How CPAs Should Handle Form 1099-DA Crypto Broker Reporting for 2025 Returns

For the first time in the 2026 filing season, centralized digital asset brokers — Coinbase, Kraken, Gemini, Robinhood, and others — are issuing Form 1099-DA to report proceeds from client cryptocurrency transactions in 2025. IRS Notice 2026-20 extended cost-basis reporting relief, so most brokers will not report adjusted basis or gain/loss figures on the form. What they will report is gross proceeds. That distinction matters: the IRS now has a proceeds trail to cross-reference against Form 8949 and Schedule D, creating CP2000 exposure for any client whose return omits or underreports cryptocurrency income. This guide walks through the seven-step workflow CPAs should follow to reconcile 1099-DA data, fill the gaps cost-basis relief creates, and build the documentation infrastructure clients need before the next filing season begins.

Prerequisites

Complete transaction history exported from every exchange the client used in 2025: trade history, deposit/withdrawal records, and staking/rewards statements
All Form 1099-DA copies received by the client (these should arrive by January 31, 2026 for most custodial brokers)
Client records for any cryptocurrency received as compensation, through mining, staking, airdrops, or hard forks — none of these appear on 1099-DA
Prior-year cost basis records (purchase prices, dates) for any positions sold in 2025 that were acquired in earlier years
Access to a cryptocurrency tax aggregation tool (Koinly, CoinTracker, TaxBit, or equivalent) if the client has high transaction volume across multiple wallets or exchanges

Step 1: Collect and Verify All Forms 1099-DA

Request all Form 1099-DA copies from the client before beginning reconciliation. Each custodial broker that executed sales or other disposals of digital assets on the client's behalf is required to issue a separate 1099-DA. A client who used three exchanges will receive three forms; a client who also used a broker-dealer offering crypto trading (such as Robinhood) will receive a fourth.

What Form 1099-DA reports under current guidance:

Box 1a: Description of asset (e.g., "Bitcoin")
Box 1b: Date of acquisition (if known to broker)
Box 1c: Date of sale or disposition
Box 1d: Proceeds (gross sales price)
Box 1e: Cost or adjusted basis — left blank or zero for most brokers under Notice 2026-20 transition relief
Box 1g: Wash sale loss disallowed (not applicable to crypto under current law)
Box 6: Indicates whether a gain is short-term or long-term based on broker records

Verify that the client has received a 1099-DA from every exchange they used. Missing forms are common: clients may have forgotten about an old Coinbase Pro account or a brokerage that rebranded. An exchange that goes dormant, freezes withdrawals, or fails (as several have since 2022) is still required to issue 1099-DA if the client had reportable transactions — check whether the client received any correspondence from those platforms.

Step 2: Reconcile Broker-Reported Proceeds Against the Client's Complete Transaction History

The 1099-DA reports proceeds from the broker's perspective. It will not capture:

Transactions on decentralized exchanges (DEXs) like Uniswap or Curve
Wallet-to-wallet transfers that the broker classified as disposals if the destination was self-custody
Crypto used to purchase goods or services directly (each such use is a taxable disposal)
NFT sales and minting costs
Any transaction that occurred before the client moved assets onto the broker's platform

Pull the full transaction export from each exchange and compare transaction-by-transaction against the 1099-DA. Common discrepancies:

Proceeds mismatch: The broker may use the daily closing price while the client's records show the actual trade price. Document which figure is more accurate and note the source.
Classification errors: Some brokers misclassify wallet-to-wallet transfers as disposals. If the client moved Bitcoin from Coinbase to a Ledger hardware wallet and both endpoints belong to the same client, that is not a taxable event — but a broker cannot always confirm the destination belongs to the sender.
Missing transactions: Off-platform activity (DEX trades, direct P2P sales) will not appear on any 1099-DA. These transactions must be captured from the client's own records.

Step 3: Determine the Cost Basis Method for Each Account

Because most brokers will not report cost basis on 1099-DA under Notice 2026-20, the CPA — not the broker — must calculate adjusted basis for every disposed unit.

Default method: The IRS default is First-In, First-Out (FIFO) applied per wallet or per account. Under the final digital asset broker regulations (TD 9978), each broker account is treated as a separate pool. This means a client cannot apply a global cost basis election across all platforms; the election is made per-account.

