IRS Puts Exchanges in the Spotlight with New Crypto Tax System

In a proposal released Thursday, the U.S. IRS (Internal Revenue Service) said it plans to allow crypto brokers such as Coinbase and Kraken to require electronic delivery of digital asset tax forms rather than offering optional paper copies.

The proposed rule centers on Form 1099-DA, the new reporting document for digital asset transactions.

IRS Moves Toward Digital-Only Crypto Tax Reporting with Form 1099-DA

New guidelines under the tax authority’s digital asset reporting framework could change how crypto traders receive tax documents and how exchanges report user activity.

Beginning this year, crypto brokers are required to report both the gross proceeds and cost basis of digital asset sales to the IRS.

A Shift Toward Digital Tax Reporting

The IRS said the change would simplify how brokers deliver tax forms and reduce the administrative burden associated with paper reporting.

“These proposed regulations would generally not require brokers to furnish the 1099-DA statements on paper to any customer that does not consent to receiving these statements electronically,” the agency wrote in the proposal.

Under the new rule, exchanges could deliver tax forms exclusively through digital channels such as user dashboards or email notifications.

In some cases, brokers may even be permitted to terminate services for customers who refuse electronic delivery.

The proposal reflects a broader IRS push to modernize its tax infrastructure as cryptocurrency trading becomes increasingly mainstream.

Expanded Reporting Requirements

The electronic delivery proposal arrives as the IRS begins implementing a new system for tracking digital asset transactions.

Under current rules that took effect this year, crypto brokers must report detailed information about users’ trades using Form 1099-DA.

The reporting includes both gross proceeds and cost basis, allowing the IRS to automatically calculate potential gains or losses associated with a user’s crypto activity.

For regulators, the new framework represents a significant leap forward in visibility over crypto trading.

Historically, tax authorities relied heavily on self-reporting by crypto investors, which created gaps in enforcement.

With direct reporting from exchanges, the IRS now receives structured transaction data that can help detect underreported capital gains or unreported crypto sales.

Rising Scrutiny of Crypto Investors

The agency’s push toward stronger reporting follows a surge in enforcement efforts targeting digital asset users.

Crypto tax platform CoinLedger reported a sharp increase last year in the number of U.S. investors receiving IRS warning letters related to their digital asset activity.

Many of these letters served as reminders that cryptocurrency transactions may be taxable events and must be disclosed on federal tax returns.

On Reddit, a crypto investor described receiving Letter 6174, a notice reminding taxpayers to report digital asset transactions.

“The other week, I got a letter from the IRS in the mail about my Bitcoin activity, and I panicked way more than I should have,” the user wrote. “For a second, I was genuinely afraid I was at risk of an audit.”

However, the investor later learned the notice was informational and that similar letters had been sent to many crypto holders, including some who had not sold any assets.

Proposal Still Open for Feedback

The IRS proposal allowing electronic-only delivery of crypto tax forms has not yet been finalized. The agency is currently accepting public comments before deciding whether to formally adopt the rule.

The change could mark another step toward integrating crypto into the broader financial compliance framework.

At the same time, the policy debate over crypto taxation continues in Washington. In the past, President Donald Trump has expressed interest in eliminating taxes on certain U.S.-based crypto activities.

This highlights the ongoing political discussion surrounding digital asset regulation. In the meantime, however, the IRS appears focused on tightening oversight of the fast-paced crypto economy.