LA WEEKLY: Cracks in Crypto’s Tax System

Cracks in Crypto’s Tax SystemDaniel FuschJanuary 12, 2026

Janna Scott discovered the problem the way most people discover structural flaws: by accident, and then by obsession.
It was late 2021, and Scott—a former government fiscal analyst who’d spent years reviewing Treasury reports and compliance audits—was doing something millions of Americans were attempting that year: filing taxes on cryptocurrency trades. Her wallet contained roughly 300 transactions. Nothing extraordinary by crypto standards. A few trades, some DeFi experiments, the digital equivalent of a moderately active portfolio.
She ran her data through one of the popular crypto tax platforms. Got her numbers. Then, more out of professional habit than suspicion, she ran the same wallet through a second platform.
The results didn’t match.
So she tried a third. Then a fourth. Fourteen platforms in total—essentially the entire landscape of crypto tax software available to American taxpayers.
Not one produced the same result.
One platform reported tens of thousands in taxable income. Another showed a capital loss. The variations weren’t marginal—they were fundamental disagreements about the same financial reality, derived from identical data, with no explanation for the contradictions.
“It wasn’t noise in the data,” Scott says. “It was the math itself that was broken.”
For most people, that discovery would have prompted a call to an accountant and a decision to pick the most conservative estimate. For Scott, whose career had been built on identifying exactly these kinds of systemic vulnerabilities, it was an invitation to look deeper.

The Architecture of Error
What followed was a nine-month investigation that unfolded with the methodical precision of academic research and the urgency of a detective story.
Scott went to the source: the blockchain itself. She began manually validating thousands of transactions, pulling raw data directly from distributed ledgers, checking cost basis calculations, timestamps, token movements line by line. She developed her own APIs to bypass the CSV files exported by exchanges—files that, she discovered, often served as the shaky foundation for most tax software—and instead retrieved immutable records directly from the chain.
The patterns that emerged were troubling.
The same wallet produced tax liability swings exceeding $25,000 depending on which platform processed it. Coinbase might report significant taxable income while a partner tax service showed a loss on identical data. In some cases, routine transfers between a user’s own wallets were being classified as taxable sales, creating what the original article describes as “phantom income”—tax obligations on transactions that never actually occurred.
More concerning still: Scott found that many platforms allowed users to edit core transaction data. “These platforms allow users to edit the date, time, value, and currency of a blockchain transaction,” Scott explains. “The moment you do that, the audit trail is gone.”
The implications extended beyond individual tax returns. This was infrastructure failure at the foundation of an emerging asset class.
Scott brought her findings to federal regulators. In March 2023, the IRS quietly suspended crypto audits after reviewing her research and concluding that their CSV-based audit methodology was unreliable. Universities were brought in to peer-review Scott’s analysis. The conclusion held: none of the fourteen platforms tested could consistently produce accurate tax reports from blockchain data.
The Growing Divide
While regulators paused to reconsider their approach, cryptocurrency adoption continued its upward trajectory. Approximately 6 million Americans reported crypto on their 2023 tax returns—roughly double the previous year. Meanwhile, through exchange subpoenas and transaction records, the IRS maintains data on nearly 50 million U.S. residents who have interacted with cryptocurrency at some point, whether they’ve reported it or not.
Scott describes this widening gap between regulatory visibility and reporting accuracy as a “tax time bomb.”
“Crypto evolved,” she says. “Tax software didn’t.”
Most crypto tax platforms, she explains, were designed for straightforward transactions: buying and selling digital assets. But decentralized finance introduced complexity those systems weren’t built to handle—liquidity pools, cross-chain bridges, wrapped assets, staking rewards, yield farming. The old categorical logic doesn’t accommodate the new financial behaviors.
CSV exports from exchanges frequently lack essential data: timestamps, transaction hashes, accurate pricing information. Software fills the gaps with assumptions. And assumptions, in tax reporting, create liability.
“Automation without transparency is just a faster risk,” Scott says.
After presenting her findings to the fourteen companies whose platforms she’d tested, ninety percent declined to address the structural issues she’d identified. That response—or lack thereof—prompted Scott and her team to build an alternative.
Designing for Scrutiny
DeFi Tax launches publicly this month with a different foundational premise. It doesn’t accept user-edited spreadsheets. Instead, it retrieves raw, timestamped transaction data directly from blockchains and exchanges, structures it into a transparent audit trail, and generates reports that can be traced and verified line by line.
“Run the same wallet twice, you get the same answer twice,” Scott says. “That’s not a feature. That’s the baseline for compliance.”
The platform is designed for users with complex on-chain activity—DeFi participants, crypto founders, decentralized organizations, and the accounting professionals who serve them—who need more than speed or simplicity. They need audit readiness: documentation that explains exactly how every calculation was derived and can withstand professional scrutiny.
“Audits don’t ask which tool you used,” Scott says. “They ask how you calculated your numbers.”
With the IRS preparing to expand digital asset reporting requirements and new 1099-DA forms on the horizon, Scott believes the industry is entering a new phase—one where trust-based assurances are no longer sufficient for software handling tax obligations.
Transparency as Design Principle
There’s a particular irony in Scott’s work. Cryptocurrency’s foundational promise was transparency—immutable public ledgers, cryptographic verification, systems designed to operate without requiring trust in centralized authorities.
Yet when it came to the practical task of accounting for activity on those transparent ledgers, the industry largely defaulted to opaque tools that couldn’t explain their own calculations.
“Most people aren’t trying to avoid crypto taxes,” Scott says. “They’re trying to understand them.”
Her research suggests that the barrier to compliance isn’t willful evasion—it’s infrastructure inadequacy. People using flawed tools to meet complex obligations they don’t fully understand, in an emerging regulatory landscape that’s still taking shape.
DeFi Tax’s public launch arrives at a moment when that understanding is becoming essential. As regulators prepare to resume audits and millions of Americans face increasingly sophisticated reporting requirements, Scott’s work offers something that’s been notably absent: clarity derived from verifiable calculation.
“Chaos is optional,” she says. “Clarity is a design choice.”
For an ecosystem that built its identity on transparency and trustless verification, it may be the most important design principle of all.
Those seeking transparent, blockchain-verified tax reporting can find DeFi Tax at https://defitax.us