Which Crypto Exchanges Do Not Report to the IRS?

The rise of digital assets, commonly known as cryptocurrency, has brought about new considerations for individuals navigating their financial landscapes. As their integration into the global economy expands, understanding the tax implications associated with these assets becomes increasingly important. The IRS classifies digital assets as property, meaning fundamental tax principles generally apply. Tax regulations aim to ensure that financial gains and income, regardless of their source, are appropriately reported, including activities involving digital assets.

IRS Reporting Framework for Digital Assets

The Internal Revenue Service (IRS) has established a framework for taxing digital assets by classifying them as property, rather than currency, for U.S. federal income tax purposes. This foundational classification means that general tax principles applicable to property transactions also apply to cryptocurrency. Consequently, every transaction involving digital assets, whether selling, exchanging, or earning rewards, can trigger tax implications.

The IRS’s regulations extend to defining which entities are responsible for reporting digital asset transactions. Under Section 6045 of the Internal Revenue Code, the definition of a “broker” has been expanded to include any person who regularly provides services that effectuate transfers of digital assets on behalf of another person. This broad definition encompasses digital asset trading platforms, certain hosted wallet providers, and even digital asset payment processors. These rules aim to create a consistent reporting environment for digital assets, similar to that for traditional securities.

Information Reported by Crypto Exchanges

Crypto exchanges operating under U.S. jurisdiction or serving U.S. persons are generally required to report specific transaction information to the IRS. A primary vehicle for this reporting is Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” used for reporting dispositions of digital assets.

For transactions on or after January 1, 2025, a new form, Form 1099-DA, “Digital Asset Proceeds From Broker Transactions,” will standardize digital asset sales reporting. This form will detail key data points such as the taxpayer identification number (TIN), gross proceeds from sales or exchanges, and the date of acquisition and disposition. Brokers will also report cost basis, the original value of the cryptocurrency plus any associated fees, starting January 1, 2026.

Beyond capital gains and losses, exchanges may also report other types of income. If an individual earns at least $600 in cryptocurrency income through activities like staking rewards, referral bonuses, or airdrops, the exchange might issue Form 1099-MISC, “Miscellaneous Information.” Similarly, Form 1099-NEC, “Nonemployee Compensation,” may be issued if a business pays $600 or more to an independent contractor or freelancer in cryptocurrency for services provided. Regardless of whether a specific form is received, all such income must be reported by the individual taxpayer.

Reporting Landscape of Different Crypto Platforms

The reporting practices of various crypto platforms differ significantly. Understanding these distinctions is important for individuals engaging in digital asset transactions.

Centralized exchanges (CEXs)

Most CEXs operating in or serving U.S. persons comply with IRS reporting requirements. These platforms implement Know Your Customer (KYC) verification processes, collecting user identification information such as name, address, and Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). This information enables them to issue necessary tax forms, like Form 1099-DA, to both users and the IRS.

Decentralized exchanges (DEXs)

DEXs operate through automated protocols and smart contracts without a central intermediary. Due to their non-custodial and peer-to-peer nature, DEXs typically do not collect user information or issue tax forms. While DEXs may not report directly to the IRS, the individual’s tax obligation for transactions conducted on these platforms remains unchanged. The IRS’s expanded definition of a “broker” primarily focuses on custodial entities, and currently, non-custodial and decentralized trading platforms are not required to report.

Foreign exchanges

Their obligation to report to the IRS depends on their jurisdiction, business model, and whether they actively target U.S. customers. Some foreign exchanges may choose to comply with U.S. regulations to attract U.S. users. However, even if a foreign exchange does not report transactions to the IRS, U.S. persons are still obligated to report their worldwide income and assets, including those held on foreign platforms.

Peer-to-peer (P2P) platforms

P2P platforms facilitate direct transactions between individuals without a centralized third party. Similar to DEXs, P2P transactions generally lack centralized reporting mechanisms that would issue tax forms. While these platforms may not report to the IRS, blockchain records are publicly accessible, and the IRS continues to develop tools to analyze these transactions. This reinforces that the individual engaging in P2P crypto transactions bears full responsibility for accurate tax reporting.

Individual Taxpayer Responsibilities for Crypto Transactions

Regardless of whether a crypto exchange issues a tax form, individuals are responsible for accurately reporting all taxable crypto events to the IRS. This obligation stems from the IRS’s classification of cryptocurrency as property, meaning that various activities trigger tax implications.

Common taxable events include selling cryptocurrency for fiat currency, such as U.S. dollars, or exchanging one cryptocurrency for another. Using cryptocurrency to purchase goods or services also constitutes a taxable event, as it is considered a disposition of property. Additionally, receiving cryptocurrency as income, such as from mining, staking rewards, airdrops, or payment for services, is taxable. The fair market value of the cryptocurrency at the time of receipt determines the amount of income to report.

Capital gains or losses arise from the sale or exchange of cryptocurrency held as a capital asset. The calculation involves subtracting the cost basis (the original purchase price plus acquisition fees) from the sales proceeds. The holding period determines whether gains are short-term (one year or less, taxed at ordinary income tax rates) or long-term (more than one year, subject to lower preferential tax rates). Capital losses can offset capital gains and may also offset up to $3,000 of ordinary income annually, with excess losses carried forward to future years.

Documenting Crypto Activity for Tax Purposes

Maintaining detailed records of all cryptocurrency activities is important for accurate tax reporting and compliance with IRS requirements. The IRS mandates that taxpayers keep sufficient records to support the positions taken on their tax returns. This includes documenting receipts, sales, exchanges, or other dispositions of virtual currency, along with the fair market value at the time of the transaction.

Comprehensive records should include the date of each transaction, the type of cryptocurrency involved, whether it was bought, sold, or exchanged, and the number of units. It is also important to record the value of the transaction in U.S. dollars at the time it occurred, as well as the cost basis of the assets. These details are essential for calculating capital gains and losses accurately.

Various methods can assist in record-keeping. Transaction histories available from crypto exchanges are a primary source of data, and it is prudent to regularly export and back up these files. Personal spreadsheets can be used to organize and track transaction details manually. For individuals with extensive or complex crypto activity, specialized crypto tax software can automate the process of importing data from multiple exchanges and wallets, calculating gains and losses, and generating tax reports. Good record-keeping helps ensure that the correct tax liability is determined and provides supporting documentation in case of an IRS inquiry.