ArticleRICO Strikes (Out) Again in the Commercial Division: Bank of India v Anaya Gems
In 2024, the Department of the Treasury (DOT) and the Internal Revenue Service issued final regulations establishing mandatory tax reporting requirements for brokers engaging in certain cryptocurrency (crypto) transactions and exchanges.[1] These new rules, under 26 CFR Parts 1, 31 and 301 (TD 10000), were issued simultaneously with Revenue Procedure 2024-28 and mark a significant step toward integrating digital assets into the existing tax information reporting framework.
That being said, the regulations have generated considerable uncertainty among tax professionals and organizations regarding the determination and tracking of cost basis for crypto, which brokers will be required to report beginning Jan. 1, 2026.[2]
We’ll provide: (1) a primer on cryptocurrency; (2) an analysis of the new Form 1099-DA and current IRS guidance under Rev. Proc. 2024-28 for calculating cost basis under the new “wallet-to-wallet” method; (3) a discussion of the challenges that arise with the use of crypto; and (4) proposals to enhance the estate plans of clients with digital assets.
Crypto 101
Crypto is considered a digital asset and a form of virtual currency.[3] In a nutshell, crypto is a digital representation of value that can be used to pay for goods or services or held as an investment. Certain types of crypto may be converted to real currency and traded with other crypto users on blockchains. Blockchains are digital ledgers that constantly record transactions and keep track of all crypto held on the ledgers. Blockchains are known to be highly secure and aren’t subject to any central authority (such as a bank) that would otherwise have the ability to reject transactions or freeze accounts.[4]
The first widely used crypto, Bitcoin (BTC), was created and made available to the public in 2009 by an individual or group operating under the pseudonym “Satoshi Nakamoto,” with the goal of creating a decentralized digital currency.[5] Over time, numerous other cryptocurrencies emerged, including Ethereum (ETH), XRP (XRP), USD Coin (USDC), Tether (USDT) and Solana (SOL). In the span of five years, crypto’s combined market capitalization surged from $14 billion in November 2016 to $3 trillion in November 2021.[6] Crypto recently reached a combined market cap of $4.28 trillion on Oct. 6, 2025.[7]
Recognizing the potential impact of crypto on taxes, the IRS has issued various revenue rulings, notices and private letter rulings regarding crypto, primarily in the past six years. Most notably, in Notice 2014-21, the IRS explained that crypto is treated as property for federal income tax purposes and is therefore subject to the same general tax principles that apply to other forms of property.[8] And in 2024, the DOT and IRS issued new regulations—TD 10000 and Rev. Proc. 2024-28—requiring more formalized and standardized reporting of crypto.
Form 1099-DA
Under the new regulations, brokers are now required to report on Form 1099-DA “gross proceeds for transactions effected on or after January 1, 2025,” and “[cost] basis on certain transactions effected on or after January 1, 2026.”[9] Notice 2024-57 lists those transactions that don’t require a filing until further guidance is issued.[10] Form 1099-DA also requests information such as the number of digital asset units sold, when those units were acquired and sold and short-term/long-term capital gains or losses.[11]
An individual must separately report these digital transactions on Form 8949 (Sales and Other Dispositions of Capital Assets) and Schedule D of Form 1040. Even if an individual didn’t receive a Form 1099-DA from a broker, they must still report any sales on Form 8949.[12]
The IRS won’t impose penalties on a broker who fails to file Form 1099-DA if they made a “good faith effort” to file the form and provide relevant payee statements correctly and on time.[13] Brokers also gain relief for backup withholding obligations and associated penalties for: (1) crypto transactions made in 2025; (2) crypto transactions made in 2026 with regard to obtaining a customer’s Taxpayer Identification Number; and (3) the trading of digital assets for specific non-fungible tokens and real property.[14]
Cost Basis
To report crypto transactions occurring on or after Jan. 1, 2026, you must ascertain the cost basis. Cost basis, generally, is the original value at which an asset was acquired, including any associated costs.[15] The cost basis is crucial for determining capital gains and losses, which are calculated as the difference between an asset’s value at acquisition and its value when sold. For example, if I purchased stock at $5,000 and I then sold that same stock for $15,000, I would pay capital gains on $10,000 (the sale price of $15,000 minus the cost basis of $5,000).
