Millions of Americans who sold Bitcoin, Ethereum, or other digital assets through a U.S. exchange in 2025 may not realize it yet, but the IRS already has a detailed record of every one of those transactions. For the first time, centralized crypto brokers were required to file Form 1099-DA for each customer sale, sending the agency the same kind of proceeds data that stock brokerages have reported for more than a decade. Those filings now feed directly into the IRS’s Automated Underreporter program, a matching engine that compares third-party records against individual tax returns and generates notices when the numbers don’t align.
That shift alone would represent a major escalation in crypto tax enforcement. But it is arriving alongside a separate, less visible expansion: the IRS has more than doubled its inventory of artificial intelligence models used for return screening, growing from 54 to 125 between the prior reporting cycle and the current one. The figures come from the Treasury Department’s AI Use Case Inventory, published in January 2026, and from what the Government Accountability Office has described as a review of IRS documents and agency staff interviews (cited as GAO-26-107522, though the report has not been independently verified by this publication).
The combined effect is that crypto gains are no longer an honor-system line item. They now sit inside the same automated compliance machinery that has caught unreported wages and investment income for years. And that machinery is getting considerably more sophisticated.
How a crypto sale becomes a CP2000 notice
The reporting mandate traces back to the Infrastructure Investment and Jobs Act of 2021, which amended IRC Section 6045 to treat qualifying digital asset brokers the same way the tax code treats stock brokerages. Starting with transactions on or after January 1, 2025, those brokers must report gross sale proceeds on Form 1099-DA and send copies to both the taxpayer and the IRS. The IRS has published general guidance for information return filers explaining how payers must report income and proceeds across the various 1099 forms.
Once a 1099-DA reaches the IRS, it enters the Automated Underreporter program, known internally as AUR. The system ingests third-party information returns, lines them up against what a taxpayer reported on Form 8949 and Schedule D, and generates a CP2000 notice when it spots a discrepancy. That notice proposes additional tax, interest, and in some cases penalties. Taxpayers can agree, partially agree, or dispute the finding by submitting supporting documentation. While the process is largely automated, IRS staff review certain flagged cases before notices go out, particularly when the proposed adjustment is large or the return involves complex filing circumstances. The workflow is described in the IRS’s own Internal Revenue Manual section on AUR examination procedures.
One detail that could reduce friction for filers: the IRS has added Form 1099-DA to its TIN Matching e-service, which lets brokers verify a customer’s name and taxpayer identification number before filing. Cleaner data going in should mean fewer erroneous notices coming out.
What 125 AI models actually means
The jump from 54 models to 125 reflects a broader push across the Treasury Department to embed machine learning in day-to-day operations. The January 2026 inventory catalogs every AI use case across Treasury, including models the IRS uses for return selection, case routing, fraud detection, and anomaly scoring. The GAO review cross-referenced that inventory with internal IRS documents and staff interviews, confirming that AI at the agency has moved well past the pilot stage.
What the public records do not reveal is how many of those 125 models focus specifically on digital assets versus traditional income categories like wages, dividends, or rental income. That distinction matters. If crypto transactions are receiving disproportionate algorithmic scrutiny, the practical impact on filers who traded digital assets would be far greater than if the expansion is spread evenly across all return types.
Accuracy metrics are also absent. Neither the Treasury inventory nor the GAO report includes false-positive rates or performance benchmarks for individual models. Without that data, it is impossible to know whether doubling the model count has improved the precision of flagged returns or simply increased the volume of notices sent to taxpayers who may owe nothing extra.
The expansion is also unfolding during a period of significant workforce upheaval at the IRS. Budget disputes and staffing reductions in recent years have left the agency with fewer experienced employees to oversee automated systems, raising questions about whether human review of AI-flagged returns can keep pace with the growing volume of machine-generated cases.
“The IRS is layering AI on top of an information-reporting framework that was already highly automated,” said Mark Everson, a former IRS Commissioner who has served as vice chairman at alliantgroup. “The real question for taxpayers is not whether the agency will see their crypto sales, but whether the matching algorithms can handle the complexity of digital asset cost basis.”
The gaps that could trip up filers
Several practical questions remain unanswered heading into the 2026 filing season, and each one carries real consequences for people who traded crypto last year:
- Volume is unknown. The IRS has not projected how many 1099-DA forms brokers will file for the 2025 tax year, or how many CP2000 notices the new data will generate. Without those numbers, no one can gauge how large a share of AUR’s workload crypto cases will represent.
- Cost basis is only half the picture. The 1099-DA mandate for 2025 transactions covers sale proceeds, but detailed cost-basis reporting by brokers does not begin until transactions occurring in 2026. That one-year gap means some 2025 CP2000 notices could overstate gains if taxpayers fail to self-report their basis accurately on Form 8949.
- Decentralized platforms remain outside the net. The current broker definition targets centralized exchanges like Coinbase and Kraken. Transactions on decentralized protocols and self-custodied wallets are not subject to 1099-DA reporting under existing rules. Congress used the Congressional Review Act in early 2025 to overturn a separate IRS rule that would have extended broker reporting to certain DeFi platforms, leaving a significant slice of crypto activity outside the matching engine for now.
- Dispute data does not exist yet. No figures are available on how often taxpayers successfully challenge crypto-related CP2000 proposals, or whether AI-driven filters reduce or amplify erroneous notices. That track record will only emerge after the first full cycle of 1099-DA matching plays out.
What ignoring a CP2000 notice actually costs
Taxpayers who receive a CP2000 notice and do nothing face a specific escalation path. The IRS treats silence as agreement with the proposed adjustment. After a 30-day response window, the agency issues a Statutory Notice of Deficiency, and the proposed tax, plus interest calculated from the original filing deadline, becomes assessable. Penalties for substantial understatement of income (typically 20% of the underpayment under IRC Section 6662) can apply on top of that. For large unreported gains, the combined bill can grow quickly.
Responding promptly, even to dispute the notice, pauses that clock and gives the taxpayer a chance to present cost-basis records or correct broker errors before the assessment becomes final.
Why the 2026 filing season is the real stress test for crypto compliance
The structural picture is clear even if the performance data is not. Mandatory broker reporting, automated matching through AUR, and a rapidly expanding AI toolkit mean that unreported or misreported crypto gains are far more likely to trigger IRS correspondence than they were even a year ago.
Taxpayers who sold digital assets in 2025 would be wise to compare every 1099-DA they received against the transactions they reported on Form 8949 and Schedule D. If a form contains errors, contacting the issuing broker before the IRS flags a mismatch is far less painful than responding to a CP2000 notice after the fact. For anyone who traded on multiple platforms, or who transferred assets between wallets before selling, keeping detailed records of acquisition dates and cost basis is critical, especially while broker-reported basis data remains incomplete.
The IRS spent years building the infrastructure to treat crypto like every other reportable asset class. As of the 2026 filing season, that infrastructure is processing real data at scale for the first time.
