By Mike Ring | Blockchain Crypto Tax Prep | June 19, 2026
Your crypto clients are walking in with a new piece of paper — or a PDF, because it’s 2026 — and most of them have no idea what it means. Form 1099-DA is live. The IRS has data. And the workload sitting behind that form, specifically the cost-basis reconciliation work that the form explicitly does not do for you, is about to define the next few months for any CPA with more than a handful of digital-asset clients.
This is a practical guide. It covers what the form actually reports, where it breaks down, what your reconciliation workflow needs to look like, and how to handle capacity when the volume hits. If you want the IRS’s own overview, start at IRS: Understanding Your Form 1099-DA and come back here for the practitioner layer.
What Form 1099-DA Actually Is (and Isn’t)
Form 1099-DA, Digital Asset Proceeds From Broker Transactions, is used by brokers to report proceeds from — and in some cases, basis for — digital asset dispositions to taxpayers and the IRS. That parenthetical — “in some cases, basis for” — is doing a lot of work.
For the 2025 tax year, broker reporting on Form 1099-DA is limited to gross proceeds from digital asset sales. Cost basis reporting is not required. That changes starting with 2026 transactions — cost basis reporting is scheduled to begin with 2026 transactions, meaning the first Form 1099-DA sent out with basis data will arrive in early 2027.
In plain terms: your clients’ 2025 forms tell the IRS what was sold and for how much. They do not tell the IRS — or you — what was paid. That’s on you and your client to reconstruct.
Whether or not a taxpayer receives a Form 1099-DA, they must report all income, gains, and losses from digital asset transactions on their federal income tax return. The form is a floor, not a ceiling. It’s also a new IRS matching tool — and that’s the part that changes the risk calculus.
Like other forms in the 1099 series, Form 1099-DA provides the IRS with third-party reporting that can be matched against a taxpayer’s return. That match is now automated. The IRS’s Automated Underreporter (AUR) program is being used to match 1099-DA broker filings against returns. CP2000 notices are coming. The question is whether your clients’ returns are ready for the comparison.
The Cost-Basis Gap: Where CPAs Actually Earn Their Fees
Here’s the structural problem for every 1099-DA CPA working 2025 returns: because basis reporting is not required for 2025 transactions, many 1099-DA forms issued in 2026 will show gross proceeds but blank or incomplete basis fields.
Box 1e (cost or adjusted basis) may be blank or zero on most 1099-DAs received this filing season. The CPA must independently determine and document cost basis.
That work is significant, and it’s not evenly distributed. A client who only used one custodial exchange, never moved assets off-platform, and bought and sold within the same calendar year? Annoying but manageable. A client who:
- Bought on Coinbase in 2021
- Bridged to another chain
- LP’d into a yield farm
- Partially sold on a DEX
- Moved remainder to a hardware wallet
- Then sold through Kraken in 2025
…that client’s 1099-DA shows gross proceeds. Their cost basis lives across four years of wallet history, two chains, and a DeFi protocol that may or may not still exist. For investors with multi-year crypto histories, Form 1099-DA does not solve the cost basis problem. It exposes it.
The Wallet-by-Wallet Accounting Shift
There’s an additional compliance layer that your clients may have missed entirely. Revenue Procedure 2024-28 eliminated the universal pooling method many investors previously used. Under this guidance, crypto cost basis must now be tracked by account and wallet, not as a global average across platforms.
If a client continues to pool assets across exchanges, their cost basis calculations will not align with what Form 1099-DA reports. The result: misstated gains, duplicate entries, or underreported income — all red flags for the IRS’s reconciliation systems.
This isn’t optional housekeeping. To use specific identification, taxpayers must identify the specific lots prior to the sale. If digital assets are in the broker’s custody, taxpayers must notify the broker of the specific identification method prior to the sale. If your clients didn’t do that — and most didn’t — you’re working from imperfect records. Document your methodology and lean on the transition relief where it applies.
Noncovered Assets and the DeFi Blind Spot
Noncustodial brokers — decentralized exchanges and unhosted wallet providers — are outside the scope of these regulations. That means any activity your client did on-chain through a non-custodial platform doesn’t show up on a 1099-DA. It’s not exempt from tax; it’s just invisible to the IRS’s broker-reporting net for now.
