A poll of 1,000 American crypto investors reveals that over half are scared of facing IRS penalties due to new automatic reporting requirements for digital asset transactions. Crypto tax platform Awaken Tax conducted the survey at the end of January, highlighting concerns over the shift from self-disclosure to mandatory disclosures by exchanges. The rules, effective for 2025 transactions, aim to curb tax evasion but have sparked confusion among users.
New IRS regulations require crypto exchanges, such as Coinbase, to issue Form 1099-DA to report all sales and exchanges of digital assets from 2025 to the tax agency starting this week. This form, known as Digital Asset Proceeds From Broker Transactions, provides the IRS with a view of investor gains and losses by comparing exchange reports against taxpayer filings, marking the first time customer data from brokers is systematically shared.
The changes represent a significant departure from previous self-reporting practices, intended to address low compliance rates in crypto taxation. Awaken Tax founder Andrew Duca described the rules as a 'blunt instrument' devised by legislators unfamiliar with cryptocurrency dynamics. 'It means crypto is being treated like stocks, but it doesn’t behave in that way. Real crypto users will move assets between multiple wallets and interact with decentralized finance (DeFi) protocols, using pretty complex trading strategies,' Duca stated.
Exchanges can only report proceeds from sales, not the tax basis—typically the purchase price plus acquisition costs—necessary for calculating capital gains or losses. Duca noted that this limitation means forms like those from Coinbase may contain incomplete information. For instance, if bitcoin is transferred from a cold storage wallet to Coinbase for sale, the exchange lacks knowledge of the original acquisition price. 'Coinbase actually cannot send the right information... The 1099-DA form reports proceeds, but it doesn’t report tax basis,' he explained.
As a result, the responsibility falls on individual holders to provide missing details through the IRS's updated Form 8949. Duca acknowledged that fewer than 20% of crypto holders currently report accurately, and while the rules are 'kind of horrible for crypto users,' they aim to boost compliance from 20% to 80% quickly. 'It’s really not been thought out well... They just added this super blunt instrument to try to get that 20% up to 80% in a year,' Duca said.
The poll underscores widespread anxiety, with over half of respondents fearing penalties amid this transition.
