A new tax-reporting regime is forcing US cryptocurrency exchanges to hand over investor gains to the Internal Revenue Service, but a critical gap in what's being reported is creating confusion and potential overpayment for millions of traders.
What Changed for Crypto Taxpayers
Beginning with recent tax years, digital asset exchanges are now required to file information returns detailing customers' cryptocurrency transactions directly with the IRS. The move mirrors long-standing rules that traditional brokerages follow for stocks and bonds, and it marks a significant escalation in federal oversight of the crypto market.
The problem lies in what the reports actually contain. While exchanges are relaying the total proceeds from crypto sales, many are unable to provide accurate cost-basis information — the original price an investor paid for an asset. Without that figure, the IRS may assume the entire sale amount is taxable gain rather than just the profit.
The taxman can now see exactly what you sold — but has no clue what you paid for it.
Why the Cost-Basis Gap Matters
Cost basis is the cornerstone of calculating capital gains. If a trader bought a token for $8,000 and sold it for $10,000, only the $2,000 difference should be taxed. But when exchanges report only the $10,000 proceeds and omit the purchase price, the raw data can make it appear as though the full amount is a gain.
The issue is compounded by the way crypto users move assets around. Investors frequently transfer coins between wallets and platforms, meaning the exchange that ultimately processes a sale often has no record of where or when the asset was originally acquired. That leaves the burden squarely on the taxpayer to reconstruct their own records.
- Exchanges report gross proceeds but frequently lack accurate cost-basis data.
- Transfers between wallets and platforms break the acquisition trail.
- Taxpayers risk being taxed on inflated amounts if they can't document their basis.
What Investors Should Do
Tax professionals are urging crypto holders to keep meticulous records of every purchase, transfer, and sale. Maintaining detailed transaction histories — including dates, amounts, and prices — is now essential to avoid mismatches with the figures the IRS receives from exchanges.
For active traders juggling multiple platforms, specialized crypto tax software or professional help may be the only practical way to reconcile the numbers. As enforcement tightens, the g