Cryptocurrency exchange Kraken says it filed 56 million cryptocurrency transaction forms with the U.S. Internal Revenue Service (IRS) for fiscal year 2025. About 18.5 million of them covered transactions worth less than $1, and more than half were for $10 or less.
Only 8.5% of newly introduced 1099-DA forms exceeded $600, the threshold that triggers reporting for non-employee compensation, and 74% were for less than $50, the company said in a blog post Wednesday.
Each form is also sent to the client and creates a reconciliation task for the taxpayer who receives it. On top of that, standard tax software does not handle crypto transactions. Kraken estimated the additional burden on an active cryptocurrency holder at between $250 and $500 per year for dedicated tax software, on top of standard filing costs.
“The hours taxpayers spend reconciling these microtransactions, often with incomplete data, generate costs wildly disproportionate to any revenue the IRS collects from them,” Kraken said.
The Tax Foundation estimates that individual returns already cost Americans a total of $146 billion in time and expenses, the exchange said, and the National Taxpayers Union Foundation estimates the average time for non-business taxpayers at about 13 hours and $290 per return.
Brokers reporting for 2025 provide gross receipts at no cost, meaning the form shows what was sold, but not what it was purchased for. Kraken said it answered thousands of customer questions about forms that captured only one side of the calculation.
Two problems
Kraken pointed out two parts of the tax code that cause problems. One is the lack of a de minimisor low-level exemption, for cryptocurrency payments, meaning that even small cryptocurrency purchases can trigger a taxable event that must be reported.
“Imagine you walk into a Steak ‘n Shake and pay for a $7.99 meal with Bitcoin through a payment app. You’ve triggered a taxable event,” Kraken wrote as an example. “Technically, you must look up the cost basis of the specific Bitcoin you spent, calculate whether you had a profit or loss on that fraction of a coin, and report it on Form 8949.”
That’s the same argument recently made by the libertarian think tank Cato Institute. According to the institute, buying a cup of coffee every day with BTC “can result in more than 100 pages of tax returns.”
The second issue is at stake. Rewards earned on staked assets are treated as ordinary income upon receipt, based on the market price of the token on that day. Most holders hold onto those tokens rather than sell them, meaning they owe taxes on the tokens that haven’t been sold.
If the price of the token falls between receipt and presentation, the tax may exceed the current value of the asset. Kraken calls this phantom income and says a large portion of the sub-dollar 1099-DAs it issued were gambling distributions.
Legislation moving through Congress includes a de minimis provision, but is limited to stablecoins. Kraken is pushing for a broader exemption indexed to inflation, along with anti-abuse barriers to prevent structuring.
The exchange is also asking Congress to allow taxpayers to choose when staking rewards are taxed, either upon receipt under current rules or at the time of sale, when a profit or loss is realized.
Kraken says its systems and those of other exchanges already support both reporting methods, but the choice needs to be authorized.
