Do you invest in crypto,[1] buy and sell cryptocurrencies, dabble in crypto derivatives, or invest in Crypto ETFs?[2]Are you an active miner or staker earning rewards as you help grow the blockchain? Perhaps you hold equity in companies building future crypto products, technologies, and infrastructure. Or maybe you enjoy exploring many of the dimensions of crypto. Welcome to The Crypto Zone.[3]

In this new three-part series, Welcome to The Crypto Zone, we look at the where, what, and how of crypto taxation for U.S. taxpayers. In Part I: Where Are We? I take you through the global crypto tax environment and explain why the U.S. government is focusing on digital asset taxation and information reporting. I explain why the obligations to report global crypto income of U.S. taxpayers don’t begin and end with those new 1099-DA forms. I look at jurisdictional questions that can arise when crypto transactions take place on global blockchains, some national and international regulatory and enforcement developments, and related implications for privacy rights. And I address why U.S. taxpayers need to properly report their crypto income whether it is derived at home or abroad.

In Part II: What Can We Find Here? We look at the definition and tax character of crypto; along with providing a high-level overview of what information U.S. taxpayers need to accumulate and review to determine their crypto tax obligations. I offer a quick overview of obligations for taxpayers that engage in popular digital asset activities, including various crypto transactions, earning income and compensation in crypto, and investing and trading in crypto. I show how these activities line up with various Internal Revenue Service (IRS) 1099 information reporting forms taxpayers may have received. I also consider crypto investments that are made indirectly through Crypto Exchange-Traded Funds (ETFs) including those held in U.S. tax-advantaged retirement accounts. My objective is to clear up some of the confusion about how Crypto ETFs are taxed.

In Part III: How Do We Get Out? I explain how U.S. taxpayers can navigate the key points they need to bear in mind when filing their tax returns. I run through the 2025 “digital asset question” that is included on standard U.S. income tax return forms for individuals, businesses, estates and trusts, and gifts. I review the information that taxpayers are now seeing on their 1099 copies; explain how taxpayers can use this as a starting point to figure out their tax basis and their gains and losses; I mention trader reporting; and I do a quick fly by on state taxes. In addition, I take a look at some of the automated tools available from third-party providers to help taxpayers track their crypto tax obligations and compliance across their crypto investment portfolios, wallets, and exchanges.

How many people are in The Crypto Zone?

A lot of people! Estimates vary, but millions of U.S. taxpayers are involved with crypto and crypto-related activities. With this said, tax compliance remains spotty at best. The IRS recently estimated that only 25 percent of crypto investors were voluntarily paying taxes on their crypto activities. Some studies suggest at least $50 billion of the gap between the amount of taxes owed and the amount of taxes paid—that is, the tax collection gap—is due to unreported digital asset transactions.[4] The federal government’s annual gross tax gap was last reported at $696 billion.[5]‍ ‍

What is changing about The Crypto Zone?

“System controls” for The Crypto Zone are tightening up, and the U.S. government is focused on closing the tax collection gap. As part of their efforts, the government is working to develop a comprehensive regulatory framework for digital asset taxation, and Congress is seeking to clarify specific areas of the law that are confusing to many taxpayers. The IRS is focused on increasing taxpayer awareness of digital asset tax obligations, while seeking to improve taxpayer education with respect to reporting requirements.

For the first time in 2026, crypto exchanges are required to file 1099-DA “information forms” with the IRS to report all 2025 payments, sending duplicates to their customers. Going forward, the government’s annual requirements for crypto exchange reporting are expected to broaden.[6] In tandem, the IRS has an expanded 2026 budget and a renewed mandate to close the federal tax gap.

It is possible that you are reading this article because you have received 1099-DA forms from crypto exchanges, or other IRS 1099 forms commonly related to crypto activities. If you are active in crypto, these obligations are likely to extend well beyond what you see on those 1099-DAs. Whether you receive 1099 forms or not, U.S. taxpayers need to determine their tax reporting obligations on an annual basis.

