Imposing a crypto tax this year would be terrible.
For the past decade, the IRS has treated virtual currencies as property rather than currency, and all sales and exchanges as taxable events. However, despite blockchain being a public ledger, tax compliance rates have always been low. The discrepancy between the taxes the IRS expects and the taxes crypto users actually pay has continued to widen over the years.
That gap is about to narrow significantly.
We are entering the “enforcement era” of virtual currency taxes
This change did not happen overnight. In 2021, the IRS launched “Operation Hidden Treasure” aimed at intentionally concealing crypto income. By 2022, it has hired agents with blockchain expertise and secured court orders for data from major exchanges, including Coinbase. The message was clear. The days of lax enforcement are coming to an end.
Now in 2026, authorities are looking to take this even further. This could be the beginning of the end for crypto tax avoidance, not just in the United States but around the world.
48 countries, including the US, UK, EU member states and Brazil, have agreed to implement the OECD’s Crypto Asset Reporting Framework (CARF). All crypto asset service providers are now required to report user transaction data to authorities. In the UK, HMRC recently issued 650,000 nudge letters to tax-paying crypto investors, an increase of 134% compared to last year.
In the United States, this change is even more tangible. For the first time, a virtual currency exchange will issue Form 1099-DA. This is a new document that declares your cost basis and submits directly to the IRS. It was similar to the 1099-B used for stocks, and brokers had to issue it by February 17, 2026, and covered all sales and transactions starting in 2025. Starting with the 2026 tax year, brokerages will also report on a cost basis, giving the IRS an unprecedented view of investors’ gains and losses.
This represents a fundamental shift from self-disclosure to automated reporting. The IRS can now easily compare broker reports with taxpayer returns, making it easier to detect errors, omissions, and underreporting.
I keep seeing crypto investors on X and Reddit saying that the government will eventually eliminate taxes on cryptocurrencies. You probably won’t. Users need to stop waiting for that to happen.
Problem: Rules are written by people who don’t use cryptocurrencies
Form 1099-DA was clearly drafted by legislators who know nothing about cryptocurrencies, which is unfortunate.
Although these regulations treat virtual currencies like stocks, virtual currencies do not function like stocks. Real cryptocurrency users don’t just buy and hold Coinbase. They move assets between multiple wallets, bridge between chains, interact with DeFi protocols, provide liquidity, stake tokens, and use complex trading strategies across dozens of platforms. Many of these activities involve trading outside of centralized exchanges. This is where the new reporting framework falls short.
The new rules will be a huge burden for those who use cryptocurrencies in the way they were intended. This is not just a nuisance for individuals, but a problem that has a serious impact on the entire industry.
If interacting with DeFi creates major tax compliance issues, fewer people will use DeFi. If moving assets into self-custody means facing red tape, people will leave their funds on exchanges. Although these regulations were inevitable and well-intentioned, they risk pushing users back into the centralized systems that cryptocurrencies were meant to replace.
The real headache has just begun.
I spend a lot of time engaging with the crypto community online and have seen countless users hit a wall and give up trying to manually file their taxes.
If you have never filed your crypto taxes before, now is the time. Users message me all the time who need to submit files from past years. I have even seen investors trying to report four or more tax years at once. They’ve probably never applied before and now they’re in a rush because they know there’s more enforcement.
The trick is to have records at all times, not just at tax time. Many trading platforms delete historical data after a certain period of time, but the IRS is aware of large inflows of money during off-ramp times and wants to know where that money is coming from. Without these transaction records, you cannot prove your cost basis or show losses.
What’s next for crypto tax reporting?
It is clear that crypto tax reporting is entering a new phase. It is moving from a vague regulatory gray area to transparency and stricter enforcement.
Rather than fighting or ignoring this reality, the cryptocurrency industry needs to adapt to this reality now. The message to investors is clear. Become compliant today. Collect documentation for all purchases, sales, and transfers across wallets and exchanges. The longer you wait, the harder it gets.
The challenges in the cryptocurrency industry are different. We must continue to develop tools that are agile and able to adapt to the rapid pace of adoption of these rules by law enforcement. Ultimately, we need to make tax filing as easy as possible for investors so that our industry can continue to thrive.
