My Crypto Cost Basis

Consequences or failing to report your cryptocurrency information … May have serious consequences

Most Common Consequences

1. IRS Mismatch Notice (CP2000)

Because the exchange sends Form 1099-DA directly to the IRS, the IRS can compare the information on the form with your tax return. If the IRS sees reported crypto proceeds but no corresponding transaction on your return, it may issue a notice proposing additional tax.

2. Additional Tax Owed

If the omitted transaction generated taxable gains, the IRS can assess the unpaid tax plus interest from the original due date of the return.

3. Accuracy-Related Penalties

If the IRS determines that income was substantially understated or records were not properly maintained, it may impose an accuracy-related penalty, commonly 20% of the underpaid tax.

4. Interest Charges

Interest continues to accrue on unpaid taxes until the balance is fully paid. Even if the original mistake was unintentional, interest generally still applies.

More Serious Situations

5. Audit Risk

The new reporting rules make it easier for the IRS to identify discrepancies. Significant differences between Forms 1099-DA and a taxpayer's return may increase the likelihood of IRS examination or audit.

6. Civil Fraud Penalties

If the IRS concludes that the taxpayer intentionally concealed income, civil fraud penalties can be far greater than ordinary accuracy penalties.

7. Criminal Investigation

In cases involving deliberate tax evasion, false statements, or intentional concealment of large amounts of income, the matter can be referred for criminal investigation. Criminal cases are relatively rare and generally involve willful misconduct rather than simple reporting mistakes.

Important Point About 1099-DA

For 2025 transactions, many Forms 1099-DA report gross proceeds only, AND DOES not cost basis. This means the IRS may see that you sold cryptocurrency for $50,000, but it may not know that your cost basis was $45,000. Therefore, taxpayers should not assume that the amount shown on Form 1099-DA is the taxable gain. They should maintain records and properly calculate gain or loss on Form 8949 and Schedule D.

My Crypto Cost Basis

Failure to report earned income may cause fees, penalties, and possibly the confiscation of assets … including your cryptocurrency.