Can crypto transactions even be identified and tied to taxpayers?‍ ‍

Yes. It is a common misperception that crypto transactions are secret, untraceable, and hidden from IRS detection. This is not true. Every crypto transaction is recorded with a hash, that is, an unchangeable cryptographic signature on the blockchain (a distributed ledger technology or DLT).[7] Each transactional record is immutable. It cannot be changed once it is “validated.” Even though transactions are distributed across decentralized networks of computers (nodes), each transaction reflects a unique, permanent record once it has been logged and independently validated.

In addition, the IRS has an increasingly sophisticated ability to cross-match data across financial networks, working with third-party vendors and advanced AI-assisted analytics to spot noncompliance. There are several areas of enforcement focus, with mismatched digital assets reporting one area known to potentially trigger IRS audits.[8] Meanwhile, the crypto industry is developing automated tools to help crypto taxpayers address those recordkeeping and reporting obligations. I discuss these tools in Part III of this series.

Blockchain is global, so does Uncle Sam have the right to see my crypto activities?

Good question. To answer it, we need to think about “jurisdiction.” The Crypto Zone is probably not found in any jurisdiction. The Crypto Zone is multidimensional: a worldwide network that is changing and in flux. A blockchain exists—or could exist—on a trading floor in New York City as much as it does aboard a boat on Lake Como or at a vineyard in New Zealand.

Jurisdiction matters. To have meaning, laws and taxes applyin particular jurisdictions.

The cross-border nature of crypto transactions on blockchains can be one of the toughest aspects of crypto to legislate, regulate, adjudicate, and tax. Regional and national laws that address crypto regulation and taxation are complex and varied. They are subject to unique cross-border arrangements, agreements, and treaties. In addition, trading blocs and intergovernmental alliances must be considered. At the same time, privacy protections vary from jurisdiction to jurisdiction. This means that  authorities around the world are wrestling with these issues.

Blockchain’s characteristics raise serious questions as to how personally identifiable information can be gathered; how to determine which privacy protections apply; and how data recorded on a blockchain can be traced and discovered. Precisely how do privacy and information discovery laws apply in keeping transaction data confidential? For example, should data privacy considerations be determined according to the location where a transaction is validated by miners and stakers, or should it be where a blockchain node operator is located?

There can be many different answers to these questions. The well-known European Union’s General Data Protection Regulation (GDPR) provides a strong standard on data minimization and deletion rights. The GDPR underscores “the right to be forgotten.”[9] But this right runs directly counter to the immutable nature of the blockchain. When legal frameworks apply within specific jurisdictions, but crypto DLTs cross through separate physical jurisdictions, how can personal privacy rights—including those rights of a taxpayer—be protected?

Given that money laundering and tax evasion often go hand in hand, laws that seek to stop illegal activities are well established in the United States and in many other countries. For example, “Know Your Customer” requirements under the Bank Secrecy Act (BSA)/anti-money laundering (AML) regulations were originally enacted in 1970. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) enforces these regulations. FinCEN—a founding member of the Egmont Group of Financial Intelligence Units—enjoys extended cooperation with other such units around the world.[10]‍ ‍

Because FinCEN classifies crypto exchange and transmission businesses as money transmitters and because cryptocurrency can substitute for currency in certain situations, cryptocurrency exchanges and De-Fi applications are subject to BSA/AML regulations.[11] We have seen a wide variance in both the quality of crypto industry AML compliance and the appetite of the U.S. government for bringing enforcement actions. The enactment of the GENIUS Act was a notable step forward, however, in bringing payment stablecoins under the BSA umbrella.[12]‍ ‍