Alternative methods (Specific Identification or HIFO — Highest-In, First-Out) must be elected and documented. For a client with large unrealized losses in specific lots, Specific Identification can substantially reduce 2025 taxable gain. The election must be made before the disposition, not retroactively, so for 2025 transactions this is a planning point going forward rather than a current-year option unless records confirm the client designated specific lots at the time of sale.

For clients who acquired cryptocurrency before 2023 and transferred holdings to a broker after the broker reporting rules took effect, the broker will have a cost basis gap — they did not hold the asset when it was acquired. In these cases, the CPA must reconstruct basis from original purchase records, which may require locating old exchange statements, bank records showing purchase price, or blockchain explorer data.

Step 4: Calculate Gain or Loss and Complete Form 8949

Form 8949 remains the reporting mechanism for cryptocurrency transactions, with the 1099-DA proceeds flowing into the calculation. Each disposal — sale, exchange for another cryptocurrency, use as payment — is a separate line item.

Short-term vs. long-term: Cryptocurrency held for one year or less generates short-term gain taxed at ordinary income rates. Cryptocurrency held for more than one year qualifies for long-term capital gains rates (0%, 15%, or 20% depending on income; plus the 3.8% NIIT above $200K/$250K). The holding period runs from the date of acquisition to the date of disposal.

No wash sale rule (currently): Unlike stocks, cryptocurrency is not subject to the wash sale rule under IRC §1091. A client can sell Bitcoin at a loss and repurchase it immediately without triggering a disallowance. This planning technique remains available for the 2025 tax year, though proposed legislation to extend wash sale rules to digital assets has been introduced repeatedly. Document the absence of a wash sale adjustment when completing Form 8949 to avoid confusion on exam.

Aggregation: For clients with hundreds or thousands of transactions, the IRS permits aggregation on Form 8949 with a supporting statement, provided the totals reconcile to Form 1099-DA. Many crypto tax software tools generate the Form 8949 detail and the aggregated summary automatically. Review for accuracy before filing — errors in these exports are common, particularly where transfers between wallets were misclassified.

Step 5: Report Income Not Captured on Form 1099-DA

The following income types will not appear on Form 1099-DA and must be separately identified and reported:

Staking and validation rewards: Ordinary income in the year received, valued at fair market value on the date received (Rev. Rul. 2023-14). The basis in newly received tokens equals the FMV reported as income.
Mining income: Ordinary income for self-employed miners (Schedule C with SE tax); ordinary income for hobby miners subject to the §183 hobby loss rules.
Airdrops and hard forks: Ordinary income upon receipt if the client has dominion and control over the tokens.
Crypto received as compensation: W-2 wages (if from an employer) or self-employment income; the FMV at receipt is the basis going forward.
DeFi protocol rewards and liquidity mining: Complex and fact-specific; no comprehensive IRS guidance exists yet, but positions taken should be documented and consistent.

For the existing article on how to handle cryptocurrency transaction reporting mechanics more broadly, see Cryptocurrency Tax Reporting for CPAs.

Step 6: Address CP2000 Exposure and Broker Discrepancies

The IRS will match Form 1099-DA proceeds against the client's Schedule D totals in the same way it matches Form 1099-B for securities. Any client who received a 1099-DA showing $50,000 in gross proceeds but whose return reflects no Schedule D activity is a CP2000 candidate.

Key actions:

Confirm that total proceeds on Schedule D/Form 8949 equal or exceed total proceeds on all received 1099-DAs. The Schedule D total should be higher if the client had off-platform activity.
If a 1099-DA contains proceeds that are incorrect (misclassified transfers, erroneous valuations), document the discrepancy with a supporting statement. Do not simply ignore the 1099-DA.
If a client received a 1099-DA but did not file a return reporting those proceeds, the exposure profile is similar to an omitted 1099-B. Consider an amended return rather than waiting for IRS correspondence.

For the workflow on responding to CP2000 notices if one arrives, see How to Respond to IRS CP2000 Notices.

Step 7: Build the Documentation System for 2026

The cost-basis relief under Notice 2026-20 will not last indefinitely. CPAs should use the 2025 return preparation process to establish the client documentation system that will be required when brokers begin reporting adjusted basis.

Minimum documentation standard per account:

Original acquisition records: exchange confirmation emails or statements showing purchase price, date, and quantity
Records of any cost-basis-affecting events: splits, mergers of tokens, hard forks received
Written election of cost basis method per account, signed and dated before any 2026 disposals

For the broader client document retention framework, see Document Retention Requirements for Business Clients.

