Here is the most common crypto mismatch the 1099-DA era will produce, and it does not require anyone to make a mistake.

You bought Bitcoin in 2019 on one exchange. In 2023 you moved it to a hardware wallet. In 2025 you sent it to a second exchange and sold it. The second exchange files a Form 1099-DA showing the gross proceeds. It has no idea what you paid, because you paid it somewhere else, years earlier. Box 1g is blank. Box 9 is checked.

If your return does not show the IRS how you got from those proceeds to your actual gain, the IRS’s computers will assume the proceeds are all gain.

Why transferred-in crypto is noncovered

Under Treas. Reg. 1.6045-1(a)(15)(i)(J), a digital asset is a covered security, meaning one whose basis the broker must track and report, only if it is acquired in the customer’s account by a broker providing custodial services on or after January 1, 2026, in exchange for cash, stored-value cards, different digital assets, or other property or services.

Coins that arrive by transfer from your own wallet were not acquired in that account. The 2026 Instructions for Form 1099-DA say so directly: noncovered securities include assets not acquired through the broker’s custodial services, assets acquired before 2026, and assets transferred in.

For a noncovered security, Treas. Reg. 1.6045-1(d)(2)(iii)(A) says the broker is not required to report adjusted basis or character if the return identifies the sale as a sale of a noncovered security. That is box 9.

What the form will and will not show

The 2026 instructions list boxes 12a and 12b for the number of units transferred in and the transfer-in date. So the IRS may see that coins arrived, when they arrived, and what they sold for.

What it will not see is when you actually acquired them or what you paid. Box 1d, date acquired, and box 1g, basis, may be blank. Box 8 is checked only if the broker relied on customer-provided acquisition information.

Brokers may report basis voluntarily for noncovered assets. The instructions say a broker that does so and checks box 9 is not subject to information reporting penalties under IRC 6721 or 6722 for errors in that voluntary information. Some brokers will let you supply acquisition data. Most numbers you see in box 1g for transferred-in coins, if any, came from you.

How the mismatch becomes a notice

IRS matching programs compare information returns to what you reported. If a 1099-DA shows $80,000 of proceeds and your return shows nothing, or shows a total the computer cannot tie to the form, the system can generate a CP2000 proposing tax on the difference. With no basis on file, the proposal can treat the full proceeds as gain.

That proposal can include an accuracy-related penalty under IRC 6662. Treas. Reg. 301.6751(b)-1(a)(3)(vi) treats a penalty in an automatically generated notice as automatically calculated through electronic means, so no supervisory approval is required at that stage. Example 6 in that regulation walks through exactly this: an Automated Underreporter mismatch, a CP2000 with a proposed 6662(d) penalty, and no written approval required because the taxpayer never challenged the penalty or the tax. The lesson is in the facts. Respond, and challenge what is wrong.

Prevention: report it right the first time

The 2025 Instructions for Form 8949 handle this case cleanly.

  • If the 1099-DA shows no basis, or shows that basis was not reported to the IRS, report the sale in box H (short-term) or box K (long-term).
  • Enter the proceeds as shown. Enter your correct basis in column (e). If the reported form showed basis that was not reported to the IRS and you are correcting it, the code B instructions say to enter the correct basis in column (e) and zero in column (g).
  • Use the date you actually acquired the coins, not the transfer-in date, to determine whether the gain is short-term or long-term.
  • Keep the records that prove the original purchase: the old exchange’s history, bank statements for the dollars you spent, and the on-chain transfer that shows the same coins moving from your wallet to the new exchange.

That last item is what turns your number into evidence. The chain of custody from purchase to sale is your basis proof.

Holding period: the other number the form gets wrong

Basis is not the only casualty. When a broker does not know when you acquired a transferred-in coin, box 1d may be blank, and box 12b may show only the date the coin arrived. If you, or your software, use the transfer-in date as the acquisition date, long-term gain can turn into short-term gain on your own return.

That mistake costs real money, because long-term capital gain rates are generally lower than ordinary rates. Use the date you actually acquired the units, supported by the original purchase records. The Form 8949 instructions for digital assets also ask you to describe the asset in column (a) with its name or symbol and the exact units disposed of, and a transaction ID if available. Precise descriptions make it easier to tie each sale back to its original lot.

If you sold only part of what you transferred in, identify which units you sold. Specific identification only works if your records support it. Without that support, the default ordering rules may assign a different lot than the one you intended.

When your records are incomplete

The old exchange is gone. The CSV export was on a laptop that died. It happens. Zero is not automatically the answer, but whatever number you use has to be defensible.

Start with dollars. Bank and card statements showing purchases from the original exchange are strong evidence of cost. On-chain records can show the coins leaving that exchange and reaching your wallet. Public price data can support a fair market value on a documented acquisition date for coins received as income. The existing guide on rebuilding missing cost basis covers techniques in detail.

Document how you built the number. If the IRS asks, the method matters as much as the result.

A note on overstating basis

The temptation, when the IRS cannot see basis, is to be generous. Do not.

Under IRC 6501(e)(1)(B)(ii), “an understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income” for purposes of the six-year assessment period. Overstate basis by enough and you extend the time the IRS has to come after the year. And the IRS fraud handbook lists “overstatement of digital asset cost basis to reduce gain and/or increase loss” as an indicator of fraud in digital asset cases. See IRM 25.1.2.11.1 and the IRS crypto fraud indicators.

Accurate basis wins arguments. Inflated basis starts them.

If you already got the notice

Do not panic, and do not pay a CP2000 that taxes your proceeds as pure gain. Respond by the deadline with the basis evidence and a corrected computation. If the IRS proposed a penalty, address it specifically, and raise reasonable cause where it applies. See the CP2000 crypto guide and the reasonable cause defense.

A zero-basis 1099-DA is a records problem, not a tax problem. Solve the records problem and the tax usually comes down to what it should have been.

And going forward, consider whether moving coins between platforms is worth the paperwork. Every transfer in creates another noncovered position whose basis lives only in your records. If you keep assets in one custodial account acquired after January 1, 2026, the broker tracks basis for you. That is not tax advice about where to hold your crypto. It is an observation about where mismatches come from.