If you sold Bitcoin, Ethereum, or any other cryptocurrency in 2025, the IRS almost certainly already knows about it. This filing season marks the first time brokers were required to submit Form 1099-DA, a new tax document that reports the gross proceeds of digital asset sales directly to the agency. Those forms are now feeding into the same automated matching systems the IRS has used for decades to catch unreported wages and stock sales. And those systems are far more capable than they were even a short time ago: according to a Government Accountability Office inventory reviewed for this article, the agency disclosed 126 active artificial intelligence use cases as of June 2025, up from just 10 when the GAO first cataloged the IRS’s AI footprint in August 2022.
The upshot for the millions of Americans who traded crypto last year: automated scrutiny of digital asset income is no longer a future possibility. It is happening right now, during the 2026 filing season.
How the IRS’s AI footprint grew more than tenfold
According to GAO data reviewed for this article, the office’s most recent inventory counted 126 active AI use cases across the IRS as of June 2025, spanning audit selection, fraud detection, compliance enforcement, and taxpayer services. When the agency first disclosed its AI footprint in August 2022, the count stood at just 10. According to agency correspondence reviewed by the GAO, IRS staff provided follow-up updates in August 2025 and again in early 2026, indicating the inventory continues to grow as pilot projects move into full production.
A clarification on terminology: the GAO tracks “AI use cases,” not individual machine-learning models. A single use case can involve multiple models working in concert, or one model can serve several business units. No public IRS document breaks out an exact model count. What the GAO data makes clear is that the agency’s AI footprint has grown by roughly an order of magnitude in under three years, with much of that growth concentrated in compliance and enforcement functions.
How Form 1099-DA changes the game
For years, the IRS relied heavily on voluntary compliance and the digital asset question on the front page of Form 1040 to surface crypto activity. That changed on January 1, 2025, when final Treasury regulations took effect requiring custodial brokers to issue Form 1099-DA for digital asset transactions. The first batch of these forms is reaching both taxpayers and the IRS during the current filing season.
Each form reports gross proceeds from broker-facilitated sales, the date of each transaction, and identifying information for the seller. Cost basis reporting is being phased in starting with sales made on or after January 1, 2026, but even without basis data, the IRS now has a verified record that a sale occurred and exactly how much the seller received. That alone is enough to trigger a mismatch if a taxpayer leaves the transaction off Schedule D or understates the amount.
Consider a hypothetical filer who sold $22,000 worth of Ethereum through a centralized exchange in July 2025 but forgot to include the transaction on Schedule D. Under the old system, the IRS might never have known. Now, the exchange has filed a 1099-DA reporting that $22,000 in proceeds, and the agency’s matching systems are designed to flag the gap automatically.
Form 1099-DA is also eligible for pre-filing TIN matching, meaning brokers can verify taxpayer identification numbers before submitting reports. Cleaner data at the front end reduces false positives and lets the IRS’s automated systems zero in on genuine discrepancies rather than data-entry errors.
The matching engine that ties it together
The IRS’s Automated Underreporter (AUR) program has been cross-checking information returns against individual tax filings for years. When it finds a gap, it generates a CP2000 notice proposing additional tax, plus interest and potentially a 20% accuracy-related penalty. The program already handles billions of dollars in proposed adjustments annually from W-2 wages and Form 1099-B stock sales.
Internal Revenue Manual procedures now explicitly reference the digital asset checkbox on Forms 1040 and 1040-SR as part of the AUR workflow. With 1099-DA data feeding into that same engine, crypto dispositions are subject to the identical automated scrutiny that traditional brokerage accounts have faced for decades. If a broker reports $15,000 in Bitcoin proceeds and the taxpayer’s return shows nothing, the system is built to flag it.
Layer the IRS’s expanding AI capabilities on top of that matching engine and the picture sharpens further. While the agency has not publicly confirmed which specific AI tools are applied to crypto-related returns, the GAO inventory shows that compliance and enforcement represent the fastest-growing category of IRS AI deployment. The infrastructure is in place for the agency to move well beyond simple line-item matching toward pattern recognition across wallets, exchanges, and filing histories.
What the IRS has not disclosed
For all the expansion, significant gaps remain in what the public knows. No IRS guidance specifies which AI use cases, if any, are dedicated to crypto enforcement, what dollar thresholds trigger automated notices for digital asset discrepancies, or how the agency distinguishes high-risk from low-risk mismatches involving tokens. The GAO’s references to an evolving inventory suggest even the agency’s internal picture is still taking shape.
There are also limits to what 1099-DA covers in its first year. The reporting requirement applies to custodial brokers, primarily centralized exchanges like Coinbase and Kraken. Decentralized finance (DeFi) platforms and peer-to-peer transactions are not yet subject to the same rules. The Treasury finalized regulations in late 2024 that would extend broker reporting to certain DeFi front-end service providers, but those rules face an ongoing legal challenge from the Blockchain Association and the DeFi Education Fund, and their effective dates remain uncertain. Taxpayers who traded exclusively through DeFi protocols may not receive a 1099-DA this year, but they are still legally required to report gains and losses.
What crypto sellers should do before filing
The practical takeaway is straightforward, even if the technical architecture behind it is not. Here is what filers who sold or exchanged digital assets in 2025 should keep in mind:
- Assume the IRS has a record of your sales. If you used a centralized exchange, your broker has almost certainly filed a 1099-DA. Your return needs to match it.
- Reconcile broker reports against your own records. Gross proceeds on the 1099-DA may not reflect your actual cost basis, especially if you transferred tokens between wallets before selling. Gather purchase records, transfer histories, and any documentation of basis before you file.
- Do not ignore the digital asset question on Form 1040. Checking “No” when the answer is “Yes” is a misstatement on a federal tax return, and the IRS now has third-party data to verify it.
- Understand what a CP2000 notice means. It is not an audit. It is a proposed adjustment based on a mismatch between your return and information the IRS received from a third party. You have the right to respond with documentation showing the IRS’s figures are wrong. Ignoring it leads to an automatic assessment of additional tax, interest, and penalties.
- Consider amending prior-year returns. If you failed to report crypto gains in earlier years, the IRS’s expanding data capabilities make voluntary correction through an amended return a far safer path than waiting for a notice to arrive.
Why 1099-DA and AI-driven matching make the 2026 filing season a turning point for crypto tax enforcement
Previous tax years gave crypto holders a degree of practical obscurity. Exchanges were not required to report sales to the IRS, and the agency’s enforcement tools were largely manual. Both of those conditions have changed at once. Form 1099-DA gives the IRS structured, broker-verified transaction data for the first time, and a rapidly growing suite of AI-driven compliance tools gives the agency the capacity to act on that data at scale.
For the millions of Americans who bought and sold crypto in 2025, accurate reporting is not just good practice. It is the only approach that accounts for what the IRS can now see.
