Crypto Tax Filing 2026: What You Need to Know About Your 2025 Return
The 2025 tax year marks a turning point for crypto holders in the United States. For the first time, centralized exchanges are filing new Form 1099-DA reports directly with the IRS, and a landmark legal memo from Cahill Gordon & Reindel is challenging the IRS’s longstanding position on how staking rewards should be taxed. Whether you self-custody Bitcoin or have exposure to other digital assets that may generate taxable events, here is what you need to know before you file.
Executive Summary
Two major developments define the 2025 crypto tax filing season.
First, Form 1099-DA is now in effect. For the first time, centralized exchanges such as Coinbase and Kraken are reporting digital asset transaction proceeds directly to the IRS. But these forms generally report only gross proceeds, not cost basis. Mandatory cost-basis reporting to the IRS does not begin until 2026. As a result, mismatches between a taxpayer’s return and Form 1099-DA are likely to generate automated IRS notices, and the burden of substantiating actual gain or loss remains squarely on the taxpayer.
Second, the legal basis for taxing staking rewards is now under direct challenge. In a March 2026 memorandum, Cahill Gordon & Reindel argues that Revenue Ruling 2023-14 incorrectly treats newly created staking tokens as ordinary income upon receipt. Their position is that newly minted tokens are self-created property, not income derived from another person, and therefore should not be taxed until disposition. The memorandum also argues that the IRS’s current approach can overstate taxable income relative to actual economic gain, particularly in light of token dilution. Cahill submitted the memorandum to the Treasury Department and requested new guidance.
DeFi participants received a regulatory reprieve in April 2025, when President Trump signed a repeal of the DeFi broker reporting rules. But that repeal did not change the underlying tax treatment of DeFi activity. DeFi transactions remain taxable, and taxpayers must still self-report them.
Bottom line: the IRS now has more visibility into crypto transactions than ever before, the governing rules remain unsettled, and the consequences of inaccurate reporting are increasing.
I. The New Reporting Landscape: Form 1099-DA
Starting with the 2025 tax year, brokers, including major centralized exchanges like Coinbase and Kraken, are required to issue Form 1099-DA, a new IRS information return specifically designed for digital asset transactions. These forms are sent both to customers and directly to the IRS for transactions that occurred during calendar year 2025, with forms due to taxpayers by mid-February 2026. [1][2]
The key limitation: for 2025, brokers are only required to report gross proceeds, the value an asset was sold for, to the IRS. They are not yet required to report cost basis (what you originally paid) to the IRS. That requirement does not take effect until tax year 2026, and only for “covered” assets, those acquired and held within the same broker account on or after January 1, 2026. [1][2]
Note: Some exchanges, including Coinbase, have indicated they will voluntarily include cost basis information on the customer copy of Form 1099-DA for 2025. However, this cost basis is not reported to the IRS in the first reporting year, so the IRS sees only the proceeds, regardless of what your copy of the form shows. [2]
This creates a compliance gap. If Coinbase reports that a customer sold Bitcoin for $100,000, the IRS receives that amount without any cost-basis offset. The burden falls on the taxpayer to provide their own documentation, through prior purchase records, crypto tax software, or manual spreadsheets, to establish the actual gain or loss on their return.
As Lawrence Zlatkin, Vice President of Tax at Coinbase, explained: discrepancies between what is reported on a 1099-DA and what appears on a tax return are likely to trigger automated compliance letters from the IRS (known as CP2000 notices) asking taxpayers to reconcile the mismatch. [3] This is not a hypothetical. It is the expected consequence of a system that captures proceeds without requiring corresponding basis reporting in its first year.
“Covered” vs. “Uncovered” Assets
Beginning with 2026 transactions, brokers must report both gross proceeds and adjusted cost basis for covered assets. “Uncovered” assets, including crypto transferred into a brokerage account from an external wallet or assets acquired before January 1, 2026, will not be subject to mandatory basis reporting to the IRS. Taxpayers remain responsible for tracking those figures independently, regardless of what any broker provides. [1][2]
The Wallet-by-Wallet Accounting Requirement
2025 also introduced a new cost basis accounting methodology: taxpayers must now use a wallet-by-wallet method rather than a universal method. Cost basis must be tracked per wallet or account, using only the basis of assets held in the same wallet as the token being sold. The IRS published Rev. Proc. 2024-28 to assist taxpayers in transitioning, including a safe harbor for those who previously used the universal method. [4]
For high-volume traders using multiple wallets or platforms, this is a significant operational shift. Confirm which accounting method your tax software used in prior years before filing, and lock in your preferred method (FIFO, HIFO, LIFO, or specific identification) before executing further sales, as changes after the fact carry documentation risk.
DeFi Is Still Taxable, Even Without a 1099
On April 10, 2025, President Trump signed H.J.Res. 25 under the Congressional Review Act, repealing the IRS regulations that would have required decentralized finance (DeFi) brokers to file Form 1099-DA. [5] The repeal applies to decentralized exchanges, non-custodial wallet providers, and similar permissionless infrastructure, entities that operate almost entirely on-chain and do not offer traditional fiat on-ramps.
