Digital asset experts at EY reminded taxpayers of new transaction reporting obligations that will take effect next year and explored complexities when a broker does not have complete, accurate information from customers.
Cost Basis Reporting: What Changes in 2026
Final regs adopted July 2024 require brokers to report cost basis for digital asset sales, effective for transactions on or after January 1, 2026. This reporting obligation is intended to bring digital asset tax compliance closer to the standards that have long applied to traditional securities, such as stocks and bonds.
“Cost basis reporting starts with 2026 sales; broker-to-broker transfer reporting not yet addressed,” said Tara Ferris, Principal at EY, at a webinar held by the firm December 5. She clarified, “Cost basis reporting will not be required on 2025 forms; it starts for 2026 transactions.” For the 2025 tax year, brokers will not be required to include cost basis information on the forms they provide to taxpayers or the IRS. The new requirement will apply only to sales and dispositions that occur in 2026 and beyond.
Ferris emphasized that brokers are currently working to update their systems to facilitate cost basis tracking and reporting for digital assets. However, she cautioned that these systems may not be fully operational immediately when the new rules take effect. “Brokers are preparing, but these systems may not be fully available right away,” she said. As a result, investors should not rely solely on brokers for accurate cost basis information, especially in the early years of implementation.
Ferris advised taxpayers to “[k]eep thorough records of acquisition dates, amounts, and sources for each digital asset to accurately calculate gains or losses when you sell or exchange them.” This recordkeeping is particularly important for taxpayers who have acquired digital assets through multiple transactions, across different platforms, or over several years.
EY Principal Matthew Stevens offered that “[s]ales or exchanges generally give rise to taxable gain or loss.” Under the new rules, like other forms of property, investors can choose how to identify which units of a digital asset are being sold, which can have a major impact on the amount of taxable gain or loss reported.
Stevens also noted that the final regs “eliminated taxpayers’ use of what was called ‘universal wallets,'” requiring taxpayers to “physically trace to a particular wallet the source of the … cryptocurrency that they are specifically identifying as selling.” In practice, taxpayers must be able to demonstrate the specific wallet or account from which a digital asset was acquired and later sold, rather than aggregating assets across multiple wallets or platforms.
Ferris warned that since 2026 will be the first year of mandatory cost basis reporting for digital assets, taxpayers should expect the possibility of receiving corrected forms as brokers refine their processes and address reporting errors. She affirmed that this will “likely” be the case for some investors.
Backup Withholding
The panel also addressed the IRS’ backup withholding requirements, which apply if a broker does not have correct taxpayer identification information from a customer. Backup withholding is not a new concept in the Tax Code, but its application to digital assets introduces unique operational challenges for both brokers and investors.
Ferris explained that when a broker “does not receive a valid TIN, or if the information provided does not match IRS records, the broker is required to withhold a portion of the proceeds from the sale or disposition of digital assets and remit that amount to the IRS as backup withholding.” The current backup withholding rate is 24%.
“Unlike cash transactions, brokers may need to dispose of a portion of the digital asset itself to satisfy the withholding requirement,” she continued. “This means the broker must have contractual authorization from the customer to sell or otherwise convert part of the asset into U.S. dollars, which can then be sent to the IRS,” Ferris said.
With millions of accounts needing documentation, brokers will be sending out requests for updated W-9 forms, especially when opening new accounts or when there is a mismatch between the account holder’s information and IRS records. Ferris noted that this could be an administrative burden for brokers and cause potential delays or disruptions for customers who do not respond promptly to information requests.
“There needs to be contractual changes that a broker needs to implement in order to get permission to dispose of a portion of the asset and the transaction to satisfy this backup withholding,” she cautioned. “Some brokers, quite frankly, just don’t want to do that, so they’re going to block the ability to trade or transact or access accounts if someone doesn’t provide their identifying information.”
For more information on digital asset broker reporting rules, see Checkpoint’s Federal Tax Coordinator 2d ¶ S-3728.4.
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