I’ve been in the chair for around 30 years. I remember when "cost basis" for stocks was just a scribble on a yellow legal pad and the IRS took your word for it. Those days are gone for equities, and as of 2026, those days are officially dead for digital assets.

The arrival of Form 1099-DA isn't just a new piece of mail for your clients; it’s a structural shift. If you treat this like a standard 1099-B, you’re going to spend your entire summer answering IRS automated notices.

Here is how we handle this inside a high-stakes CPA firm—not how the textbooks say it works, but how it actually hits the desk.

Step 1: The "Global Footprint" (Don't let the broker lead)

The biggest mistake you’ll make is waiting for the 1099-DA to arrive to figure out what the client owns. That's like trying to bake a cake by looking at the crumbs.

The Workflow: Before January ends, you need a "Master Wallet Inventory." You need to know where the assets started and where they ended before the broker gives you their version of the truth.

Real-Life Example: > A client tells you they only use Coinbase. But when you look at the 1099-DA, you see a massive "Transfer In" of 10 BTC. Where did it come from? Turns out, they had an old hardware wallet from 2017. If you don't find that "footprint" early, you’ll default to a $0 basis, and your client will pay tax on money they already owned.

Step 2: The "Regulatory Branch" (2025 vs. 2026)

You can't use the same checklist this year that you'll use next year. The IRS is phasing this in, and you need to know which "era" you're reporting in.

Step 3: Reconcile Proceeds First (Stop chasing ghosts)

In our firm, we have a rule: Don't touch basis until the proceeds match. If the broker says the client sold $100k of ETH, but the client’s records say $98k, you have a fee or timing issue. Solve that first.

Real-Life Example:

A client swaps 100 "Token A" for 200 "Token B" on an exchange. The exchange reports the 100 Token A as "Gross Proceeds" based on its internal price at 2:00 PM. The client’s software uses a global average price from 2:05 PM. That $2,000 difference will trigger a matching notice. You need to bridge that gap in your workpapers immediately.

Step 4: The Revenue Procedure 2024-28 "Anchor"

This is the technical "gold" your article needs. The IRS gave us a gift (and a trap) called Rev. Proc. 2024-28. It allowed taxpayers to "reset" their basis allocations across wallets, but they had to have a written record by December 31, 2024.

The Workflow: When reviewing basis, the first question is: "Did we document the 2024 safe harbor?" If yes, that's your Bible. If no, you’re stuck using specific identification that has to be tracked wallet-by-wallet, which is a nightmare.

Step 5: The "De Minimis" Shortcuts

Don't over-engineer small stuff. The final regs gave us thresholds for the "Alternative Reporting Method."

• Stablecoins: If they trade less than $10,000 a year, the reporting is simplified.

• NFTs: $600 threshold.

Real-Life Example: A client uses USDC (a stablecoin) to pay contractors.1 They have 4,000 transactions a year. Don't try to list 4,000 lines on Form 8949. If they are under the $10k aggregate gain/loss threshold, use the aggregated reporting method the 1099-DA allows. Save your billing hours for the complex stuff.

Step 6: Watch the "Identity Trap"

Backup withholding is the "silent killer" of client relationships. If the client’s name on their Kraken account is "Big Mike" but their tax return says "Michael A. Thompson," the broker is eventually going to withhold 24% of every sale.

The Workflow: Add a "TIN Match" step to your onboarding. If the names don't match, have the client update their exchange KYC (Know Your Customer) info now, before the 2027 mandatory withholding kicks in.

Step 7: The "Defense File" (Audit-Proofing)

If the IRS audits a digital asset return in 2026, they aren't going to just ask for the 1099-DA. They are going to ask for the sub-ledger.

Your workpapers are only "Gold Standard" if they include:

1. A Basis Tie-Out: Showing exactly how you got from the broker's "Unknown" basis to your reported number.

2. Valuation Source: "We used CoinMarketCap mid-day pricing for all swaps."

3. Transfer Logs: Proving that the 50 ETH that appeared in June wasn't income, but a transfer from an old Binance account.

The Partner’s Bottom Line

Form 1099-DA is a "forcing function." It’s forcing our clients to be organized and forcing us to be data managers.

Firms that treat this as "just more paperwork" will get buried in 2026. Firms that build a repeatable workflow—one that treats the 1099-DA as a suggestion and their own internal ledger as the truth—will be the ones who actually grow their practice while everyone else is stuck in "reconciliation hell."

Frequently Asked Questions about Form 1099-DA Workflows

Q: What is the most common mistake CPAs make when handling Form 1099-DA? A: The biggest mistake is waiting for the Form 1099-DA to arrive before determining what the client owns. This is comparable to "trying to bake a cake by looking at the crumbs". Instead, firms should create a "Master Wallet Inventory" before January ends to establish a clear footprint of assets independent of broker data.

Q: How does crypto reporting differ between the 2025 and 2026 tax years? A: The IRS is phasing in regulations, creating two distinct reporting eras. For the 2025 tax year, brokers will report "Gross Proceeds Only," meaning CPAs must calculate all basis manually. Starting in 2026, brokers will report both proceeds and basis for "covered" assets, shifting the CPA's role to verifying the broker's math.

Q: What is the "De Minimis" rule for stablecoins on Form 1099-DA? A: To avoid over-engineering small transactions, the final regulations provide an "Alternative Reporting Method" with specific thresholds. For stablecoins, if a client trades less than $10,000 a year, you can use aggregated reporting rather than listing thousands of individual lines on Form 8949. There is also a $600 reporting threshold for NFTs.

Q: Why is Revenue Procedure 2024-28 critical for digital asset basis tracking? A: Revenue Procedure 2024-28 allowed taxpayers to "reset" their basis allocations across different wallets. However, this required a written record to be in place by December 31, 2024. If this safe harbor was documented, it acts as the primary reference for basis; if not, CPAs are stuck using specific identification tracked wallet-by-wallet.

Q: How can clients avoid backup withholding on crypto exchanges? A: Backup withholding, often 24% of sales, is triggered by name mismatches between exchange accounts and tax returns (e.g., "Big Mike" vs. "Michael A. Thompson"). To prevent this "silent killer," firms should add a "TIN Match" step during onboarding and ensure clients update their KYC information before mandatory withholding rules kick in for 2027.

Q: What documents are required to audit-proof a digital asset tax return? A: An audit-ready "Defense File" requires more than just the 1099-DA; it demands a full sub-ledger. Essential workpapers include a basis tie-out reconciling broker data to reported numbers , a record of valuation sources (like mid-day pricing) , and transfer logs that prove asset movements were transfers rather than taxable income.

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