Sell Bitcoin on Coinbase in 2025, and for the first time, your broker will send the IRS a form that looks a lot like the 1099-B your stock brokerage has filed for years. The form is called the 1099-DA, and it reports the gross proceeds of every digital asset sale you made. Meanwhile, the agency reviewing that form has more than doubled its use of artificial intelligence: the IRS is now running roughly 125 AI models across its operations, up from 54 in 2023, according to a Government Accountability Office review published in June 2025.
Those two facts landed at the same time, and together they represent the biggest shift in crypto tax enforcement since the IRS first added a digital asset question to the front page of Form 1040 in 2019. Here is what the public record shows, where real gaps remain, and what it means if you traded crypto last year.
How the IRS built its AI arsenal
The GAO report (GAO-26-107522) cataloged AI use cases spanning fraud detection, taxpayer services, and compliance screening. The 125 models range from chatbots that route phone calls to algorithms that score individual returns for audit risk. Under Internal Revenue Manual Section 10.24.1, every model the agency deploys must be logged in a formal inventory that tracks its purpose, data inputs, and affiliated datasets. That requirement traces back to Executive Order 13859, signed in 2019, and to subsequent legislation from the 117th Congress, including the AI in Government Act and the Advancing American AI Act.
The jump from 54 models in 2023 to 125 in 2025 reflects a broader federal push, but the timing matters for crypto holders specifically because the IRS is absorbing a massive new data stream at the same moment it is scaling up its analytical capacity.
How Form 1099-DA plugs crypto into the matching machine
The U.S. Treasury and IRS finalized regulations requiring brokers to report digital asset transactions. Under those rules, brokers must report gross proceeds starting in 2026 for sales made in 2025. Cost-basis reporting follows in 2027 for 2026 sales. The vehicle is Form 1099-DA, and the IRS has published detailed instructions covering which transactions qualify, how to classify different token types, and how to handle unknown cost basis.
The critical detail: the IRS confirms that TIN Matching applies to Form 1099-DA. That means brokers can verify taxpayer identification numbers against IRS records before filing, and the agency can automatically cross-check reported proceeds against what individuals claim on their returns. This places crypto squarely inside the same information-reporting infrastructure that has generated mismatch notices for unreported W-2 wages and 1099-B stock sales for decades.
Consider a concrete example. You sell $15,000 worth of Ethereum on a centralized exchange in October 2025. The exchange files a 1099-DA reporting that $15,000 in gross proceeds. If your tax return shows only $5,000 in crypto gains, or omits crypto entirely, the IRS matching system flags the discrepancy and generates a CP2000 notice, the same type of letter millions of taxpayers have received for years when a W-2 or 1099 does not line up with their filing.
No public document explicitly states that 1099-DA data feeds into the agency’s newer AI-assisted compliance models. But because those models draw on the same underlying information-return ecosystem, the infrastructure overlap is substantial. Once crypto data enters the pipeline that AI models already scan, treating it as somehow separate requires a leap of faith the IRS is unlikely to reward.
What the GAO flagged as problems
The GAO’s 125-model count covers all IRS AI activity, not just crypto enforcement. The report does not break down how many models specifically target digital asset transactions or connect directly to 1099-DA data. The relationship between AI growth and crypto matching is best understood as two parallel expansions sharing the same enforcement infrastructure, not a single program built solely around digital assets.
The GAO also raised governance concerns. Some inventory entries lacked benefit statements, meaning outside reviewers cannot always determine whether a given model is performing as intended or producing skewed results. The report found no public documentation of testing for potential bias in models that score returns for audit risk. Whether an algorithm that flags unusual transaction patterns treats a high-volume day trader differently from someone who sold a single NFT is not answerable from the available records.
Skills shortages compound the issue. The GAO found the IRS still lacks sufficient data science and AI strategy talent. Building reliable matching rules for a brand-new data stream like Form 1099-DA, adjusting thresholds for automated notices, and reconciling discrepancies when broker reports and taxpayer filings conflict all require sustained technical capacity. That work will stretch over multiple filing seasons.
Decentralized finance remains a blind spot
Treasury’s final regulations target brokers, but the definition of “broker” in decentralized finance remains contested. Centralized exchanges like Coinbase and Kraken clearly fall under the reporting mandate. Developers of decentralized trading protocols, operators of peer-to-peer marketplaces, and providers of self-hosted wallet software occupy murkier ground.
The practical result is an enforcement asymmetry. A trader who swaps tokens through a decentralized exchange like Uniswap or uses a self-custody wallet may never receive a 1099-DA. That trader is still legally required to report every taxable transaction. But without a third-party form triggering an automated match, the enforcement mechanism is weaker. This gap is likely to be one of the most closely watched pressure points as the IRS refines its compliance tools over the next several years, and it creates a two-tier system that regulators will face pressure to close.
Practical steps for anyone who traded crypto in 2025
The direction of enforcement is unambiguous, even if the details are still developing. For anyone who traded crypto in 2025, several steps matter now, not at filing time:
- Reconcile your records against broker data. If you used a centralized exchange, download your transaction history and compare it against any 1099-DA you receive. Discrepancies between your records and the broker’s report are exactly what triggers automated notices.
- Track cost basis for assets moved between wallets. When you transfer crypto from one exchange to another, or to a self-custody wallet, the receiving platform may not know what you originally paid. That gap can lead to inflated gain calculations on the 1099-DA. Keeping your own records is the only reliable fix.
- Do not wait for a form to decide what to report. The legal obligation to report taxable crypto transactions exists whether or not a 1099-DA arrives. Taxpayers who used decentralized platforms still owe tax on their gains, and the IRS has other tools, including John Doe summonses served on exchanges, to identify unreported activity.
- Watch for updated IRS guidance. Cost-basis reporting on 1099-DA does not begin until the 2027 filing season (for 2026 transactions). Rules around staking rewards, airdrops, and hard forks continue to evolve. Staying current matters more than it did when crypto operated largely outside the reporting system.
The IRS spent years signaling that crypto’s reporting holiday would end. With 125 AI models scanning returns and a new information form feeding transaction data into the same matching infrastructure that catches unreported wages, that signal has become operational reality. The agency’s tools are imperfect, its staffing is thin, and its reach into DeFi is limited. But for anyone who sold crypto through a regulated exchange in 2025, the gap between what the IRS knows and what you report has never been narrower.
