Crypto investors who transfer assets between exchanges risk IRS scrutiny as cost basis reporting goes live in 2027

Investors who transfer crypto into or between exchanges risk inflated tax bills or IRS penalties in 2027. Starting that year, centralized crypto exchanges will report cost basis information directly to the IRS, aligning cryptocurrency with traditional brokerage accounts. The change means the original value of assets sold will be sent to the agency, making discrepancies between exchange records and personal tax filings far more visible. Failure to report crypto income correctly can result in penalties of up to 75% of the unpaid tax amount, plus interest. Transferring crypto from an external wallet into an exchange creates a cost basis mismatch because the purchase price is not tracked. Moving crypto between exchanges breaks the chain of cost basis records across platforms. Using different accounting methods—like FIFO or HIFO—on exchanges versus tax software produces conflicting records that are difficult to reconcile. The IRS’s move to mandatory cost basis reporting in 2027 will expose those inconsistencies, putting investors who fail to act now at significant risk.