Under Internal Revenue Code Section 1014, when an individual dies, their assets generally receive a basis adjustment based on the fair market value (FMV) of the property on the date of their death. (Either a step-up in basis or step-down, depending on the property’s initial cost basis.)[16] Heirs who are bequeathed property at an individual’s death receive the property with this basis adjustment. In contrast, under IRC Section 1015, if an asset is gifted to a recipient during the donor’s lifetime, the recipient receives the same cost basis as the donor.[17] For example, Alex purchased a painting for $80,000 in 1995. This year, that painting is now worth $500,000. Alex now gifts the painting to Barry. The cost basis of that painting is the same as when Alex purchased it in 1995: $80,000. If Barry decides instead to sell the painting that same year, a hefty capital gains tax on $420,000 would be imposed on the sale.[18]
Digital assets follow these same rules. Capital gains and losses are calculated on the sale or exchange of crypto, and heirs receive a basis adjustment of crypto on a decedent’s death. Rev. Proc. 2024-28 takes this complexity to the next level, however. To report the cost basis of crypto, taxpayers must now use the wallet-to-wallet method instead of the previously used “universal method.”
Wallets and Capital Gains
A crypto wallet can be analogized to a bank account, which may host various types of sub-accounts, such as a savings account, a checking account or a money market account, with which you have access to different funds. Instead of savings or checking accounts that hold dollars, crypto wallets hold one or more types of crypto coin. For example, I may own three wallets, with 50 BTC in Wallet A, 40 BTC and 2,000 ETH in Wallet B and 20 BTC, 1,000 ETH and 600,000 USDC in Wallet C.
To calculate capital gains on a crypto transaction, you must ascertain the cost basis of the sold crypto. The cost basis, using the now-obsolete universal method, was previously calculated on all transactions of a certain type of crypto across all wallets. In the example above, I would determine cost basis for BTC by looking at the transactions for all of my 110 BTC stored across Wallets A, B and C. Now, with the current wallet-to-wallet method, cost basis is measured on all transactions of a certain crypto type only within specific wallets. In the example above, I would determine the cost basis for my 50 BTC held in Wallet A by solely looking at BTC transactions made under Wallet A. The same applies to BTC held in Wallets B and C.
To calculate capital gains on crypto, the IRS supports the first-in, first-out (FIFO) method and the specific identification (specific ID) method. Using FIFO, the first purchase of a type of crypto in a specific wallet will be used as the cost basis. For example, Jeremy buys one BTC in Wallet A for $80,000. Later, Jeremy buys another BTC, this time in Wallet B, for $100,000 and then one more BTC in Wallet B for $120,000. Months later, Jeremy sells one BTC from Wallet B. With FIFO, the cost basis of the sold BTC is automatically $100,000. The IRS assumes that Jeremy sold the first coin that he purchased under that wallet. (In the universal method, the cost basis would have been $80,000, because all purchases across all wallets are considered.)[19]
Alternatively, using specific ID, you would choose which purchased crypto coin’s basis you would like to use under a specific wallet. To do so, you would need the date, time, cost basis and FMV of a specific crypto at the time it was both acquired and sold. In the example above, if Jeremy decides to sell one BTC from Wallet B, he can choose to use the cost basis of the BTC purchased at $120,000 instead of the cost basis of the BTC purchased at $100,000. Although using specific ID may reduce an individual’s capital gains taxes, FIFO is still the more commonly used method by investors as it’s easier to keep track of crypto and is more manageable. Here, Jeremy had purchased only three BTC and sold one; another investor may have hundreds or thousands of different types of crypto in their wallets that must be tracked meticulously.[20]
Now that the universal method has been phased out in favor of the wallet-to-wallet method, all units of unused basis must be allocated to specific wallets by the earlier of: (1) the first sale of a crypto unit with unused basis; or (2) the filing of an individual’s 2025 Form 1040 (also known as the “safe harbor”).[21] As per Rev. Proc. 2024-28, all units of digital assets held as of Jan. 1, 2025 are considered units of unused basis.
