Crypto taxpayers are in for a rude awakening.
We’re 16+ years into Bitcoin, yet taxpayers and CPAs still pretend that tax guidance remains unclear or even nonexistent. The IRS is gearing up for a historic wave of compliance audits targeting the crypto space, and taxpayers have no idea what they’re in for.
Last year, the IRS issued Revenue Procedure 2024-28, fundamentally changing how crypto should be tracked from a tax perspective. Providing crystal clear guidance, safe harbors for taxpayers to get compliant, and deadlines to migrate by. The rules are clear, the expectations set, with the IRS quietly positioning itself to issue a wave of compliance audits for those still with their head in the sand.
The reckoning is already beginning as we’re seeing an unprecedented amount of 6174, 6174-A, and 6173 letters being sent out by the IRS.
Typically, this time of the year is quiet. But for the past several weeks, our phone has been ringing non-stop from taxpayers receiving these notices from the IRS demanding they get compliant “or else.” And it’s not just us – crypto tax firms across the board are reporting the same activity, indicating the IRS knows taxpayers have casually engaged in crypto tax evasion, and they are here to collect what they’ve failed to collect for the past decade.
Strategically pairing Rev-Proc 24-28 with the release of the new Form 1099-DA, the IRS is positioned to blindside taxpayers and CPAs who have neglected getting compliant. The 2025 tax year will be pivotal as the IRS now has an abundance of ammunition to use in audits. Gone are the days where taxpayers could defer to defenses like “well, the guidance was unclear, so I just did my best.” The IRS has been explicit, the guidance is clear, and the penalties for non-compliance have been outlined, yet taxpayers and CPAs still assume we’re in the Wild West.
On top of this, Form 1099-DAs will be issued to both taxpayers and the IRS alike by brokers, but there’s a major catch: the form won’t include cost basis for the 2025 tax year, and will almost certainly include incorrect cost basis for years after.
That means when you transfer assets into an exchange and later sell them, the sale gets reported — but the exchange has no idea what you originally paid. In the absence of that information, the form defaults to showing a $0 cost basis. To the IRS or a traditional CPA, it looks like pure profit.
Say you buy 1 ETH for $2,200, move it to Coinbase, and sell it for $2,500. If Coinbase doesn’t have the cost basis, the form shows a $2,500 gain. Your actual gain was $300 — but unless you’ve tracked that basis yourself, the IRS won’t know. And they’ll assume the worst.
A widespread problem
This isn’t a one-off scenario. It’s going to affect hundreds of thousands of taxpayers.
If those inflated gains go uncorrected, they’ll either result in unnecessary tax owed or trigger an audit. And many CPAs won’t catch it, because most still aren’t equipped to handle crypto properly. They don’t understand how wallets work. They confuse transfers with sales. They miss staking rewards and DeFi activity entirely. Clients think their CPA is on top of it. CPAs assume the 1099 is accurate. No one’s double-checking.
That’s where things go wrong. And that’s exactly what the IRS is counting on.
The old defense — that the guidance wasn’t clear — doesn’t hold up anymore. The IRS has been direct. The expectations are spelled out. The time to fix things is NOW, before an enforcement letter is received.
Crypto isn’t some edge case anymore. Tens of millions of Americans have bought, sold, staked, lent, or transferred digital assets. Most have done a poor job keeping records. Some haven’t even tried. The result is a tax system full of underreported gains, misclassified income, inconsistent filings, and the taxman looking for revenge.
The most common mistakes aren’t complex. Transfers between wallets are flagged as sales. Assets appear on exchanges with no cost basis attached. Staking rewards and airdrops go unreported. DeFi activity is missing entirely. And year after year, taxpayers and professionals rely on CSV exports that were never designed for tax reporting in the first place.
These aren’t edge cases. They’re pervasive amongst crypto investors. And at scale, they add up to a compliance problem the IRS is now fully equipped to pursue.
This is no longer about gray areas or technicalities. It’s about a growing mismatch between how taxpayers think crypto taxes work — and how the IRS now expects them to be handled. That gap is where the risk lives, and with the established guidance, the IRS won’t be pulling any punches.
#Coming #Crypto #Tax #Bomb