The Internal Revenue Service has significantly escalated its enforcement of cryptocurrency tax compliance, implementing new mandatory reporting requirements for the 2026 tax year that fundamentally change how digital asset transactions are documented and taxed.
The most significant change is the full implementation of Form 1099-DA, which requires centralized exchanges, hosted wallet providers, and certain digital asset processors to report gross proceeds from digital asset transactions to both taxpayers and the IRS. This brings crypto reporting closer to traditional brokerage accounts. However, a critical distinction remains: while brokers must report gross proceeds, they are not required to report cost basis to the IRS for the 2025 tax year, leaving investors fully responsible for calculating and reconciling their adjusted cost basis across platforms.
According to Andrew Duca, founder of tax platform Awaken Tax, "This year, we are seeing the IRS clampdown on crypto tax evasion more than ever before. The IRS's Criminal Investigation division is going after crypto cases more and more." His warning comes just before the April 15 filing deadline for US crypto investors.
The compliance gap is substantial. A March 2026 report by Coinbase and CoinTracker shared with DL News revealed that approximately 61% of US crypto investors are unaware of the IRS's new reporting rules for the 2025 tax year, describing an "environment of high compliance intent but low functional understanding." Duca added that 52% of US crypto investors are worried about filing their crypto taxes incorrectly this year and receiving an IRS penalty.
The new 2026 requirements introduce mandatory cost-basis documentation. The IRS now requires brokers to physically trace the "cost basis" of each asset from acquisition to disposition. Taxpayers can no longer rely on general estimates or "universal wallet" averages; they must verify the specific purchase price and date for every token sold. The Treasury has introduced a simplified electronic consent process allowing brokers to terminate relationships with customers who refuse to participate in the new digital reporting framework.
Enforcement consequences are severe. Criminal tax fraud can lead to fines up to $100,000 and five years in prison, according to Cornell Law School. Duca emphasized that "the consequences of voluntarily coming forward rather than being caught out are far less," urging investors to file honestly and in good faith.
The IRS is also targeting the DeFi and self-custody space. While the Trump administration recently ordered the repeal of "DeFi Broker" regulations that would have treated front-end service providers like Uniswap as reporting entities, the IRS remains committed to tracing on-chain activity through advanced forensic auditing. The agency warns that investors using self-custody to "dodge" reporting requirements face high audit risks, as blockchain transparency allows retrospective mapping of anonymous wallets to KYC-verified exchange accounts.
For crypto investors, the message is clear: maintain meticulous records of all on-chain activity and ensure accurate reporting across all platforms and wallets to avoid significant penalties in this new era of hardened crypto tax enforcement.