Here’s an example of unused basis and its allocation to specific wallets:
Sarah used the universal method with specific ID. In January 2024, Sarah purchased three BTC in Wallet A for $100,000 each, three BTC in Wallet B
for $110,000 each and three BTC in Wallet C for $120,000 each. In December 2024, Sarah decides to sell the three BTC from Wallet A and chooses to use the cost basis of the three BTC in Wallet C ($120,000) instead of the cost basis in Wallet A ($100,000). Sarah has now reduced the capital gains tax imposed on the sale of those three BTC. However, the cost basis for the three BTC in Wallet A (and the three BTC in Wallet B) is now unused. Before filing her 2025 Form 1040, Sarah must reasonably allocate the $300,000 of unused basis from Wallet A and the $330,000 of unused basis from Wallet B among one or more of her three wallets as she chooses.[22]
Crypto’s Challenges
Various challenges arise with the use of crypto. First, crypto assets are volatile and may substantially appreciate or depreciate based on the constantly fluctuating crypto market.[23] This can pose problems when ascertaining the value of crypto during probate or establishing the cost basis on the sale of crypto. Additionally, those who wish to bequeath crypto to their heirs may struggle with the decision of gifting crypto to beneficiaries during their lifetime or at death: If the price of crypto soars in 30 years when an individual dies, heirs receive a substantial step-up in basis and can later sell those assets with little capital gains, but may simultaneously incur a higher estate tax; on the other hand, if the price stays the same or plummets at the individual’s death, heirs will have pulled the short end of the stick.[24]
Second, areas of uncertainty persist regarding the safe harbor under Rev. Proc. 2024-28. As per the letter sent to the Chief Counsel of the IRS by the American Institute for Certified Public Accountants, the IRS has provided little guidance as to how taxpayers can substantiate their reasonable allocation of the cost basis to prove that the allocation was made.[25] What constitutes a “reasonable” allocation? Is using a third-party software for this task satisfactory? What if a taxpayer has satisfied the safe harbor but the basis recorded on Form 1099-DA and Form 8949 don’t match? What are the ramifications if a taxpayer fails to satisfy these safe harbor requirements and/or misses the deadline?[26]
Third, there have been numerous cases in which tens or hundreds of millions of dollars’ worth of crypto has been irretrievably lost due to crypto access codes being misplaced on a decedent’s death. According to a 2018 Wall Street Journal article, approximately 20% of all Bitcoin tokens had been lost and were no longer retrievable.[27] Individuals must ensure that the fiduciaries of their wills, powers of attorney and trusts know how to retrieve crypto on their deaths.
Bequeathing Crypto
Crypto assets may be held in hot wallets or cold wallets. With hot wallets, clients gain access to crypto online. Cold wallets are accessed via a string of letters and numbers known as “private keys.” These private keys are stored on your hard drive, which can then be transferred to an external storage device (hard drive or flash drive) or stored using traditional pen-and-paper techniques for safekeeping. Wallets may also be custodial or non-custodial.[28] With custodial wallets, third parties hold your accounts and give you access when you wish to log in. Non-custodial means you alone have access.
When doing intake sessions with clients, consider including questions concerning crypto into your standard questionnaire, such as which crypto the client holds, where and how their crypto is held (for example, hot/cold wallet vs. custodial/noncustodial), who holds the private keys and how they wish to dispose of these assets. You may also ask clients if they have a family member, trusted friend or advisor to whom they could entrust their digital assets. A fiduciary who understands digital assets and stays up-to-date with recent developments can make a multimillion dollar difference for your beneficiaries. And advising clients to add additional signatories or managers to their wallets may be prudent to prevent account lockouts if private keys are lost and to ensure someone has access on death.
