Why Does 1099-DA Have a Gross Reporting Gap in 2026

You know that moment when a client says, “Don’t worry, I got a 1099 for my crypto this year,” and you think, finally, this should be easier? Yeah… about that. Instead of simplifying things, the first rollout of Form 1099-DA has done something unexpected. It gave accountants more data, but not the right data. And now, many CPAs are stuck piecing together cost basis, chasing wallet histories, and explaining numbers that do not quite add up. So, what exactly happened here?

More reporting, less clarity

Form 1099-DA came out of the 2021 Infrastructure Investment and Jobs Act, with one clear goal: bring crypto reporting closer to how stocks are reported. Brokers now have to report digital asset transactions, starting with the 2025 tax year, and taxpayers began receiving these forms by February 2026. Sounds like progress, right? Here is the catch. For this first year, brokers were only required to report gross proceeds, not cost basis. So the IRS sees what was sold, but not what it originally cost. Imagine this: a client sells $75,000 worth of crypto, but originally bought it for $150,000 across different platforms. The 1099-DA shows $75,000. Without context, that can look like income, not a loss. That is not a small detail. That is the difference between paying tax and explaining why you should not.

If crypto were simple, this would work… but it is not

Traditional tax reporting assumes a clean sequence. Buy an asset. Hold it. Sell it. Calculate gain or loss. Crypto does not play by that rulebook. Clients move assets between wallets, shift across exchanges, bridge tokens between chains, stake, lend, borrow, and jump into DeFi protocols that barely resemble traditional finance. One transaction often leads to five more. And half of them are not even taxable events. Now ask yourself this: how does a form built for stock trades handle that? Short answer… not very well. A wallet transfer might look like a sale. Wrapping tokens might appear as a disposal. Liquidity pool activity can show up as proceeds without any real profit. Without full transaction context, the numbers on Form 1099-DA can feel a little off, sometimes way off.

DeFi users are in a whole different mess… why?

If centralized exchange users have reconciliation issues, DeFi users have something deeper… a mismatch between reality and reporting. Form 1099-DA assumes there is a broker who knows everything, identity, cost basis, transaction intent. In decentralized finance, that assumption breaks fast. There is no single intermediary tracking the full story. A front-end platform might see a wallet interact with a protocol, but it cannot tell whether that was a loan, a collateral deposit, or an actual sale. So, what happens? The form may report gross proceeds for something that was never truly income. That is where the risk creeps in. If what the IRS sees does not match what the taxpayer reports, someone will have to explain it. And no one enjoys that conversation.

So, is this progress… or just more work?

Here is the honest take. Form 1099-DA is a step forward. Crypto needed structure. The IRS needed visibility. And clients needed a push toward better recordkeeping. But in this first phase, it has also created extra work, extra risk, and a lot of confusion. Accountants are now doing forensic-level reconciliation instead of simple reporting. Clients are realizing that one exchange statement does not tell the full story. And firms are starting to rethink how they handle crypto altogether, some building internal expertise, others partnering with specialists. One thing is clear. You cannot treat crypto like a black box anymore. That shortcut does not hold up.

What should firms be doing right now?

This is where things get practical. Do not wait for tax season. Start asking clients early about their crypto activity, wallets, exchanges, DeFi usage, NFTs, and even crypto ETFs. Many transactions will never show up on a 1099-DA, but they still matter for the return. Push for year-round recordkeeping. Encourage clients to use proper tracking tools. And most importantly, reconcile before filing, not after an IRS notice shows up. Because once that notice arrives, things go from manageable to messy real quick.

The Takeaway

Form 1099-DA was supposed to bring order to crypto tax reporting. Instead, it has highlighted how complex this space really is. Will things improve when cost basis reporting becomes mandatory in future years? Probably. But for now, CPAs are the ones connecting the dots, filling the gaps, and making sense of numbers that only tell half the story. And if this filing season proved anything, it is this… Crypto reporting is no longer optional. But clean, complete reporting? Still a work in progress.