IRS to Track Your Crypto: Time to Panic or Prepare? 🤔💰

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A tax guru is warning crypto traders, especially the stealthy ones, about the new 1099-DA form that’s coming in 2026. Even if you think it’s a bit much, reporting is crucial to avoid being flagged as a tax dodger.

IRS to Track Crypto Across Wallets and Chains

A crypto tax wizard has issued a stark warning to crypto traders, particularly those who like to keep a low profile, about a major shock coming their way with the mandatory filing of the 1099-DA form. According to Clinton Donnelly, CEO of Crypto Tax Audit, the 1099-DA isn’t just another form; it’s the “beginning of a crypto tax revolution.”

Starting in 2026, the IRS will start sending out Form 1099-DA to report digital asset transactions, including cryptocurrencies and NFTs. This form will be sent to both taxpayers and the IRS by brokers like exchanges, wallet providers, and payment processors. It will include all the juicy details like gross proceeds from sales or exchanges, cost basis, acquisition dates, and transaction specifics such as asset type and quantity.

The goal? To make sure everyone’s playing by the tax rules and to bring some much-needed transparency to the crypto world. Brokers will have to apply the first in, first out (FIFO) accounting method on a wallet-by-wallet basis, and taxpayers might need to opt into a Safe Harbor provision to avoid retroactive penalties. 📊

In a July 15 X post, Donnelly breaks down what this means for U.S. crypto users and how they can stay on the right side of the IRS.

“If you’ve sold or transferred crypto from a U.S.-connected centralized exchange, you’ll be getting a 1099-DA,” Donnelly announced.

The tax guru explains that the 1099-DA will require details of every crypto purchase or transfer made by U.S. crypto users, including the wallet addresses involved. Even if you move your crypto from a U.S.-based exchange to a hardware wallet, the IRS will still know the address is linked to you. Over time, this allows the IRS to map out your entire crypto portfolio by connecting the dots between different wallets and chains. 🕵️‍♂️

Consequences of Non-Compliance: Automated Bills and Watchlists

To avoid getting a nasty surprise from the IRS, Donnelly advises users to self-report their sales or transfers using their cost basis. This prevents the IRS from assuming the full amount is taxable profit. He warns that failing to report can lead to an automated CP2000 notice, where the IRS calculates the tax for you based on incomplete info—and sends you the bill. 😱

As previously reported by TopMob, the IRS has ramped up the number of CP2000 notices sent to crypto users, signaling a broader enforcement wave. These notices mean the IRS has calculated the tax owed, and you have 30 days to respond.

Donnelly emphasizes that reporting, even if you disagree with the 1099-DA, is essential to avoid being added to the IRS’s watchlist for crypto underreporting. 🚨

Donnelly’s X post also offers tips for both single-exchange users and those juggling multiple platforms.

“If you’re a simple investor who sticks to one exchange (like Coinbase) and never moves assets off-platform, you’re in the best position. Coinbase will track your cost basis and report both sides of the trade in future years—just like a stock broker issuing a 1099-B,” Donnelly explained.

However, for crypto traders using several platforms, Donnelly advises them to “proactively track your cost basis” and prepare for a “complex” filing process. 🤯

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2025-07-16 11:57