The compliance risk is not “forgetting crypto” — it’s mismatches created when the broker form is partial, the basis is missing, or the on-chain activity sits outside what the broker can see.
For a deeper look at the missing-basis mechanics and how to document the gap, see our pillar guide: 1099-DA Missing Cost Basis: What It Means and What to Do.
Your Reconciliation Workflow: What Needs to Happen Before You Touch the Return
With Form 1099-DA, the IRS expects professional-grade reconciliation, not just spreadsheet estimates. Ad-hoc workflows lead to unbilled hours, missed cost basis, and audit failures.
Here’s a starting framework for every crypto client file:
1. Collect all 1099-DA forms first.
Each custodial broker that executed sales or other disposals of digital assets is required to issue a separate 1099-DA. A client who used three exchanges will receive three forms; a client who also used a broker-dealer offering crypto trading will receive a fourth. Don’t start reconciling against one form while the others are still in the mail.
2. Pull complete transaction history — not just exchange CSVs.
For any client with wallet transfers, on-chain activity, or multi-chain exposure, exchange CSVs alone won’t close the loop. You need wallet-level export data, on-chain records, and, where available, historical cost basis documentation from prior-year returns.
3. Reconcile proceeds against the 1099-DA line by line.
Form 8949 reconciliation is required where amounts differ from Form 1099-DA due to acquisition information from the client’s books and records. Every discrepancy needs an adjustment code and a documented reason. “The number looked high” isn’t a reason.
4. Reconstruct missing cost basis for noncovered and transferred-in assets.
Transferred-in and cross-exchange assets often have missing cost basis that must be reconstructed. This is the slowest part of the work. Build it into your time estimates before you send the engagement letter, not after.
5. Lock down your accounting method and document it.
FIFO, HIFO, specific identification — whichever method applies, it needs to be applied consistently by wallet, documented in the workpapers, and defensible on review. Maintaining appropriate books and records is critical to substantiating the specific-identification method.
6. Flag DeFi activity for separate analysis.
Staking rewards, liquidity pool positions, yield farming income — none of this lands on a 1099-DA. It’s income, it may be ordinary, and it needs its own documentation trail. See our 1099-DA missing cost basis solution page for the full documentation framework.
Handling the Volume: The CPA Crunch Is Real
For years, accounting firms have treated cryptocurrency clients as “special projects” — a senior manager scrambles to find a CSV converter, a junior staffer spends 10 hours formatting Excel columns, and the partner prays the final number is reasonable. This isn’t sustainable.
With the introduction of Form 1099-DA and increased IRS scrutiny of digital asset reporting, crypto tax preparation has moved from niche hobby to core compliance. That shift has two implications for your practice:
Implication 1: You Need a Repeatable Process
One-off workflows don’t scale. The firms that are going to handle 1099-DA season without burning staff are the ones who built standardized intake checklists, transaction normalization steps, and workpaper templates before the forms started arriving. If you haven’t done that yet, now is a reasonable time to formalize it — even mid-season — so the second wave of extended returns doesn’t hit the same walls.
For clients with complex multi-chain activity, the reconciliation work requires multi-chain transaction processing: pulling data from disparate sources (wallet exports, bridge records, DEX transaction histories) into a single normalized dataset before any tax calculation starts. That processing step alone can eat 6–10 hours on a complex file. Price accordingly.
Implication 2: Capacity Has a Ceiling — White-Label Help Exists
If you’re a general-practice CPA with several crypto clients, the honest answer is that some of these files are outside the bandwidth of your current team. That’s not a failure — it’s a specialization problem, and specialization problems have solutions.
We work with CPAs and tax professionals who need white-label digital asset support on exactly these cases: cost-basis reconstruction, multi-chain reconciliation, DeFi income classification, and Form 8949 workpapers ready for your review and signature. You own the client relationship; we handle the crypto-specific technical work.
If that describes your situation, the BCTP CPA crypto tax services page has the details on how the engagement works.
A Note on CP2000 Risk
Taxpayers should reconcile the form to wallet and exchange records, document cost basis and accounting method, and retain support in anticipation of IRS matching and automated notices.
The CP2000 risk from 1099-DA mismatches is not theoretical. Where legacy inventory is inaccurate or undocumented, broker-reported dispositions may appear to lack basis support. The IRS system sees proceeds. It doesn’t see a basis. It sends a notice proposing that the entire proceeds amount is taxable gain. Your client panics. You spend billable hours you didn’t plan for explaining something that a solid reconciliation would have prevented.
