Kraken's 56 Million Tax Forms: The Case for Digital Asset Reporting Reform

In 2025, Kraken submitted 56 million Form 1099-DAs to the IRS. Approximately 18.5 million of those forms covered transactions under $1. More than half covered transactions under $10. Only around 8.5% exceeded the $600 threshold that typically anchors reporting obligations in other asset classes. The volume and distribution of those filings make a pointed argument: the existing tax framework was not designed for the transaction granularity of digital asset markets. Kraken has set out its position in full.

Compliance Costs Are Disproportionate to Economic Activity

For individual investors, reconciling a large volume of small digital asset trades against current reporting requirements is operationally burdensome. Standard tax software does not accommodate digital asset activity at scale, which has created a market for specialist tools priced between $49 and $599 annually — a recurring compliance cost with no corresponding economic benefit at low transaction values.

For businesses and issuers, the administrative load is more acute. Managing a high volume of small transactions diverts resources from core operations, and the reporting obligation is uniform regardless of whether a transaction carries any material tax consequence.

The Case for a De Minimis Exemption

A de minimis threshold would exclude small digital asset transactions from treatment as taxable events. Under current rules, a routine payment — purchasing a $7.99 item using Bitcoin, for example — constitutes a taxable disposal requiring cost basis tracking and gain or loss calculation. At that transaction size, the compliance burden is wholly disproportionate to any revenue at stake.

A well-structured exemption, with clear definitional boundaries to prevent misuse, would materially reduce the reporting volume for exchanges, investors, and the IRS alike, while preserving full reporting obligations where economic activity is meaningful. Further detail on the proposed reform is available here.

Staking Rewards: A Structural Mismatch

Current IRS guidance treats staking rewards as ordinary income at the moment of receipt, regardless of whether those rewards have been realised through a sale or exchange. This creates a phantom income problem: a taxpayer incurs a tax liability on an asset that has not been converted to cash and may decline in value before it is.

Allowing taxpayers to elect taxation upon disposal — rather than receipt — would align the timing of the tax event with the realisation of economic value. It would also reduce the volume of incidental tax filings generated by staking activity that has not yet produced a liquid return. The staking taxation issue is discussed further here.

Implications for Capital Formation

Regulatory ambiguity and disproportionate compliance obligations are material considerations for institutional investors evaluating exposure to digital asset ventures. Where tax treatment is uncertain or administratively costly, risk-adjusted returns are depressed. Clearer exemptions and more rational treatment of staking income would reduce a friction point that currently affects both retail participation and institutional capital allocation in this market.

FAQs

What is a Form 1099-DA?

Form 1099-DA is the IRS reporting instrument for digital asset disposals and transactions. It records all reportable digital asset activity for a given tax year. Further information is available via Kraken's support documentation.

Why does current law require reporting on every digital asset transaction, regardless of size?

Existing rules apply uniformly to all digital asset trades. There is no materiality threshold equivalent to those that exist in other areas of tax law. This produces reporting volumes — as Kraken's 2025 filing illustrates — that are operationally unmanageable and yield minimal incremental tax revenue.

How would a de minimis exemption affect businesses?

It would eliminate the obligation to track and report transactions below a defined threshold, reducing administrative overhead and allowing operational focus to return to core business activity.

---

Kraken's 2025 filing is, in effect, a documented record of where current tax policy creates friction without proportionate benefit. A de minimis exemption and revised treatment of staking income are targeted, technically sound reforms. For issuers, exchanges, and institutional participants operating in this market, their adoption would reduce compliance costs and improve the clarity that capital formation requires.