IRS Receives Digital-Asset Reports but Investors Face Cost-Basis Conundrum

The US Internal Revenue Service (IRS) has started receiving digital-asset transaction reports from exchanges this year. However, investors are facing difficulties in calculating their actual gains and losses due to missing cost-basis information.

The problem arises because the IRS only receives proceeds reports, which show the amount a digital asset was sold for but not the original purchase price. For instance, if an investor bought Bitcoin for $9,000 and sold it for $10,000, the actual profit is $1,000. But the IRS may receive only the $10,000 sale proceeds.

This means investors must review their entire transaction history across exchanges and personal wallets to calculate their actual gains or losses. Those who moved digital assets between multiple exchanges and self-custodied wallets may have to trace purchase prices, fees, and deposit and withdrawal records over several years.

A survey conducted by crypto tax service provider Awaken Tax found that 21% of respondents who had applied for or planned to apply for a filing extension said they had not yet received the necessary information from an exchange or platform. About 20% also reported receiving incomplete or inaccurate 1099-DA forms.

Tax professionals are also finding cases where the 1099-DA forms provided by exchanges do not match investors' actual records. Sharon Yip, founder of Crypto Tax Advisors, said some clients found transactions missing from their 1099-DA forms, while document formats and cost-basis disclosures varied by exchange.