The IRS can see what you sold. Can’t see what I paid. This is the entire issue at the heart of the 2026 cryptocurrency tax season.
Form 1099-DA, the IRS’s new digital asset reporting document, began arriving in investors’ mailboxes this month. The model tells the federal government exactly how much cryptocurrency each taxpayer sold. What you don’t tell them is the original cost of this cryptocurrency.
The gap between these two numbers is the only thing that matters for calculating taxes. Right now, the IRS only gets half the equation.
Photography by Kent Miller
Jana Scott, Founder DeFi taxThis is called a recipe for disaster.
‘I kept seeing the same pattern’
Scott said.
“People thought their taxes were handled until an audit or notice came up. When I audited the cryptocurrency tax platforms themselves, I realized that many of them couldn’t explain their own numbers.”
Proceeds are without purchase price
Capital gains tax works on a simple formula: the sale price minus the purchase price equals the taxable profit. An investor who bought Bitcoin for $30,000 and sold it for $35,000 owes taxes on $5,000 — not on $35,000.
But the 1099-DA only reports $35,000. The purchase price — what tax professionals call the cost basis — is missing entirely for 2025 transactions. Brokers won’t be required to report that until next year, and even then, only for assets purchased on or after January 1, 2026 that never left the exchange.
Anything previously purchased, transferred between platforms, or held in a personal wallet will not show any basis at all.
The IRS receives copies of every 1099-DA. Its automated systems match those forms with tax returns. When numbers don’t align, notifications follow.
Scott spent two years researching these dynamics before launching the DeFi tax this month. Her work has included collaboration with the Securities and Exchange Commission, the IRS, and academic institutions.
“Most tools are designed for basic buying and selling activity.”
Scott said.
“Once DeFi, LPs, bridges, and wraps are introduced, the math breaks down. The biggest problem isn’t the loss of features; it’s the lack of explainability. If you can’t explain how a number is calculated, it won’t stand up to scrutiny.”
Platforms that do not report
The 1099-DA covers centralized exchanges — Coinbase, Kraken, and Gemini. It does not cover decentralized protocols, self-custodial wallets, liquidity pools, token bridges, or cross-chain swaps.
The rule requiring decentralized platforms to start reporting in 2027 was scrapped earlier this year. This activity now falls entirely outside the scope of federal oversight.
For investors who operate in both worlds — buying on DEX, selling on Coinbase — the 1099-DA only captures the exit. Input is not visible.
This is where most tax software fails, Scott said.
“Bridging is not selling, and packaging is not throwing away, but most programs treat them that way,” she said. “DeFi activity exposes cracks in outdated tax logic.”
Platforms that allow manual editing make the problem worse. Adjusting the timestamp or reclassifying the transaction may fix an error on the screen, but it destroys the authentication trail that the auditor expects.
“Automation without transparency is just a faster risk.”
Scott said.
Reading from the series
DeFi Tax does not import CSV files. Export exchange is not accepted. It reads transaction data directly from the blockchain – the immutable ledger where every crypto transaction is permanently recorded.
Users cannot edit basic data. The same wallet produces the same result every time.
“We don’t optimize for speed or simplicity at the expense of accuracy.”
Scott said.
“DeFi tax is designed around audit defense. Every number should be traceable, consistent and defensible. This mindset changes everything about how the system is designed.”
Scott distinguishes between generating a number and generating a proof.
“The auditor doesn’t just want totals.”
She said.
“They want to know how you got there. Audit-ready reports are organized, consistent and explainable.”
Five weeks until April 15
The application deadline is approaching. Investors who have not reconciled their records across every platform and wallet they have used are running out of time.
“As reporting requirements tighten, cryptocurrency audits are becoming more common.”
Scott said.
“The danger is not only in execution, but in not being prepared when asking questions.”
Scott’s advice is straightforward.
“Don’t wait until tax or audit season to understand your exposure,” she said. “If you can’t explain your report today, that’s a sign to fix it.”
She added that the confusion this season reflects a fundamental misreading of investor behavior.
“Most people aren’t trying to avoid cryptocurrency taxes.”
Scott said.
“They’re trying to understand them.”
Devex tax
Jana Scott
30 N Gould Street
You t
Sheridan, WY. 82801
Contact information is on their website: https://defitax.us/contact
Disclaimer: This article is provided for informational purposes only. It is not provided or intended to be used as legal, tax, investment, financial or other advice.
