What Your Crypto Exchange Doesn’t Tell You About IRS Reporting

Crypto exchanges are getting louder about KYC, compliance, and making taxes simple, but the truth is this: Most exchanges still don’t tell you the full story about how the IRS monitors your crypto or what you are legally responsible for reporting. 2025 is the first major year where the IRS is rolling out 1099-DA, strengthening enforcement on foreign exchange reporting, and cross-matching crypto activities with data from banks, stablecoin issuers, blockchain analytics firms, and international tax treaties. Yet the average trader still believes: my exchange will send me everything I need, the IRS only cares if I cash out, I don’t need to file anything if I trade on non-U.S. platforms, FBAR is only for bank accounts. All false. This is exactly how traders end up with CP2000 notices, audits, penalties, and foreign asset violations that can reach 10,000 to 50,000 dollars or more per year. In this playbook you’ll learn everything your exchange doesn’t tell you about IRS reporting and what you must understand before the 2025 tax season.

The Current State Of Crypto Reporting

The IRS Has Already Decided: Crypto Is Reportable, Trackable, and Traceable

Crypto is no longer even close to anonymous to the IRS. The government now uses blockchain analytics, KYC exchange databases, Bank Secrecy Act data, international reporting treaties, and automatic matching from 1099-DA. Exchanges rarely give you accurate cost basis or a complete tax picture. Their data is siloed, incomplete, and often wrong. The IRS knows this, which is why reporting responsibility falls on you, not the exchange.

1099-DA Is Here

1099-DA: The First Real Attempt to Track Every U.S. Crypto Trader

The new 1099-DA form rolls out for 2025. It reports transfers in and out, digital asset sales, digital asset acquisitions, broker-held wallet movements, and KYC-identifying information. But here’s what exchanges won’t tell you: your 1099-DA will NOT be complete if you use multiple exchanges, DEXs, wallets, bridges, NFTs, or DeFi protocols. Partial information is more dangerous than no information because the IRS sees what looks like income. Transfers may appear taxable. Missing cost basis can inflate gains. IRS computers treat mismatches as red flags. If the IRS gets a 1099-DA for you and you don’t report crypto, you can expect CP2000 letters, automated assessments, or audits. The era of I didn’t get a 1099 so I don’t need to report is over.

Exchanges Don’t Track Your Full Cost Basis

Traditional brokers track basis. Crypto exchanges don’t. If you buy on Coinbase, transfer to Kraken, move to MetaMask, swap on Uniswap, bridge to Arbitrum, and return to Coinbase, no single platform knows your full history. That means no exchange can calculate your gains correctly. Your cost basis follows you, not the exchange.

Offshore Crypto Exchanges Create Additional Reporting Requirements

Using International or Non-KYC Exchanges Creates Hidden Obligations

Many traders assume non-U.S. platforms don’t report to the IRS, but your reporting requirement exists regardless of what the exchange does. This introduces two major traps: FBAR and FATCA.

FBAR Requirements

FBAR requires U.S. persons to report foreign financial accounts if total value exceeds 10,000 dollars at any point in the year. FinCEN has said multiple times they intend to apply FBAR to crypto. If your assets are on foreign custodial exchanges such as Binance International, KuCoin, Bybit, OKX, Bitget, Gate.io, MEXC, or HTX, you may have FBAR obligations now. Penalties start at $16,536 dollars per year and can reach 50 percent of account value for willful violations. (Penalties listed are as of 2025)

FATCA Requirements

FATCA Form 8938 requires reporting of foreign financial assets if the value exceeds 50,000 dollars for singles or 100,000 dollars for married filing jointly at year end, or 75,000 and 150,000 dollars respectively at any time during the year. Exchanges do not warn you about this, but taxpayers are fully responsible for complying. We should also note that Form 8938 thresholds are significantly higher if you happen to be a US expat.

Self-Custody Doesn’t Exempt You

Some believe that holding crypto in their own wallet eliminates reporting obligations. That’s false. Every taxable event must still be recorded: cost basis, receipts of tokens, NFT mints, airdrops, staking rewards, liquidity pool activity, bridges, smart contract interactions, and swaps. The IRS treats crypto as property regardless of where it is held.

DEXs, Bridges, and DeFi Are Invisible to Exchanges but Not to the IRS

DeFi does not issue 1099s. Uniswap, GMX, Aave, Curve, Pendle, Lido, LayerZero, THORChain, restaking protocols, and every bridge generate taxable events but are not reported by exchanges. All swaps, staking rewards, liquid staking income, liquidity gains or losses, farming rewards, and restaking income must still be included on your tax return.

Cross-Exchange Transfers Create Tracking Issues

Transfers between platforms can look like taxable income if cost basis is missing. Example: You buy 1 BTC for 20,000 dollars on Coinbase and transfer it to Kraken, where you sell it for 35,000 dollars. Coinbase reports a transfer out. Kraken reports a transfer in and sale. Neither includes cost basis. To the IRS, that looks like a 35,000 dollar gain unless you provide records. This is one of the biggest issues with 1099-DA and exchanges will never warn you about it.

Exchanges Still Lack Proper Tax Support

Even with 1099-DA, exchanges remain inconsistent and unreliable. They do not support full DeFi tracking, NFT tracking, bridging, or cross-exchange basis matching. The IRS expects you to correct everything. Serious traders use software like Koinly or a professional crypto tax service to generate accurate gain and loss reports.

The IRS Plans to Use 1099-DA as an Audit Filter

The IRS will classify taxpayers based on how well their return matches 1099-DA data. Mismatches can trigger CP2000 letters, correspondence audits, in-person audits, foreign asset reviews, and lifestyle audits. Because exchange data is incomplete, mismatches will be common.

The IRS Is Dramatically Expanding Crypto Compliance

By the 2025 and 2026 tax seasons, enforcement will include mandatory 1099-DA, blockchain analytics, AI audit selection, increased foreign asset scrutiny, expanded FATCA and possible FBAR enforcement, random crypto audits, and automated matching for underreporting. Crypto is entering a strict compliance era.

How to Protect Yourself Before the 2025 Filing Season

The most successful traders are already downloading full transaction histories, generating complete gain and loss reports, checking FBAR and FATCA requirements, preparing for 1099-DA mismatches, setting aside tax for staking income, using transcript monitoring like ChainDefense, and working with a crypto tax professional. The new rules penalize mistakes aggressively, so proactive reporting is essential.

Why the IRS Loves 1099-DA but Exchanges Don’t

1099-DA forces exchanges to operate more like traditional brokers, exposing inaccuracies and mismatches that ultimately become your responsibility to fix. It increases their regulatory burden and customer service workload, so exchanges provide the minimum required information and push the rest onto taxpayers.

The Bottom Line

Your exchange is not responsible for the accuracy of your taxes. The IRS is receiving more data than ever before from exchanges, foreign governments, banks, and blockchain analytics firms. If you rely solely on exchange tax forms, you risk audits, penalties, and incorrect reporting. If you understand 1099-DA, FBAR, FATCA, cost basis tracking, and DeFi taxation and take control of your reporting, you stay ahead of enforcement and avoid issues long before they begin.