IRS Steps Up Crypto Wallet Tracking as Tax Reporting Gaps Persist

The US Internal Revenue Service is shifting crypto enforcement beyond broker-filed reports toward individual wallets and on-chain fund flows. The change matters because self-custody wallets, decentralized finance transactions and transfers between platforms often lack complete cost-basis records. Taxpayers remain responsible for calculating and reporting taxable gains even when they receive no information return, leaving gaps between blockchain activity and conventional tax documentation.

Recent estimates show that as much as 86% of taxable on-chain activity worldwide falls outside traditional Form 1099-DA reporting. With wallet-by-wallet cost-basis tracking rules taking effect, the IRS can increasingly compare broker records with blockchain transactions. Investors who fail to document self-custody holdings, DeFi trades and transfers between their own wallets could face audits, back taxes and penalties when reported proceeds or acquisition costs do not reconcile.