The fix is front-loading the work — reconciling before filing, not after receiving a notice.
For a deeper read on the mismatch mechanics and the documentation approach that holds up on review, visit our insights hub.
FAQ: 1099-DA for CPAs
Q: My client’s 1099-DA shows $0 in Box 1e (cost basis). Does that mean they have $0 basis?
No. Box 1e (cost or adjusted basis) may be blank or zero on most 1099-DAs this filing season because basis reporting is not required for 2025 transactions. A $0 in that box reflects the broker’s reporting limitation, not your client’s actual acquisition cost. You need to reconstruct basis from the client’s records.
Q: Does the 1099-DA cover DeFi activity?
Noncustodial brokers — including decentralized exchanges and unhosted wallet providers — are outside the scope of these regulations. DeFi activity that occurred through non-custodial platforms won’t appear on a 1099-DA. It’s still taxable. Your client is still responsible for reporting it. The IRS just doesn’t have third-party data on it yet.
Q: My client transferred crypto between exchanges before selling. How does that affect the 1099-DA?
Digital asset brokers are not required to share cost basis information with each other. If your client moves digital assets between accounts often, they’ll still need to dig up cost basis information from the originating platform or their own records. The receiving broker only knows what arrived — not what was originally paid. Transferred-in assets are noncovered by default.
Q: Can my client be audited based on a 1099-DA mismatch even if they reported correctly?
A mismatch between 1099-DA proceeds and reported figures on Schedule D or Form 8949 can trigger an automated AUR notice even when the underlying return is correct. The defense is documentation: cost basis records, adjustment codes on Form 8949, and workpapers showing the reconciliation. An audit-defensible reconstruction requires independent reconciliation, explicit lot traceability, documented assumptions, and a coherent methodology.
Q: When does cost basis reporting actually become mandatory on the 1099-DA?
Cost basis reporting is scheduled to begin with 2026 transactions, meaning the first Form 1099-DA sent out with basis data will arrive in early 2027. For the 2025 tax year — the returns you’re working on now — basis reporting by brokers is voluntary. Don’t wait for next year’s forms to solve the basis problem; the work is yours to do now.
Q: How do I handle a client whose cost basis records go back to 2017?
Carefully and methodically. Reconstruct from whatever records exist: exchange transaction histories (most major exchanges retain records), bank statements showing purchase wire transfers, blockchain explorer records for on-chain acquisitions, and prior-year tax returns where cost basis was previously reported. Revenue Procedure 2024-28 provided a safe harbor to help taxpayers transition to the new reporting requirements — review whether your client is eligible to use it for pre-2025 positions. This is one of the scenarios where specialist support is worth considering.
Q: Is universal (portfolio-level) cost basis pooling still acceptable?
No. Revenue Procedure 2024-28 eliminated the universal pooling method many investors previously used. Crypto cost basis must now be tracked by account and wallet, not as a global average across platforms. If your client’s prior returns used universal pooling, you may need to revisit those positions before they affect current-year basis calculations.
The Bottom Line
Form 1099-DA is the IRS’s way of saying: the voluntary era of crypto reporting is over. The form creates a data trail. Mismatches create notices. And the cost-basis gap — the part the form doesn’t fill in — is where your value as a practitioner lives.
The CPAs who navigate this well will be the ones who built a real reconciliation workflow, priced the work accurately, and knew when to bring in specialist capacity. The ones who underestimated the complexity are the ones debugging CP2000 responses in August.
If your practice has clients with complex digital asset activity and you need white-label reconciliation support, we work with CPAs directly. No hype, no promises about outcomes — just technically accurate workpapers and a team that has worked through every flavor of multi-chain transaction history.
This post is educational and does not constitute tax advice. Every client situation is different. Consult applicable guidance and your own professional judgment before taking a filing position on any specific matter.
Need help with your crypto taxes? Mike Ring and the BCTP team handle the messy stuff — multi-chain DeFi, 1099-DAs that don’t add up, prior-year amendments. Free consult at cryptotaxprep.io or call 410-216-4632.
This isn’t tax advice. Talk to a professional about your specific situation.
