Crypto Brokers Filed Wrong Cost Basis. IRS Notices Are Going Out.

Your client sold crypto last year. They moved coins from one exchange to another first. They filed their tax return correctly. The IRS still sent a notice.

A CP2000 is not an audit — it's a proposed adjustment that requires a response within 30 days.

This is happening to thousands of taxpayers right now. Nobody made a mistake. That's what makes it complicated.

Why Does the 1099-DA Show Zero Cost Basis?

Brokers report zero cost basis on a 1099-DA when crypto arrives from another exchange because they never received the original purchase records.

The form isn't wrong. It's telling the truth about what the exchange actually knows.

Say a client bought one bitcoin on Coinbase in 2022 for $35,000. They moved that coin to Kraken in 2024. They sold it on Kraken in 2025 for $80,000.

Kraken received the coin. It did not receive the purchase history. Coinbase kept the original receipt. The two exchanges never shared that data. So when Kraken files the 1099-DA, it reports $80,000 in proceeds and leaves cost basis blank. That's the only number it has.

The IRS calls this a "noncovered" asset. A noncovered asset is one where the broker doesn't have the original purchase price on file. Brokers are allowed — and expected — to report these transactions without cost basis. It's legal. It's correct. It's what the rules require.

According to The Tax Adviser, brokers were not required to report cost basis for any 2025 digital asset sales. Full cost basis reporting doesn't start until 2026 transactions. Every 1099-DA your clients received this year could show zero or blank basis for transferred coins. That was always part of the plan.

How Does the IRS Flag Crypto Tax Mismatches?

The IRS compares broker proceeds to your client's return and flags every gap with a CP2000 notice, a proposed tax adjustment, not an audit.

The IRS doesn't read returns the way a tax professional does. It runs an automated matching program. The system compares what brokers report against what taxpayers file. When the numbers don't line up, it sends a letter.

That letter is a CP2000 notice.

A CP2000 is not an audit. It's a proposed adjustment. It says: we see $80,000 in proceeds from your broker. Your return shows a $45,000 gain. The difference looks like unreported income. You may owe more tax.

The client has 30 days from the notice date to respond. If they don't respond, the IRS treats the proposed tax as accepted and issues a bill.

There's one thing CPAs need to know about the response process. According to the IRS, responding to a CP2000 and filing an amended return are completely separate. Sending a Form 1040-X does not answer the notice. The client must use the response form that comes with the CP2000 itself. Many people don't know this and lose time by filing the wrong document.

How Do You Fix a Crypto Cost Basis Error?

A Form 8949 reconciliation corrects the mismatch by entering the original purchase price and reducing the proposed gain to what the client actually owes.

Form 8949 is where taxpayers report sales of capital assets. For each transaction, it asks for the original purchase date, the original purchase price, the sale date and the sale price. The difference is the reported gain or loss.

When a broker reports zero or blank cost basis, the client's actual purchase price still exists somewhere. The CPA finds it, enters it on Form 8949 and attaches that form to the CP2000 response. That's the fix.

To build the reconciliation, you need four things:

• The original purchase confirmation from the first exchange — Coinbase, Gemini or wherever the client originally bought
• The date and price of each purchase
• Any records showing when coins moved between wallets or exchanges
• The 1099-DA showing what the selling exchange reported as proceeds

With those records, you calculate the real gain and send the completed Form 8949 along with the CP2000 response form. The IRS reviews it. If the documentation is clean, the proposed adjustment shrinks or disappears entirely.

When Records Are Hard to Find

Not every client will have a complete paper trail. Old exchanges shut down. Transaction emails get deleted. Some clients never kept records at all.

Crypto tax software can help. Platforms like TaxBit and Koinly connect directly to exchange APIs and can reconstruct transaction histories in many cases. If the software route doesn't work, a tax attorney can help document an estimate with a disclosed methodology. This matters most when the proposed adjustment is large.

What Should CPAs Do Before the Next Notice Arrives?

CPAs should filter their full client list and prepare Form 8949 reconciliation packages for any client who transferred crypto between exchanges in 2025.

Pull every client who reported crypto activity on their 2025 return. Ask directly: did you transfer coins between exchanges or wallets during the year? Then look at their 1099-DA. Find the cost basis column. A zero or blank entry on a transferred asset is the pattern to watch.

For those clients, start gathering the original purchase records now — before clients lose access to old exchange accounts or delete old emails. Prepare the Form 8949 reconciliation as a ready-to-send package if a notice arrives.

For clients still on extension who haven't filed yet, this is the right moment. Getting the basis right before the return goes in is far cleaner than fixing it after a notice comes in the mail.

Clients on extension have until October 15 to file. That window is real. Use it.

The IRS will find these mismatches. That's exactly what the matching system is supposed to do. The CPA who arrives with a complete Form 8949 and source records closes the gap cleanly. The proposed tax comes down. The client pays what they actually owe — nothing more — on gains their broker couldn't document.

The window to do this work without pressure is right now. After the notice arrives, you're working against a 30-day clock with a client who is already worried.