As part of the strategic partnership with Summ, this article was written by Wendy Litten from Litten Tax, a crypto-focused tax firm, for Summ. Wendy breaks down how the new Form 1099-DA is creating a mismatch between what exchanges report to the IRS and what most crypto traders actually owe, and why that gap is already setting up a wave of CP2000 notices expected to hit mailboxes in late 2026 and into 2027.

The dreaded IRS notice... "We are proposing changes to your 20XX 1040. Proposed Amount Due: $TOO_MUCH"

Sounds like a CP2000 notice to me. And these will be rolling out next year for tax returns we're filing now. The new Form 1099-DA is why.

This new form reports all, and I do mean all, of your proceeds from a centralized exchange. For most of us, it will report the full sales proceeds for every trade and even some non-trades but won't tell the IRS how much we paid for each token. And that is the disconnect that can cause an IRS Notice like a CP2000 to arrive in your mailbox. 

This is not fun, but in my experience at Litten Tax, a crypto-focused tax firm, it's often not as bad as it looks. There's a process to tell your side of the story, prove the cost basis of your crypto, reduce penalties, and more.

The IRS has their side of the story;  often, they have a piece of paper that shows income for you that they don't see or agree with on your tax return. I gather the other side of the story, put it in a nice package for them, and help people through a process that can take months and multiple phone calls. 

Better to avoid all that! With the new Form 1099-DA that are being sent out by exchanges this year for 2025, it has become much more difficult. Let's see what we can do:

Don't file too early

Especially this year when the Form 1099-DA is just rolling out, do not file unless you are sure you've received all of these forms. It might even be better this year to file an extension. You still must pay all taxes you think you'll owe but you will have until October 15th to file the tax return. These forms were due to be sent by February 17th, but smaller exchanges may miss the deadline or send corrections later. Missing a form is a classic trigger for receiving a CP2000 notice.

Don't ignore the 1099-DA

The IRS is receiving a copy of this form with your SSN and their computers will match the form to your tax return. If the form or amounts on your return, don't match the form the IRS received, this flags your tax return for review. If the IRS examiner doesn't see the income on your tax return, they'll send an IRS Notice. 

Crypto tax reporting can be more complex than most people realize. No one wants to hear this news but each trade is reportable. Wrapping tokens is generally considered reportable. Swapping one stablecoin for another, even USDC for USDT, is reportable. Trading one NFT for another is reportable. All those bot trades, still reportable. Using crypto to buy something, even a $5 coffee, is reportable.

Even if it makes no sense, and you received several forms or lines full of minuscule amounts, they have to be reported on your tax return.  The cost reported for each asset sold may be missing or incorrect and will need to be calculated by you.  If this is your first year filing crypto transactions, you will have two new forms in your return, Form 8949 and Schedule D. 

The good news is that these two forms are where we get a chance to head off IRS Notices by adding our own adjustments to each transaction. 

Report your basis

Basis is usually your purchase price and you will subtract that from the gross proceeds shown on the 1099-DA. For 2025, exchanges are not required to report basis, though they may report basis for assets you bought directly on their exchange. 

Even once they are required to report your purchase price, I don't think it will get much easier. If you transfer tokens in and out of wallets and exchanges, they are not required to, and probably cannot give you, an accurate purchase price. If your 1099-DA shows $20,000 proceeds and no basis, the IRS will treat the full $20,000 as gain unless you prove what you paid.

I cannot emphasize too much that you should not trust the amounts on the 1099-DA. Good crypto tax software and some time reviewing your transactions is essential.

Untangle the mess

We're already seeing the same sale appear on two different 1099-DAs because of transfers between exchanges. Each must be coded correctly as transfers and double-checked that the adjustment is made to zero out these 'phantom' gains. Every transfer should net to zero gain or loss once you code it correctly.

Also, if you haven't tracked your basis in prior years, you will need to start from the beginning to get accurate amounts. Again, good crypto tax software and some time are necessary, unless you hire a crypto tax preparer. 

Report it all

Crypto is property under US tax rules and each trade is a reportable transaction whether or not you received a Form 1099DA. It's all on the blockchain, anyway. 

If your previous tax returns did not include your crypto transactions, start with this year. Then I recommend amending the prior years. Coming forward on your own is almost always cheaper and less stressful than waiting for a notice.

The bigger picture:

Form 1099-DA was supposed to make crypto taxes straightforward. Instead, year one created new problems. Exchanges report what they can see. They don't see the complete picture. They don't coordinate with each other. They don't know if you transferred assets between platforms.

You're responsible for reconciling everything. The good news is the IRS computer is checking math, not making judgment calls. If the numbers on your return match the numbers on the 1099s they received, you're fine.

Make them match. Even if it means reporting transactions that seem pointless. Even if it means adjusting obvious errors. Show your work. Keep records.

The CP2000 notices will start arriving in late 2026 and through 2027. Get ahead of it now.

About Summ

Summ simplifies crypto tax reporting across 3,500+ wallets, exchanges, and blockchains. It generates precise, accountant-endorsed reports for a wide range of crypto activity, including DeFi and on-chain transactions, helping users stay fully compliant.

About Litten Tax

Litten Tax provides cryptocurrency tax services and IRS representation nationwide. We help crypto traders get their taxes right the first time and defend them when the IRS sends notices.

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