The Internal Revenue Service published a proposed rule on March 5, 2026, that would allow custodial cryptocurrency exchanges to deliver tax forms exclusively through digital channels and to terminate accounts belonging to customers who refuse electronic delivery. The proposal, filed as REG-105064-25, applies to Form 1099-DA, the IRS reporting instrument that covers proceeds from crypto trades on custodial platforms. The rule has not been finalized and is currently open for public comment.

Under the proposal, platforms like Coinbase and Kraken could make electronic receipt of tax documents a formal condition of account access. The IRS's rulemaking statement explained the intent plainly: "These proposed regulations would generally not require brokers to furnish the 1099-DA statements on paper to any customer that does not consent to receiving these statements electronically." That language shifts the operational burden to users, giving exchanges a straightforward mechanism to enforce electronic-only delivery by conditioning account access on consent.

What Form 1099-DA Is and Why It Matters Now

Form 1099-DA, titled "Digital Asset Proceeds From Broker Transactions," became operative for transactions on or after January 1, 2025. It requires custodial brokers to report gross proceeds from customer crypto sales directly to the IRS, mirroring how stock brokers have long reported securities sales. Cost basis reporting, which allows the IRS to calculate actual gains and losses rather than just transaction totals, phased in on January 1, 2026. The form's creation traces back to Section 80603 of the Infrastructure Investment and Jobs Act, signed in November 2021, which amended Internal Revenue Code §6045 to treat crypto brokers like traditional securities intermediaries.

The practical problem the IRS is trying to address is large. According to analysis by Awaken Tax, a crypto tax platform, as reported by CoinDesk, fewer than 20 percent of U.S. crypto holders currently meet their tax obligations. A January 2026 survey of 1,000 digital asset investors, conducted by Awaken Tax and reported by CoinDesk, found that more than half feared IRS penalties, suggesting awareness is high even where compliance is low. Andrew Duca, founder of Awaken Tax, described the existing rules as functioning like a "blunt instrument" because exchanges can only report transaction proceeds and not tax basis, adding that cryptocurrency does not behave like stocks even though it is now regulated similarly.

The IRS has been building toward this enforcement posture for years. In August 2019, the agency sent more than 10,000 warning letters to virtual currency holders, and CoinLedger reported a massive increase in U.S. users receiving similar letters in 2025. The agency's Operation Hidden Treasure, housed within its Office of Fraud Enforcement, uses blockchain analytics firms including Chainalysis and Palantir to cross-reference on-chain wallet data with taxpayer identities. The electronic delivery proposal fits within a broader enforcement architecture that has been taking shape across multiple regulatory efforts to close the compliance gap.

Not all activity falls under the current rules. IRS Notice 2024-57 temporarily exempts staking, token wrapping and unwrapping, liquidity provision, and crypto lending from 1099-DA reporting obligations. Decentralized and non-custodial platforms are also excluded for now, though the IRS has signaled that guidance bringing those activities into scope is forthcoming. For stablecoin and NFT traders, the framework includes aggregated reporting provisions that apply above certain volume thresholds, meaning those users are not fully exempt under the current rules. For good-faith filers on custodial platforms, penalty relief has been extended through calendar year 2027 under IRS Notice 2025-33.

The Stakes Outside the United States

The electronic delivery rule is a U.S. domestic proposal, but its reach extends well beyond American borders, particularly in regions where crypto adoption is accelerating fastest.

In South Africa, the impact is most immediate. South Africa is among the 48 countries where the OECD's Crypto-Asset Reporting Framework (CARF) went live in January 2026. A South African user holding an account on Coinbase now sits within two simultaneous automatic reporting regimes: the U.S. 1099-DA system and South Africa's CARF-aligned domestic reporting. South Africa's Financial Sector Conduct Authority has also formally licensed multiple exchanges under a regulatory framework, making it among the most formally regulated crypto markets in Africa.

Nigeria presents a different picture. The Nigeria Tax Administration Act of 2025 requires licensed virtual asset service providers to submit quarterly transaction reports to the Federal Inland Revenue Service beginning in Q3 2026, with penalties reaching 10 million naira for the first month of non-compliance and one million naira for each subsequent month of default. Despite that domestic push, Nigeria has committed to CARF only by 2028, meaning there is currently no automatic data-sharing channel with the IRS. Nigerian users accessing U.S. platforms directly remain within scope of 1099-DA, but Coinbase's access in Nigeria was subject to partial restrictions as of 2024, following government-ordered internet service provider blocks tied to the Binance executive detention dispute.

India occupies the most ambiguous position. As of mid-2025, its domestic tax regime was among the most punishing for crypto holders: a flat 30 percent capital gains rate, a 1 percent tax deducted at source on every transaction, and 18 percent goods and services tax on trading fees. Many Indian users turn to U.S.-domiciled platforms to avoid onshore frictions, but India has not committed to the OECD CARF framework, meaning there is currently no automatic cross-border data-sharing pathway between Indian and U.S. tax authorities. Should the U.S. pursue a bilateral tax information exchange agreement with India, currently an open policy question with no confirmed active discussions, the 1099-DA data pipeline being constructed now would form the foundation for future cross-border enforcement.

Africa's crypto user base expanded 19.4 percent in 2025, the fastest relative growth of any global region, led by Nigeria, Kenya, and South Africa, according to CoinLaw data. That growth is now converging with tightening enforcement infrastructure on multiple fronts simultaneously. Developers building wallets or DeFi protocols for users in these markets should treat the current DeFi exemption as a grace period rather than a permanent status. The IRS has been explicit that additional guidance on non-custodial activity is coming, and the direction of travel in U.S. crypto tax policy has been consistent since the Infrastructure Investment and Jobs Act was signed in 2021: more reporting, more automation, and greater integration of on-chain data into the formal compliance record.