Tax season is here and for US crypto investors it is shaping up to be a forensic accounting challenge for the very first time, the IRS is requiring brokers to send out Form 1099DA, but there is a major catch this year.
Exchanges are only reporting gross proceeds, and that means if you sold Bitcoin last year, it is entirely on you to track down your original cost basis to prove your gains or losses and for a trader.
Deep and defy it is never just a simple buy and sell.
They are yield farming, bridging across chains and also shuffling assets between dozens of non-custodial wallets and perhaps exchanges.
So joining me to talk about navigating this new era of IRS scrutiny is Trish Turner, VP of Public Sector at Asset Reality and former IRS digital assets.
Trish, good morning.
Thank you so much for joining me.
Thank you, Remy.
So today, yes, we're talking about those practical concerns of the 1099 DA and certainly we are seeing some new issues popping up for the 1099 DA for practitioners and taxpayers in this season.
Some of them include just all that data that's coming in, and it's not a lack of data.
It's really just a lot of inconsistent data from a lot of different locations depending on if it's an exchange or what the information that's coming in for both practitioners and taxpayers alike. there's a lot of ambiguity and uncertainty.
So for people who have been trading in 2025, what is your advice to them and where do they get started?
Sure, the best advice I have is those good rate records that they could be keeping or should have been keeping in 2025 and making sure that they provide all of those records to their practitioners on some of the gaps that we're already seeing on the 1099 DAs and the proceeds are coming out.
They're much higher than what may be in your taxpayers or clients records and what that's causing is a little bit of an information gap or visibility gap in that reporting.
It's showing that your 109098 could be quite less than what your proceeds of your transactions actually were, and that's a bit of a mismatch for both the clients and the practitioners as well as the IRS being a bit of a blind spot to be able to see what the actual economic activity was in that given year.
So you will probably have to most likely go back and recreate several years of records.
So hopefully you've got a lot of those records on hand.
If not, it may be some time consumption to get those together for you to do.
So I'm also. of tax and crypto tax girl we've done a lot this season a heavy lifting just trying to get those reconciliations together and because you are helping prepare taxes for clients, we all know that when it comes to digital asset trading, it could be a lot of moving parts.
So how do you investors out there actually reconstruct their history?
Sure, reconstructing the history of a lot of it comes from the records that the clients themselves bring in.
It could be if they don't have something from an exchange of the exchange no longer exists.
It could be just those transactions in and out of a traditional financial institution.
Some of them, it will be piecemealing or doing the tracing of the transactions using one of those software systems to be able to do that from the beginning to the end.
Peer to peer transactions are quite difficult.
There's definitely a gap there.
Just know if you don't have those records, the IRS is going to assume your basis to be zero, which could be a very expensive lesson to learn.
And speaking of which, it is 2026 and it is already. edging closer to Q2 of this year, but what will change next year concerning digital assets and what will be different compared to 1099 DA 2025.
Sure, for 2026, the reporting or the information reporting will include basis.
One of the biggest things that we're hearing operationally from some of the brokers is that the 1099 DAs that are being issued with a zero proceeds is actually being rejected by the IRS and what that means is for 25.
Versus 26 if that's already happening now in 26, that could mean with the basis there, will that also reject a negative or a loss basis or a loss on the transaction for the 1099 DA.
Hopefully that's just a growing pain for the IRS and they'll get that fixed and worked out, but it's certainly something to be aware of now that you may not have received your 1099 DA yet because you are getting rejections if any of your proceeds were zero or close to zero to round down to zero.
And I do want to ask you a question because not only are you talking to clients, but you are also talking to other stakeholders and the digital asset ecosystem.
So what do you think needs to happen from a practical standpoint and why from a practical standpoint, um, other stakeholders is really making sure that they're open to talking to IRS, giving that feedback, letting them know as soon as those issues come up that that is happening.
It's open communication.
I was at the IRS for almost 21 years, and that's the biggest thing is sometimes we didn't know.
We didn't know what was happening on the outside and what they were experiencing.
So as much as possible it's keeping that two-way communication open because sometimes they just don't know that those blind spots are happening and or those issues are popping up, not allowing them to do what they need to. obligations, last but not least, we have to keep in mind that we have less than a month to go until April 15th, which is hard to believe.
But for viewers out there who have invested in digital assets in 25 or even in previous years and they have yet to start working on their taxes for digital assets, what are some tips you would give to them?
Sure, right now if you've just started.
You may really look at filing an extension for your return this year looking to try to estimate what you would be paying for the 2025 years so you can keep that going and not incur any additional penalties or interest, but certainly that will give you a little bit of time until October to file that extension.
Remember, if you have a business return, today is the due date for business returns, or corporations, I should say really specifically.
You could file an extension today, get that in, and get you extended through September for that return.
But for April 15th, if you are an individual taxpayer, you want to file that extension before the 15th, so you have until October to get those records together.
In the meantime.
Work to get those records as best together for yourself and or the practitioner that's going to be purporting those out for you on your tax return.
Well Trish, it was great having you here back at the New York Stock Exchange.
Thank you so much for joining us and thank you so much for sharing all of your knowledge and perspective.
Thank you.