This does not mean DeFi activity is tax-free. All taxable DeFi transactions, including income from liquidity pools, yield farming, non-custodial staking, and token swaps, remain fully taxable and must be self-reported by the taxpayer. [5] The IRS has noted that most DeFi activity is visible on public blockchains, meaning audit exposure does not disappear simply because no broker is filing on your behalf. The Congressional Review Act also bars Treasury and the IRS from issuing substantially similar DeFi reporting rules in the future without new congressional authorization. [5]
II. The Staking Tax Dispute: A Fundamental Legal Challenge
Second, the legal basis for taxing staking rewards is now under direct challenge.
In a March 2026 memorandum, Cahill Gordon & Reindel argues that Revenue Ruling 2023-14 incorrectly treats newly created staking tokens as ordinary income upon receipt.
Their core position is simple: newly minted tokens are self-created property, not income derived from another person, and should not be taxed until disposition.
The memo also highlights a structural problem with the IRS’s approach. Because new tokens dilute existing supply, taxpayers can be taxed on income that significantly exceeds their actual economic gain.
Cahill submitted the memorandum to Treasury and requested updated guidance. As of now, however, the ruling remains in effect.[6]
What Revenue Ruling 2023-14 Says
Revenue Ruling 2023-14 holds that cash-method taxpayers who “receive” staking rewards must include the fair market value of those rewards as ordinary income in the year they gain “dominion and control” over them, defined as the ability to sell, exchange, or otherwise dispose of the tokens. Treasury has informally confirmed that this conclusion is intended to apply to both components of staking rewards: transaction fees paid by network users, and newly minted tokens produced by the validation software itself. [6]
The Two Components of Staking Rewards
The Cahill memo draws a sharp legal distinction between those two components.
- Transaction fees are paid by blockchain network users to validators for including their transactions on the blockchain. They represent compensation received from an identifiable person. These are unambiguously taxable as ordinary income under current law, and the memo does not dispute this. [6]
- Newly minted tokens are categorically different. These tokens are not paid by any person. They are programmatically produced by open-source validation software when a validator proposes or votes on blocks. The number of newly minted tokens does not correspond to or depend on the transaction fees paid by users. No entity, not the protocol, not other users, transfers newly minted tokens to a validator. The validator’s computer mints them by running open-source software that no one owns. [6]
The Core Legal Argument: No Source, No Income
The memo’s central legal argument is grounded in constitutional and statutory tax law. Under the Sixteenth Amendment and the Internal Revenue Code, income must be “derived from a source.” In Eisner v. Macomber, 252 U.S. 189 (1920), the Supreme Court held that income requires a “coming in.” In Commissioner v. Glenshaw Glass, 348 U.S. 426 (1955), the Court clarified that income requires an accession to wealth “clearly realized.”
Critically, Section 7701(a)(1) of the Code defines “person” to mean an individual, trust, estate, partnership, association, company, or corporation. Open-source software is not a person under this definition. Because newly minted tokens are not paid by any person, and because a “source” must be a person, validators do not derive newly minted tokens from a taxable source. Therefore, their production cannot legally constitute income under the Code at the moment of acquisition. [6]
The memo analogizes staking validators to farmers harvesting fruit from unclaimed or common land: just as a farmer is not taxed on a harvest but only on the eventual sale, a validator should not be taxed on the production of newly minted tokens, only on a subsequent taxable disposition. Transaction fees received from blockchain users are like farming subsidies: taxable as compensation from a person, but their receipt does not transform the self-produced tokens into compensation any more than subsidies transform the harvest. [6]
The Economic Distortion Argument
Beyond the legal theory, the Cahill memo identifies a concrete economic problem: taxing newly minted tokens at acquisition systematically overstates a staker’s actual economic income.
The memo illustrates this with a worked example. Assume Jack holds 300 tokens and Jill holds 100 of a network’s 400 native tokens at the beginning of the year, with a market cap of $400 (each token = $1.00). Jack produces 100 newly minted tokens through validation over the course of the year. If the network’s market cap stays flat at $400, by year-end, there are 500 tokens outstanding, each worth $0.80. Jack’s holdings have grown from $300 to $320, an economic gain of $20. But under Revenue Ruling 2023-14, Jack would be taxed on approximately $90 in income, more than four times his actual economic gain. [6]
The discrepancy arises because the IRS’s approach ignores the dilutive effect of new token issuance. When staking participation is high, newly minted tokens do not transfer value from one person to another; they simply dilute the existing supply proportionally. The Supreme Court held in Eisner v. Macomber that pro rata stock dividends are not income precisely because they represent no such transfer. The same economic logic, the memo argues, applies to newly minted tokens on high-participation networks. Solana’s staking participation rate currently stands at approximately 69%. [6]
There is also a timing problem. Validators are typically subject to lock-up periods and exit queues enforced by the network’s own software. Under Revenue Ruling 2023-14, taxpayers may be required to pay tax on tokens they cannot yet sell or transfer, or be taxed on income from an investment they cannot exit. No other commodity producer faces this treatment: a manufacturer is taxed on goods at sale, not production; a farmer is taxed on crops at sale, not harvest. [6]
What Cahill Is Asking Treasury to Do
The memo requests that Treasury and the IRS issue a new revenue ruling that:
- Clarifies that Revenue Ruling 2023-14 applies only to transaction fees received from blockchain network users, and does not apply to newly minted tokens; and
- Confirms that a validator does not realize income on the acquisition of newly minted tokens, with income recognized only on a subsequent taxable disposition. [6]
This would bring the tax treatment of newly minted tokens in line with the longstanding treatment of self-produced property under U.S. income tax law. The memo further notes that the same analysis would apply to newly minted tokens on proof-of-work blockchains, including Bitcoin, and would require corresponding updates to Notice 2014-21. [6]
III. Practical Takeaways
For anyone who bought and sold crypto on a centralized exchange in 2025:
- Expect a Form 1099-DA showing gross proceeds. Even if your exchange provides a cost basis on your customer copy, that information is not transmitted to the IRS for 2025 transactions.