At a broader level, international attention toward setting standards to combat financing weapons of mass destruction, terrorist financing, and money laundering has been marshaled by the Financial Action Task Force (FATF). FATF was established by the G7 nations in 1989 and has since expanded to encompass 39 member countries at the time of this writing. While legislative and regulatory efforts of member countries remain “works in process,” FATF works to promote effective implementation of legal, regulatory and operational measures to protect the entire global financial system. This important intergovernmental organization has had some serious focus on managing risks, and developing standards related to “virtual assets service providers” since 2019.[13]‍ ‍

In 2026 as the crypto industry matures, we are seeing that crypto money services businesses (MSBs) are increasing their efforts to strengthen compliance to protect themselves and their customers. As Grant Thornton partner Kyle Daddio observed recently, “robust AML and sanctions frameworks are no longer optional safeguards; they are foundational to trust, market access and sustainable growth.”[14]

In addition to Egmont Group and FATF efforts, many countries are also collaborating to share relevant taxpayer data. The Crypto-Asset Reporting Framework (CARF) program led by the Organisation for Economic Co-operation and Development (OECD) is an important effort among OECD countries and others to start sharing relevant tax information.[15] As I am writing this, 47 countries have committed to exchange information in 2027.[16] Interestingly, many of these early commitments are being made by countries with some of the strongest privacy laws as well as some well-known tax havens, with 28 additional jurisdictions committed to start exchanging information in 2028,[17] and with the United States committed to exchanging information by 2029.[18]

So, do U.S. taxpayers need to report income from crypto activities abroad?

Yes. U.S. taxpayers must report and pay tax on their worldwide income from whatever source. It does not matter if all your crypto income is derived from sources outside of the United States, you are still obliged to report and pay taxes on that income. As IRS Publication 544 explains: “If you are a U.S. citizen with income from dispositions of property outside the United States (foreign income), you must report all such income on your tax return unless it is exempt from U.S. law. You must report the income whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payor.[19]

Conclusion

I hope that you better understand a little more about what is going on in The Crypto Zone at both global and national levels. There is a major emphasis on clarifying crypto tax regulations at home and abroad. Countries and even trading blocs are cracking down on tax evasion and cyber fraud, which in many respects often go hand in hand.

Through 2029, the emphasis on increasing international cooperation and data sharing both in advanced and emerging economies is being reinforced as never before. It is being navigated across multiple jurisdictions in a truly unprecedented effort. As part of this effort, the U.S government is requiring crypto exchanges to file certain forms with the IRS. While the regulatory reach is still spotty and it does not extend to all decentralized providers, we are seeing a significant increase in the government’s ability to track and cross-match taxpayer data reporting across multiple platforms and networks. This tracking ultimately supports crypto-related tax laws.

Join me next for Part II of the series where we will go through what areas of crypto activities U.S. taxpayers need to get their arms around. Specifically, we will look at the commonplace potential sources of income from crypto transactions, earned income and compensation, and investments and trading in crypto. We will review the definition and tax character of digital assets, and we will undertake a detailed review of the IRS 1099 forms, which offer a useful way to look at your exposures as you begin to organize your thinking.

[1] “Crypto” has become a generic term that is interchangeable with “Digital Assets” in popular vernacular. “Cryptocurrencies” are one category among many classes of digital assets. Digital assets include cryptocurrencies like Bitcoin, stablecoins, security tokens, utility tokens, non-fungible tokens, real world asset tokens and crypto derivatives / digital asset-based derivatives.

[2] Crypto Exchange-Traded Funds (ETFs) fall into five broad categories: Spot Crypto ETFs, Futures-based Crypto ETFs, Blockchain Equity ETFs, Covered Call Crypto ETFs, and Leveraged Crypto ETFs.

[3] The term, “The Crypto Zone” has no connection with brands, organizations, or properties in the crypto markets or to The Twilight Zone, an American media franchise based on the anthology television series created by Rod Serling. The footnote editors at ASKramer Law are big fans of the fifth dimension. This is what tax nerds do for fun. No related endorsements or associations are intended or implied.

