IRS Crypto Reporting will begin in 2025 for CEX transactions

requiring Form 1099-DA to be filed. P2P reporting starts in 2027, covering gross transactions only.

The Internal Revenue Service (IRS) is set to begin collecting information on crypto transactions from next year, specifically targeting transactions executed on centralized exchanges (CEXs).

The IRS will commence collecting data on transactions facilitated by centralized crypto platforms, such as Coinbase and Binance, from the year 2025. This reporting will be performed by the exchanges via Form 1099-DA, detailing the transactions of U.S. taxpayers.

The IRS will also initiate reporting for transactions on decentralized platforms (DEXs), specifically covering peer-to-peer (P2P) transactions. However, reporting for P2P transactions will be limited to the gross transaction amount and will not include cost basis information, which is the price at which an asset was originally purchased.

The difference in reporting capabilities arises from the fact that decentralized platforms do not take possession of digital assets, rendering it difficult for them to track the purchase price. In contrast, centralized exchanges, which hold user assets in custody, can readily report both the transaction amount and the cost basis.

Reporting for P2P transactions on DEXs, like Uniswap, will begin in 2027.

"If a taxpayer has engaged in P2P transactions on a DEX, the reporting will not include the cost basis or other relevant information that the taxpayer needs to prepare their return," the IRS stated.

"The IRS will report the transactions in Form 1099-DA for P2P transactions on a DEX and Form 1099-B for transactions of digital assets other than P2P transactions on a DEX."

The IRS further explained that it will collect information on transactions valued at $600 or more during the year, in accordance with existing reporting requirements.

The U.S. Congress mandated this crypto reporting regime as part of the Infrastructure Bill passed in 2021. The legislation imposed reporting obligations on third-party crypto services, requiring them to collect and disclose details of U.S. taxpayer transactions to the IRS at the start of the following year.

While the reporting obligations on third-party crypto services begin in 2025, the IRS itself began collecting crypto income information from taxpayers as early as 2019.

This new reporting regime is expected to place a greater burden on taxpayers to ensure accurate reporting of their crypto activity, especially as they will be responsible for calculating any capital gains or losses arising from crypto transactions.