Common Mistakes

Assuming 1099-DA captures everything. Off-platform activity, DeFi transactions, and income events (staking, mining) are never on 1099-DA. Treating the form as complete leads to underreporting.

Applying one cost basis method globally across all exchanges. The per-account rule means FIFO at Coinbase and Specific ID at Kraken are separate elections. A global HIFO election is not available under current IRS guidance.

Netting gains and losses without a Form 8949 detail. The IRS requires transaction-level detail (or a summary with a supporting statement). Reporting only a net figure on Schedule D without supporting Form 8949 is an audit trigger.

Ignoring crypto received as income. Staking rewards, mining proceeds, and airdrop income are taxable in the year received. Missing these creates both an income omission and an understated basis for future disposals.

Not reviewing software output before filing. Crypto tax aggregation tools frequently misclassify transfers between the client's own wallets as sales. Always review the generated Form 8949 against the raw transaction export.

Frequently Asked Questions

Does every client who traded crypto in 2025 receive a Form 1099-DA?

Only clients who traded through a custodial broker — a centralized exchange like Coinbase, Kraken, or Gemini — will receive Form 1099-DA. Clients who traded exclusively on decentralized exchanges, held assets only in self-custody wallets (hardware wallets, MetaMask), or used platforms that have not yet complied with broker reporting rules will not receive a 1099-DA, but still have reportable transactions they must disclose.

What if the broker reported proceeds that are clearly wrong on the 1099-DA?

Document the error and report the correct amount on Form 8949. Use Code B (or the applicable proceeds reporting checkbox) to indicate that basis was not reported to the IRS and attach a note explaining the discrepancy. Do not simply omit the form or report the erroneous number. If the error is material and stems from a broker misclassifying a transfer as a sale, request a corrected 1099-DA from the broker.

Can a client choose HIFO for 2025 retroactively?

No. Specific Identification elections — including HIFO — must be made at the time of disposal, not after the fact. For 2025 transactions already executed, the applicable method is the one the client designated (or failed to designate, in which case FIFO applies). This is one of the most consequential planning decisions for active traders going into 2026: establishing a written HIFO or Specific ID election protocol per account before the first trade of the year.

Are NFT transactions reported on Form 1099-DA?

NFTs may be reported on Form 1099-DA if the transaction occurred through a broker platform that is subject to the reporting rules. However, many NFT marketplaces are not yet treated as brokers under the final regulations, so NFT proceeds are frequently not captured on 1099-DA. The absence of a 1099-DA does not eliminate the reporting obligation — NFT disposals are taxable events the CPA must source from the client's records.

How does the 3.8% Net Investment Income Tax (NIIT) apply to crypto gains?

Long-term cryptocurrency gains are net investment income and subject to the 3.8% NIIT under IRC §1411 for taxpayers with MAGI above $200,000 (single) or $250,000 (married filing jointly). Short-term gains are also net investment income unless the client is a dealer. The NIIT stacks on top of the capital gains rate, pushing the effective federal rate on long-term crypto gains above the $250K threshold to 23.8% (20% + 3.8%). See Short-Term vs Long-Term Capital Gains Tax Rates for the full rate table.

What audit risk does crypto activity create under the IRS DIF system?

Cryptocurrency activity generates elevated IRS matching risk in 2026 because the IRS can now compare Form 1099-DA proceeds directly against the return, similar to how it uses Form 1099-B for securities. A return that omits Schedule D entries while the client received a 1099-DA showing six-figure proceeds will generate a CP2000 notice. The DIF system also flags mismatches between 1099 information and reported income. For CPAs managing high-volume crypto clients, proactive accuracy review before filing is more efficient than responding to IRS correspondence. See IRS Audit Triggers and Defense for the broader context on how the IRS selects returns for examination.

Does Notice 2026-20 mean brokers don't have to send 1099-DA at all?

No. Notice 2026-20 provides transitional relief specifically for cost-basis reporting — it does not suspend the proceeds reporting requirement. Brokers must still issue Form 1099-DA and report gross proceeds from 2025 digital asset disposals. The relief means that Box 1e (cost or adjusted basis) may be blank or zero on most 1099-DAs received this filing season. The CPA must independently determine and document cost basis.

Arvori helps CPAs automate the client data-gathering workflow for cryptocurrency returns — connecting exchange APIs, flagging missing 1099-DAs, and generating reconciliation reports before you open the return. Learn more at arvori.app.

Form 1099-DA: How CPAs Should Handle Crypto Broker Reporting for 2025 Returns