A cryptocurrency capital gains expert has warned crypto traders, especially those operating under the radar, that they face a significant shock when it becomes mandatory to file the 1099-DA form. According to Clinton Donnelly, CEO of Crypto Tax Audit, the 1099-DA is not just another form but the “start of a major shift in how crypto is taxed and tracked.”
Starting in 2026, the Internal Revenue Service (IRS) will begin issuing Form 1099-DA to report digital asset transactions, including cryptocurrencies and non-fungible tokens (NFTs). This form will be sent to both taxpayers and the IRS by brokers such as exchanges, wallet providers and payment processors. It will include gross proceeds from sales or exchanges, cost basis, acquisition dates, and transaction details like asset type and quantity.
The goal is to improve tax compliance and transparency in the crypto space. Brokers must apply first in, first out (FIFO) accounting on a wallet-by-wallet basis, and taxpayers may need to opt into a Safe Harbor provision to avoid retroactive penalties.
In a July 15 X post, Donnelly highlights the implications of this reporting requirement for U.S. crypto users and the steps they can take to avoid running afoul of the IRS.
“If you sold or transferred crypto from a U.S.-connected centralized exchange, you will receive a 1099-DA,” Donnelly stated.
The tax expert explains that the 1099-DA seeks details of every crypto purchase or transfer made by U.S. crypto users, as well as the wallet addresses involved. Even if crypto assets acquired on a U.S.-based centralized exchange are transferred to a hardware wallet, the address of that wallet will be reported to the IRS.
“They [IRS] may not know it is your Ledger—but they will know that address is tied to you. Over time, this lets the IRS piece together your entire portfolio by mapping wallet connections and activity across different chains,” Donnelly warned.
To get ahead of the revenue authority, the tax expert urges users to self-report the sales or transfers using their cost basis. Doing this stops the IRS from assuming that the full amount is taxable profit. He warns that failing to report “can trigger an automated CP2000 notice, where the IRS calculates the tax for you based on incomplete information—and sends you the bill.”
As previously reported by Bitcoin.com News, the IRS has increased the number of CP2000 notices issued to cryptocurrency users, signaling the start of a broader enforcement wave. The report added that such notices suggest the IRS has calculated the tax owed and that the recipient has 30 days to respond.
The tax expert, meanwhile, argues that reporting, even if one disagrees with the 1099-DA, is vital, as this eliminates the possibility of the IRS adding them to its watchlist for crypto underreporting.
Donnelly’s X post also shares tips for both users of a single crypto exchange and those using multiple platforms.
“If you are a simple investor who uses one exchange (like Coinbase) and never moves assets off-platform, you are in the best position. Coinbase will track your cost basis and report both sides of the trade in future years—just like a stock broker issuing a 1099-B,” explained Donnelly.
However, for crypto traders using several platforms, Donnelly advised them to “proactively track your cost basis” and to be prepared for a “complex” filing process.
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