[4] “Taxation of Cryptocurrency and Other Digital Assets” Bloomberg Tax (Mar. 25, 2025), available at https://pro.bloombergtax.com/insights/corporate-tax-planning/cryptocurrency-taxation-regulations/.

[5] See, projected gross tax gap, Fiscal Year 2024 Other Information (Unaudited) Bureau of the Fiscal Service, U.S. Treasury (2024, referencing projections for the 2022 year), available at https://www.fiscal.treasury.gov/files/reports-statements/financial-report/2024/tax-gap.pdf

[6] See my recent seven-part series for more on current regulatory efforts: Subject Matters: Crypto, an occasional series by ASKramer Law LLC (Winter 2025/2026), available at https://www.askramerlaw.com/subject-matters-crypto.

[7] Blockchain and Distributed Ledger Technology (DLT), Geeks for Geeks, (last updated, Dec. 29, 2025). https://www.geeksforgeeks.org/software-engineering/blockchain-and-distributed-ledger-technology-dlt/.

[8] IRS Enforcement Priorities for 2025–2026, Kundra & Associates, P.C. (Sep. 25, 2025) available at https://www.kundrataxlaw.com/blog/irs-enforcement-priorities-for-2025-2026.

[9] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (Apr. 27, 2016), available at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679.

[10] Egmont group Members by Region, available at https://egmontgroup.org/members-by-region/.

[11] BSA/AML Policies for Cryptocurrency Exchanges and DeFi Applications in a Nutshell, Max Dilendorf, Dilendorf Law Firm (Nov. 10, 2024), available at https://dilendorf.com/resources/bsa-aml-policies-for-cryptocurrency-exchanges-and-defi-applications-in-a-nutshell.html.

[12] Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), (Jul. 4, 2025).

[13]Virtual Assets, FATF (n.d.), available at https://www.fatf-gafi.org/en/topics/virtual-assets.html.

[14]Crypto compliance in 2026: AML, sanctions and what’s ahead, Kyle Daddio et. al, Grant Thornton, (Feb. 26, 2026), available at https://www.grantthornton.com/insights/articles/banking/2026/crypto-compliance-in-2026.

[15] OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, Jurisdictions committed to implement the Crypto-Asset Reporting Framework (CARF) in time to commence exchanges in 2027, 2028 or 2029 as part of the Global Forum’s CARF commitment process, Organisation for Economic Co-operation and Development (last updated, Feb. 19, 2026), available at https://www.oecd.org/content/dam/oecd/en/networks/global-forum-tax-transparency/commitments-carf.pdf.

[16] Including most of the European countries, Brazil, Cayman Islands, Chile, Colombia, Faroe Islands, Gibraltar, Guernsey, Iceland, Indonesia, the Isle of Man, Japan, Jersey, Kazakhstan, Korea, Liechtenstein, New Zealand, Norway, San Marino, South Africa, Uganda, and the United Kingdom.

[17] Australia, Azerbaijan, Bahamas, Bahrain, Barbados, Belize, Bermuda, British Virgin Islands, Canada, Costa Rica, Cyprus (southern), Hong Kong (China), Israel, Kenya, Malaysia, Mauritius, Mexico, Mongolia, Nigeria, Panama, Philippines, Saint Vincent and the Grenadines, Seychelles, Singapore, Switzerland, Thailand, Türkiye, and the United Arab Emirates.

[18]The United States pushed back from a previous 2028 to a 2029 commitment late last year. In addition, the Global Forum has identified five other jurisdictions—Argentina, El Salvador, Georgia, India, and Viet Nam—as being relevant to the CARF. These nations have not yet committed to implement the CARF; however, Argentina and India have made partial assurances at this time of writing.

[19] Publication 544, Sales and Other Dispositions of Assets, IRS (last updated Jan. 23, 2026), available at https://www.irs.gov/forms-pubs/about-publication-544. Also see Publication 550, Investment Income and Expenses (last updated 2024), available at https://www.irs.gov/pub/irs-pdf/p550.pdf.