Your Client’s Crypto Just Got Reported to the IRS: Form 1099-DA Mismatches, Wrong-Basis CP2000 Notices, and Defending Digital Asset Audits After Paschall

This session explains what information the IRS now receives and how it uses it. Attorneys will walk through the final broker reporting regulations under section 6045 and the phased rollout of Form 1099-DA: gross-proceeds-only reporting for 2025 transactions, mandatory basis and holding-period reporting for 2026 transactions, the transitional penalty relief and the deferral of reporting on staking, lending, liquidity-pool, and wrapping transactions under Notice 2024-57, and the Congressional Review Act repeal of the DeFi broker rule that leaves decentralized exchanges and unhosted wallets outside the reporting net. The session then turns to the basis rules that determine whether a client actually owes anything: the shift from universal to wallet-by-wallet accounting under Treas. Reg. § 1.1012-1(j), FIFO as the default and the mechanics of specific identification and standing orders, Notice 2025-7 relief, and the consequences for clients who missed the January 1, 2025 Rev. Proc. 2024-28 safe harbor and now hold orphaned basis. Attorneys will learn how gaps in the reporting regime may create compliance risks and possible IRS audit flags. Attorneys will learn how to deal with those issues through reconstructed basis from on-chain records and exchange exports, and how to present that reconstruction so it survives IRS scrutiny.

This session moves from reporting regime to IRS enforcement. Attorneys will learn how to triage the IRS’s digital asset correspondence: the informational Letters 6174 and 6174-A, the response-required Letter 6173, and the CP2000 proposed adjustment with its 30-day window, including how to rebut a CP2000 that treats gross proceeds as gain, understand the digital asset question on Form 1040, and decide between an amended return, a reasonable-cause penalty defense, and a voluntary disclosure where willfulness is a concern. The session then explores how digital asset examinations are built, from John Doe summonses to exchanges and the blockchain analytics that trace transfers to unhosted wallets, to the accuracy-related and civil fraud penalties, the six-year statute for substantial omissions, and information document requests that demand wallet addresses and transaction histories. Attorneys will then review the case law that now governs the merits: Rev. Rul. 2023-14 and Paschall v. Commissioner on staking income, the pending Jarrett II refund suit, the treatment of airdrops, forks, mining, NFTs as collectibles, and lost or frozen assets on bankrupt platforms, and the strategic choice among IRS Appeals, a Tax Court deficiency case, and a collection due process hearing. The session closes with an update on the legislative landscape an current proposals.