Crypto Updates

The IRS and the Rising Cost of Crypto Tax Compliance

The IRS and the Rising Cost of Crypto Tax Compliance

The year is 2027.

January is coming to an end, and you recently received five different 1099s from the crypto brokers you used over the last year.

This post is part of CoinDesk’s Tax Week, presented by TaxBit. David Kemmerer is the CEO & co-founder of CoinLedger, a crypto tax software company.

Despite only trading $5,000 of cryptocurrencies, your 1099s are reporting $50,000 of realized taxable income! This number isn’t accurate. But, given that these same 1099s were sent to the IRS, Uncle Sam believes you earned that amount, and now he is demanding his $15,000 cut.

Naturally, you start to panic.

How can this be? You originally bought only $5,000 of Ethereum. You can’t owe $15,000 in taxes, can you?

Confused and stressed out, you take to the internet and quickly find someone online who calls himself a crypto tax expert.

“Due to increased demand,” the crypto tax expert’s website says, “we have stopped offering free tax consultations.”

Reluctantly, you pay $250 up front and schedule a 30 minute consultation.

You need to get this sorted out.

Why is my crypto tax bill so much higher?

Once on the phone, the expert explains that the 1099s you received likely reported the gross proceeds of your trades and transfers without a detailed account of the basis, essentially the amount you spent to acquire the crypto.

This discrepancy is a common issue that crypto investors face, resulting in over-reported income and inflated tax bills. The misleading 1099s are the result of broker reporting regulations put into place by the IRS and Treasury department back in 2023.

To resolve this, you’re advised to compile a comprehensive transaction history across all of your wallets to calculate the actual gains or losses incurred. Once calculated, you need to reconcile the actual gains with what’s reported on your 1099s, a process that is not only time-consuming but also requires a specialized understanding of both crypto transactions and tax laws.

The expert is quick to let you know he can handle all of this burdensome reporting for you for a one time payment of $4,000.


Your jaw hits the floor.

“People actually pay that?” you ask the expert.

With a smile on his face, the expert replies, “My firm will do 350 of these just this week!”

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