New Form 1099-DA Requirements, Full Cost-Basis Reporting, and Enhanced Compliance Reshape U.S. Crypto Taxation.
The U.S. Treasury and the Internal Revenue Service (IRS) have enacted significant reforms that will fundamentally change how cryptocurrency activity is reported and taxed in the United States. Beginning in 2026, these new rules will place expanded reporting obligations on exchanges and custodial platforms and introduce full cost-basis reporting for certain digital assets, including Bitcoin (BTC), Ethereum (ETH), and XRP.
These regulatory changes are designed to increase transparency in the cryptocurrency market, reduce errors in tax reporting, and strengthen compliance across the digital asset industry. While partial implementation begins with transactions in the 2025 calendar year, the new reporting framework will come into full force starting January 1, 2026.
As taxpayers prepare for this transition, firms such as Legal Tax Defense, Inc., a company specializing in legal tax defense and IRS debt relief services for tax levy, are tracking how the new reporting structure affects individuals and businesses involved in cryptocurrency transactions.
What Are the New IRS Rules in 2026?
One of the most significant changes is the introduction of Form 1099-DA, a new tax reporting form created specifically for digital assets. Brokers and custodial platforms are required to file Form 1099-DA for each sale or exchange of digital assets that occurs on or after January 1, 2025.
The implementation follows a two-phase approach:
- Phase One (2025 calendar year):
Brokers are required to report gross proceeds only. This means the IRS receives information about how much a digital asset was sold for, but not the original purchase price or cost basis. - Phase Two (starting in 2026):
Brokers must report both gross proceeds and cost basis for certain digital assets classified as “covered securities.” Cost basis includes the original acquisition price of the asset, along with applicable transaction fees. This allows the IRS to calculate gains and losses more directly and reduces the likelihood of reporting errors.
While the new system improves consistency, it also requires exchanges and custodial platforms to maintain significantly more detailed internal records.
How These Changes Affect Bitcoin, Ethereum, and XRP Traders
Beginning in 2026, Bitcoin, Ethereum, and XRP trades executed on custodial platforms will be automatically reported to the IRS through Form 1099-DA. For assets that are purchased and held within the same custodial account, the platform will track cost basis and report it directly.
This enhanced reporting may simplify tax filing for traders who operate within a single platform. However, investors who move digital assets between multiple exchanges or who prefer self-custody wallets must continue maintaining their own detailed records.
When cryptocurrency is transferred from one wallet to another, the transfer itself is not a taxable event. However, cost basis information does not automatically transfer with the asset. Taxpayers must track this information to ensure accurate reporting when the asset is later sold or exchanged.
For traders holding multiple cryptocurrencies, such as Bitcoin, Ethereum, and XRP, across different platforms, accurate and complete recordkeeping becomes especially important.
Crypto-to-Crypto Trades Remain Taxable
The new reporting framework does not change the tax treatment of crypto-to-crypto transactions. Exchanging one cryptocurrency for another continues to be a taxable event and must be reported accordingly.
While improved reporting by custodial platforms may assist with tracking some transactions, traders using decentralized platforms or self-custody wallets remain responsible for calculating gains and losses on their own.
Transition Relief and IRS Enforcement Approach
Due to the complexity of the new reporting requirements, the IRS has provided transitional relief for brokers and custodial platforms. This relief protects platforms from certain penalties during the early implementation period, provided they make a good-faith effort to comply with the new rules.
This transitional relief applies to platforms, not taxpayers. The IRS has continued enforcement efforts related to unreported cryptocurrency income, signaling that taxpayers remain responsible for complying with all reporting requirements. As the new reporting system becomes routine, enforcement is expected to become more precise.
Policy Reversal Affecting DeFi and Decentralized Exchanges
In early 2025, Congress rolled back an IRS rule that sought to extend broker reporting obligations to decentralized finance (DeFi) platforms. Using the Congressional Review Act, lawmakers prevented the IRS from requiring certain DeFi platforms to collect user information and report transactions.
While this rollback reduces immediate regulatory pressure on decentralized platforms, it does not conclude the broader discussion. Lawmakers and regulatory agencies continue to evaluate how DeFi activity should be taxed, and future legislation or rules may introduce new reporting requirements.
Updates on Staking Rewards and Investment Vehicles
In 2025, the IRS issued guidance clarifying how staking rewards are treated for tax purposes. Staking rewards are considered taxable income upon receipt. Any subsequent sale of the rewarded cryptocurrency results in a separate capital gain or loss calculation.
This guidance applies to proof-of-stake networks such as Ethereum, where participants may receive staking rewards regularly throughout the year. The IRS also opened the door for certain investment vehicles, including trusts and exchange-traded products, to participate in staking activities without losing their tax-favored status. This expands the range of financial products that can support staking.
Recordkeeping Becomes More Important Than Ever
With expanded reporting requirements, precise recordkeeping is critical. Each transaction should be documented with accurate timestamps, transaction fees, and cost-basis information to avoid errors and potential penalties.
Major tax software companies and crypto tax platforms are already updating their systems to support Form 1099-DA and expanded cost-basis reporting. These tools are expected to help taxpayers reconcile their personal records with broker-reported information beginning in 2026.
Overall Impact on the Crypto Market
The IRS rule changes reflect a broader shift toward increased oversight and transparency in cryptocurrency trading. The two-phase rollout places crypto taxation on a framework more closely aligned with traditional securities reporting.
Traders, exchanges, and custodial platforms will need to adjust to the new requirements, but the long-term goal is a clearer and more consistent regulatory environment for the growing digital asset economy.
As these changes approach full implementation, taxpayers involved in Bitcoin, Ethereum, XRP, and other digital assets are encouraged to understand how the new reporting rules may affect their tax obligations.
About Legal Tax Defense, Inc.
Legal Tax Defense, Inc. is a U.S.-based firm specializing in legal tax defense and IRS debt relief services for tax levy. The firm assists taxpayers facing complex IRS-related matters as federal tax reporting requirements continue to evolve.
For more information, visit: https://www.legaltaxdefense.com/
For any inquiry, contact Steven J. Hirsch (Partner, Legal Tax Defense) at admin@legaltaxdefense.com.
Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No journalist was involved in the writing and production of this article.