech and token issuer structuring, blockchain and distributed-ledger compliance, Delaware litigation over token structures, and crypto-asset recovery disputes in bankruptcy.
That range matters because a digital asset tax question rarely stays a tax question. It runs into how an entity was formed, what a hosting or pool agreement actually says, which regulator has a claim on the activity, and whether a failed platform's bankruptcy estate is coming after a withdrawal you made two years ago.
Whiteford serves the region from offices in Baltimore, Towson, Columbia and Rockville, Maryland; Washington, D.C.; Falls Church, Richmond, Roanoke and Virginia Beach, Virginia; Wilmington, Delaware; Pittsburgh; and New York City and White Plains.
Frequently asked questions
I received a Form 1099-DA showing large proceeds. Do I owe tax on that amount?
Almost certainly not on the full amount. Gross proceeds are what you sold for, not what you gained. Your basis, holding period, transaction fees, and the character of the activity all sit between proceeds and taxable gain. If the form shows no basis, that usually means the position was transferred in and the broker never knew your cost, not that your cost was zero.
I trade on a decentralized exchange. Will I get a form?
No. The regulations that would have required trading front-end service providers to report were disapproved by Congress and revoked in 2025. DeFi activity generates no Form 1099-DA, which means no third party is documenting it for you and no third party is documenting it for the IRS either. Your own records are the only records.
I stake and lend my crypto but never received a form. Is it taxable?
Probably, and the missing form does not change that. Brokers are currently not required to report staking, lending, wrapping, or liquidity provider transactions pending further guidance, but the underlying income is still income. Staking rewards are generally includible when you gain dominion and control over them.
Are transfers between my own wallets taxable?
Moving assets between wallets you control is not a disposition, and it lets you answer "No" to the return's digital asset question. One exception catches people: if you paid the network or transfer fee in crypto, that fee is a disposition of the crypto you spent, and the answer becomes "Yes."
I hold crypto on a foreign exchange. Do I have to file an FBAR?
Probably not on that basis alone, and the two regimes should not be blurred together. The FBAR regulation still does not enumerate virtual currency, and a 2020 FinCEN proposal to add it was never finalized. Form 8938, the FATCA form, is the more likely hook and turns on different tests. Separately, an account that holds foreign currency or securities alongside crypto can trigger the FBAR on its own terms. Analyze each regime on its own rather than assuming one answer covers both.
My exchange went bankrupt and I cannot access my assets. Can I deduct the loss?
Usually not yet, and the year matters. A decline in value is not a deductible loss, and recognition generally requires a closed and completed transaction. When the loss becomes fixed often depends on the bankruptcy rather than the market, and claiming it in the wrong year creates its own problem. This is worth an opinion before it goes on a return.
I did not report crypto in earlier years. What should I do?
Do not start by filing something. The right correction depends on how many years are involved, the amounts, the quality of your records, and whether anything looks willful. An amended return is right in some cases; in others a more structured disclosure is, and that choice carries consequences you want settled before the first filing goes in. Talk to a lawyer rather than only to a preparer, because the analysis includes exposure and privilege, not just arithmetic.
Talk to a tax attorney before the notice arrives
If you have unreported digital asset activity, received a Form 1099-DA that does not match your records, are facing a crypto-related examination or an automated mismatch notice, or are holding losses from a failed platform you are not sure how to treat, the useful time to get advice is before the IRS opens the conversation. Contact Whiteford Tax Defense for a confidential case evaluation.
This article is general information about federal tax administration, not legal advice, and it does not create an attorney-client relationship. Digital asset tax guidance is changing quickly; verify any rule described here against current guidance before relying on it.
Sources: IRS, Digital assets; IRS, Final regulations and related IRS guidance for reporting by brokers on sales and exchanges of digital assets; IRS, Instructions for Form 1099-DA; AICPA letter to IRS Taxpayer Services, “Recommendation to automate IRS processes for name and address changes” (Aug. 24, 2026).