Creating effective estate-planning strategies with crypto is similar to regular estate planning. To get crypto out of a client’s estate and avoid probate, revocable trusts may be used. The client can have the trustee receive the digital assets by retitling the crypto account to the name of the trust and then record the transfer of assets. Some cryptocurrencies also allow transfer-on-death designations. If this isn’t an option, a simple assignment agreement may be used.[29] For an added layer of protection, clients may wish to place their crypto in a single member limited liability company (LLC), appoint an independent manager and then transfer the LLC to a revocable or irrevocable trust, depending on their estate-planning goals.[30]
When preparing documents such as powers of attorney, wills and trusts, be sure to include provisions covering the use and storage of digital assets.[31]
Various organizations, such as the American Bar Association, the Financial Planning Association and the National Association of Estate Planners & Councils, have sample language which can be used.[32] Additionally, advise clients to prepare separate instructions detailing their digital assets and wallet access and to reference those instructions in their will or trust.[33]
An Evolving Environment
Although publicly exchanged crypto is less than two decades old, it’s already transformed how individuals, institutions and governments conceptualize and regulate digital value. As new crypto, blockchains and trading platforms continue to develop, novel tax and reporting challenges will inevitably arise. In this evolving environment, practitioners must remain informed about emerging guidance, particularly with respect to Form 1099-DA reporting, basis allocation under T.D. 10000 and Rev. Proc. 2024-28 and wallet-to-wallet tracking methodologies. By understanding these developments, advisors can better protect clients’ digital wealth and facilitate its smooth succession to future generations.
Published in the January 2026 edition of Trusts & Estates Magazine.
[1] “Final regulations and related Internal Revenue Service guidance for reporting by brokers on sales and exchanges of digital assets,” IRS (June 2024), https://tinyurl.com/3ejsnbke.
[2]“Guidance for Taxpayers to Allocate Basis in Digital Assets to Wallets or Accounts as of January 1, 2025 [Revenue Procedure 2024-28],” American Institute for Certified Public Accountants and Chartered Institute of Management Accountants (Oct. 14, 2024), https://tinyurl.com/345buade.
[3] IRS Notice 2014-21 (April 14, 2014), www.irs.gov/pub/irs-drop/ n-14-21.pdf; IRS “Digital assets,” www.irs.gov/filing/digital-assets.
[4] Eido M. Walny and Abigail McGowan, “Cryptocurrency 101 for Estate Planners,” NAEPC Journal of Estate & Tax Planning (August 2022), www.naepcjournal.org/wp-content/uploads/issue40f.pdf.
[5] Benjamin Wallace, “The Rise and Fall of Bitcoin,” WIRED (Nov. 23, 2011), www.wired.com/2011/11/mf-bitcoin/; Max Angel, “Decoding Cryptocurrency Taxes: The Challenges For Estate Planners,” Duke Law & Technology Review, at p. 2, https://scholarship.law.duke.edu/dltr/vol23/iss1/6/.
[6] “Ensuring Responsible Development of Digital Assets,” Federal Register (March 14, 2022), https://tinyurl.com/53ba2pht.
[7] “Crypto Market Overview,” Coinbase, https://coinmarketcap.com/charts/. To gain insight into the President Trump and President Biden administrations’ views on crypto and its proliferation in the markets, see Executive Orders 14178 and 14067, respectively.
[8] Notice 2014-21 (April 14, 2014), www.irs.gov/pub/irs-drop/n-14-21.pdf; “Frequently asked questions on virtual currency transactions,” https://tinyurl.com/hsu43u9x.
[9] Supra note 1; Instructions for Form 1099-DA (2025), www.irs.gov/instructions/i1099da. Crypto brokers are those who:
take possession of the digital assets being sold by their customers, including operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks and certain processors of digital asset payments (PDAPs).
[10] Notice 2024-57, www.irs.gov/pub/irs-drop/n-24-57.pdf. Examples of these transactions include staking, wrapping and unwrapping and notional principal contracts.
[11] Instructions for Form 1099-DA (2025), www.irs.gov/instructions/i1099da. To indicate on Form 1040 that an individual sold, exchanged or otherwise disposed of a financial interest in a digital asset, they would check the “Yes” box next to the question on page 1.
[12] Instructions for Form 8949 (2024), www.irs.gov/instructions/i8949.
