Your Crypto Clients Are About to Get IRS Forms Showing ,500 in Phantom Gains. Here's Why.

Your crypto clients are about to receive their first 1099-DA forms from the IRS. And they're going to freak out. Why? Because those forms are wrong. An analysis from crypto tax software provider Summ just found that the average crypto investor faces $14,500 in overstated capital gains due to gaps in how digital asset transactions are reported. That's not a typo. Fourteen thousand, five hundred dollars. Here's what's happening—and what CPAs with crypto clients need to know right now.

The 1099-DA Problem

Form 1099-DA is the IRS's new reporting system for digital asset transactions. It's supposed to bring transparency to crypto taxation. Instead, it's creating a nightmare for anyone who trades across multiple platforms. The problem: these forms only capture part of the picture. Specifically, they capture the sale—but not the purchase. Here's a real-world example. Your client buys Bitcoin on a decentralized exchange for $50,000. Six months later, they sell it on Coinbase for $52,000. That's a $2,000 gain. But Coinbase didn't see the original purchase. They only see the sale. So the 1099-DA they issue reports $52,000 in proceeds with zero cost basis. To the IRS, that looks like a $52,000 gain—not $2,000. Your client now owes taxes on phantom gains of $50,000 that never existed.

The Numbers Are Alarming

Summ analyzed 30,000 U.S. crypto users with moderate trading activity for the 2025 tax year. The results: • Actual capital gains: $46 million • Gains reported on 1099-DA forms: $481 million • The gap: $435 million in phantom gains—a 944% overstatement Average impact per user: $14,500 in overstated gains. And here's the kicker—this analysis only looked at one transaction pattern: buying on non-reporting platforms (wallets, DEXs) and selling on reporting platforms (Coinbase, Kraken, Gemini). It didn't account for NFT transactions, cross-chain swaps, staking rewards, DeFi yields, or wallet-to-wallet transfers. Each of those creates additional cost basis gaps.

Why This Is Happening

The average crypto user connects four data sources to reconcile their activity. But only one of those four is a reporting platform that issues 1099-DAs. That means 57% of all transactions occur outside reporting platforms. And when crypto moves from a non-reporting platform to a reporting one, the cost basis doesn't follow. Shane Brunette, Summ's CEO, put it bluntly: "The Form 1099-DA makes it look like you gained $52,000. That's a $50,000 difference you'll need to explain to the IRS."

What CPAs Need to Do Right Now

If you have crypto clients, here's your action plan: 1. **Don't trust the 1099-DA.** Tell clients upfront that these forms are incomplete and likely wrong. Their actual tax liability probably bears no resemblance to what the form shows. 2. **Reconstruct the full transaction history.** You need data from every platform, wallet, DEX, and protocol the client used in 2025. Some of those platforms may no longer exist or maintain records—start now. 3. **Document everything.** The IRS is going to receive inflated 1099-DAs. When your client reports lower gains, you'll need substantiation for the difference. Transaction logs, screenshots, blockchain records—keep it all. 4. **Expect IRS notices.** When the IRS sees a $52,000 gain on the 1099-DA but your client reports $2,000, expect a letter. Be ready with the documentation. 5. **Flag this during tax prep meetings.** Most clients don't know this is coming. If they get a 1099-DA showing $50,000 in phantom gains and you didn't warn them, that's a bad client experience.

The Bottom Line

The IRS built Form 1099-DA to close the crypto reporting gap. Instead, it's creating a new one. For 46 million U.S. crypto investors, these forms are about to arrive in mailboxes showing gains that don't exist. And for CPAs, that means explaining why the IRS's numbers are wrong—and proving it. If you have crypto clients, start the conversation today. Because those 1099-DAs are already in the mail.