IRS Can See Your Crypto Sales — The Cost-Basis Mystery That Could Cost You
Welcome to tax season, crypto edition
Imagine you wake up to a bland email: “Your tax forms are ready.” Snooze-button energy turns into a minor panic when you open the attachment and discover that your shiny little crypto sale shows up as a tidy number — but there’s no note about what you actually paid. That’s the thing with the new 1099-DA rollout: it loves showing exits (what you sold for) and is much less enthusiastic about the messy middle (what you paid).
Meet Maya — part-time designer, full-time human being with bills. She bought crypto here, moved it there, swapped things around, and sold when rent was due. The exchange that saw her sell reports the proceeds. The exchange that saw her buy? Maybe not. The result: a form that makes the IRS and your tax software say, “Hmm, interesting,” while your true cost basis hides under a pile of wallet exports and old app notifications.
Why this matters (and how it goes sideways)
The new reporting system makes brokers send gross proceeds for many 2025 transactions. Translation: the IRS gets a clean exit price for lots of sales, but in many cases the box for cost basis is left blank because brokers don’t have a defensible purchase history — especially when coins move between wallets and platforms.
That gap is where the trouble lives. If you import a form into tax software and assume everything is done, you can accidentally report a far bigger gain than you actually have. Quick math: sell for $50,000, real basis $40,000, true gain $10,000. If that $40,000 basis never makes it into your filing, the reported gain could look like $50,000. Ouch.
Why does this happen so often? Crypto life tends to be messy: dollar-cost averaging across multiple exchanges, withdrawing to self-custody, swapping tokens on decentralized platforms, wrapping and unwrapping — and then finally dumping into an exchange to sell. The broker who reports the sale often only sees the final step. The IRS has started baking rules that favor tracing basis at the account or wallet level, which quietly rewards people who never moved their coins off-platform.
There’s also an automated matching machine humming in the background. The IRS compares what brokers report with what taxpayers file, and when numbers don’t match, that often triggers a notice asking you to explain the difference. In short: missing basis can mean an audit-like letter, an extra payment, or at minimum a headache you didn’t budget for.
What to do now (practical steps, not drama)
Don’t panic, but don’t hit “import and submit” like it’s a game achievement. Here’s a simple checklist to survive the era of visible proceeds and invisible bases:
– Gather your records: exchange statements, wallet exports, transaction histories from any apps or block explorers you used. The receipts live in lots of places.
– Rebuild your basis before filing: match buys to sells where you can, document transfers, and note dates. If you sold coins you previously moved between accounts, track down the original purchase data.
– Use software or pros wisely: tax software helps, but double-check any automated import. If your history is a maze of wallets and swaps, a tax pro can save you time and money (and sanity).
– Watch for CP2000-style letters: if the IRS flags a mismatch, respond with your records and a clear explanation. Deadlines matter — don’t let a small notice turn into a bigger problem by ignoring it.
– Know the exceptions: some complex crypto actions — staking, certain liquidity or lending moves, wrapping/unwrapping — have tricky reporting rules and may not fit neatly into the new form. Keep extra documentation for those.
The long view: more automatic reporting is coming, worldwide. That makes accurate record-keeping more important than ever. Treat crypto like an asset that expects paperwork, not just an app that feels fun to move coins around in.
Bottom line: the new forms reveal what you sold, but often not what you paid. If your transaction history looks like a scavenger hunt, start collecting receipts. This is informational and not tax advice — if your situation is messy, call a tax professional who knows crypto so you don’t pay more than you should.