[13] Supra note 1.
[14] Notice 2024-56, www.irs.gov/pub/irs-drop/n-24-56.pdf. A backup withholding obligation is a tax rule requiring certain taxpayers to withhold a flat percentage (currently 24%) and send it to the IRS in case the payee isn’t properly reporting their income or doesn’t have a valid taxpayer ID number (for example, their Social Security number).
[15] Note that cost basis becomes more complicated for specific asset types. For example, real estate can receive adjustments based on appreciation or depreciation of the property and capital improvements.
[16] 26 U.S. Code Section 1014, “Basis of property acquired from a decedent,” Legal Information Institute (LII), www.law.cornell.edu/uscode/text/26/1014.
[17] 26 U.S. Code Section 1015, “Basis of property acquired by gifts and transfers in trust,” LII, www.law.cornell.edu/uscode/text/26/1015.
[18] Note that if Alex had instead bequeathed the painting to his children in his will and subsequently died this year, Alex’s heirs would receive the painting with a $500,000 cost basis.
[19] David Kemmerer, “How will CoinLedger support new per-wallet cost basis tracking rules (IRS Rev. Proc 2024-28)?” CoinLedger, https://tinyurl.com/3394ykr8. For another example, see ibid.
[20] Many individuals lack the software capable of handling the exceedingly high level of tracking and functionality that’s required for the specific identification method.
[21] Revenue Procedure 2024-28, www.irs.gov/pub/irs-drop/rp-24-28.pdf.
[22] Rev. Proc. 2024-28 is highly complex. For further clarification, see Sections 3-6 of the revenue procedure for definitions, technical details and examples.
[23] “Crypto Estate Planning and Trusts: A Comprehensive Guide,” Onchain Accounting (Feb. 22, 2024), https://tinyurl.com/35e9fwn7.
[24] Ibid. Crypto also isn’t insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, and there are less regulatory protections applicable to crypto, making them riskier investments. “Fitting cryptocurrency into your estate plan,” Fidelity Wealth Management (Sept. 2, 2025), www.fidelity.com/learning-center/wealth-management-insights/crypto-and-estate-planning.
[25] Supra note 2; Nik Fahrer and Daniel A. Hauffe, “Universal accounting for digital assets concludes, but safe harbor available,” The Tax Adviser (Oct. 29, 2024), https://tinyurl.com/y8nvy2jw.
[26] The IRS simply states “[such failure] may result in the assessment of additional tax, penalties, and interest.” Rev. Proc. 2024-28, www.irs.gov/pub/irs-drop/rp-24-28.pdf.
[27] Elliott Krause, “A Fifth of All Bitcoin Is Missing. These Crypto Hunters Can Help,” The Wall Street Journal (July 5, 2018), https://tinyurl.com/6db8hcd9. Another issue here is how estate tax is calculated. In one case at our firm, a client was forced to claim a cost basis of zero when they lost access to their crypto at death.
[28] Max Angel, supra note 5.
[29] Karin C. Prangley and Suzanne Brown Walsh, “Understanding Cryptocurrency in Estate Planning,” ACTEC, https://tinyurl.com/4ycuudfv.
[30] Strategies with regard to more complex estate-planning techniques are beyond the scope of this article.
[31] As per the Revised Uniform Fiduciary Access to Digital Assets Act, individuals must give explicit consent in their powers of attorney, wills and trusts for a fiduciary to handle digital assets. “Digital Property Frequently Asked Questions,” American Bar Association (ABA), https://tinyurl.com/5xamh5j8.
[32] Samuel Dangremond, “How to Protect Digital Assets in an Estate Plan,” ABA (Feb. 26, 2025), https://tinyurl.com/bdc9e37c; Andrew H. Hook, “Estate Planning for Digital Assets,” Financial Planning Association (2002), https://tinyurl.com/yew775f8; Walny and McGowan, supra note 4.
[33] Doing so avoids private keys from getting into the wrong hands, since probate is made public. Once a private key is obtained, the physical owner has full control of all crypto in the attached wallets.