- You are responsible for documenting your cost basis independently and reconciling it against the form before filing.
- If your return does not match the gross proceeds figure on the 1099-DA, you are likely to receive an automated CP2000 notice. This is not an audit, but it requires a written response.
- Confirm you are using a wallet-by-wallet accounting method consistent with Rev. Proc. 2024-28, and that your chosen lot identification method is documented before each sale.
For stakers:
- Under current law (Revenue Ruling 2023-14), staking rewards, including both transaction fees and newly minted tokens, are taxable as ordinary income at the time dominion and control are acquired.
- The Cahill Gordon memo represents a serious, formally submitted legal challenge to that position, but it has not yet changed the law. Until Treasury acts, taxpayers should assume current guidance governs.
- If you are a retail staker and believe your effective tax liability is being overstated due to protocol-level inflation or lock-up timing, consult a crypto-specialized tax attorney.
For DeFi participants:
- No broker is filing on your behalf. All gains, income, and taxable events from DeFi activity must be self-reported on your return.
- The absence of a 1099 does not reduce your audit exposure. Most on-chain activity is publicly visible.
- The April 2025 DeFi broker repeal does not affect your underlying tax obligations; it only affects whether a third party is required to report for you.
The Bottom Line
The 2025 tax year is the first in which the IRS has standardized, real-time data flowing in from exchanges. The infrastructure is incomplete, full cost-basis reporting to the IRS is a year away, but the enforcement framework is now operational. At the same time, the foundational question of whether newly minted staking rewards constitute taxable income at acquisition is being formally contested at the policy level, with a substantive legal argument on the table.
Crypto tax law is not static. If you are a staker, a DeFi participant, or a holder with complex transaction history, working with counsel who understands both the current rules and the evolving legal landscape is a material risk-management decision, not an optional precaution.
Legal References
[1] IRS Form 1099-DA — New information return for digital asset transactions beginning tax year 2025. Gross proceeds reported to IRS for 2025; cost basis reporting to IRS begins tax year 2026 for covered assets. See Final Regulations under I.R.C. § 6045; Coinbase Help, “IRS Form 1099-DA”: https://help.coinbase.com/en/exchange/managing-my-account/irs-form-1099-da
[2] Coinbase, “What’s Changing With Crypto Taxes This Year” (Feb. 17, 2026): https://www.coinbase.com/blog/whats-changing-with-crypto-taxes-this-year
[3] The Block, “IRS Crypto Reporting Rules Set Stage for Confusing Tax Season” (March 2026): https://www.theblock.co/post/393574/irs-crypto-reporting-rules-set-stage-for-confusing-tax-season-heres-what-you-need-to-know
[4] Rev. Proc. 2024-28 — IRS safe harbor for taxpayers transitioning from universal to wallet-by-wallet cost basis accounting, effective tax year 2025.
[5] H.J.Res. 25, 119th Cong. (signed Apr. 10, 2025) — Repeals Treasury Decision 10021, removing DeFi broker Form 1099-DA reporting obligations. See RSM US: https://rsmus.com/insights/tax-alerts/2025/congress-nullifies-irs-crypto-reporting-regulations-for-defi-platforms.html
[6] Cahill Gordon & Reindel LLP, Memorandum Re: U.S. Federal Income Taxation of Staking Rewards (Mar. 17, 2026). Submitted to The Honorable Kenneth Kies, Assistant Secretary (Tax Policy), U.S. Department of the Treasury. Authored by Jason Schwartz: https://static.cahill.com/docs/Staking%20Tax%20Memo.pdf
Underlying legal authorities cited in [6]: U.S. Const. amend. XVI; I.R.C. §§ 61, 7701(a)(1), 446(b); Eisner v. Macomber, 252 U.S. 189 (1920); Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955); Tootal Broadhurst Lee Co. v. Commissioner, 30 F.2d 239 (2d Cir. 1929); Revenue Ruling 2023-14; Revenue Ruling 2019-24; Rev. Proc. 2025-31; Notice 2014-21, Q&A 8–9.
This article is for informational purposes only and does not constitute legal or tax advice. For guidance specific to your situation, contact Hodder Law at hodderlaw.com.
