Hi,
If you sold, swapped, or spent crypto the IRS may be treating every dollar you sold as profit. Not your gain. The full sale amount.
The reason is Form 1099-DA. Your exchange filed one this year, and for the 2025 tax year brokers were required to report gross proceeds only. Cost basis reporting does not begin until 2026 transactions. The IRS knows what you sold it for and has no idea what you paid.
The automated matching system fills that gap by assuming zero. Here is what that costs.
You buy $370,000 of crypto and sell it for $400,000. Your real gain is $30,000 and your real tax is roughly $7,100. With no basis on the form, the system reads $400,000 in gain and proposes about $95,200 in tax. On top of the $88,000 overstatement it adds a 20 percent accuracy penalty of roughly $17,600, plus interest at 7 percent compounded daily running from April 15. A $7,100 bill arrives as a proposal north of $110,000.
The gaps that produce these notices are structural, not unusual:
- Moving coins between your own wallets can be reported as a disposal, so proceeds appear with no matching transaction on your return
- Activity across several exchanges is never consolidated and no platform sees your full history
- Anything acquired before 2026, which is most long-term holdings, is flagged as noncovered
- Staking, airdrops, and DeFi activity are reported inconsistently or not at all
The good news is that the number in the notice is usually wrong, and it is wrong in your favor. It just has to be proven. We reconstruct the actual history across every wallet and exchange, establish defensible basis under a consistent accounting method, and present it in the format an examiner can verify.
Two situations, two different jobs:
- Still on extension for 2025. There is time to reconcile before you file, which costs a fraction of defending a return later.
- Already filed. We compare what you reported against what the exchanges sent the IRS and tell you whether a notice is likely and what the real exposure is.
Reply to this email by Monday next week and we will schedule a free 15-minute call with our senior crypto tax specialist. Bring your 1099-DA and a list of the exchanges and wallets you used.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com