Janna Scott on the $14,500 Problem: Why Crypto Investors Are Paying Taxes They Don’t Owe

New industry research puts a dollar figure on what Janna Scott has been warning about for years: crypto tax software is failing investors at scale.

An analysis of 30,000 digital asset investors published this month found that the average user faces $14,500 in overstated capital gains due to gaps in how platforms track cost basis. Across the sample, researchers identified $435 million in phantom gains—a 944% overstatement compared to actual taxable income.

The culprit is platform fragmentation. When investors buy crypto on one exchange and sell on another, purchase records don’t transfer. The selling platform reports proceeds to the IRS with zero cost basis. On paper, the entire sale looks like profit.

Scott, founder of the crypto tax platform DeFi Tax, has been tracking this problem since 2021.

“If your tax report doesn’t reflect reality, it’s not compliance,” Scott said. “It’s guesswork.”

The Fragmentation Trap

The research quantifies a structural flaw in how digital assets move through the financial system. The average user in the analysis connected four different data sources to reconcile their crypto activity. Only one of those four was a platform that issues 1099-DA forms. More than half of all transactions occurred on non-reporting platforms—decentralized exchanges, self-custody wallets, and protocols that don’t answer to the IRS.

When those assets eventually land on a centralized exchange and get sold, the exchange has no record of what the investor originally paid. The 1099-DA shows proceeds. It shows nothing else.

Scott spent two years researching these dynamics before launching DeFi Tax this month. Her work included collaboration with the SEC, IRS, and academic institutions. She found the same patterns the new analysis confirms: tax software built for simple transactions collapses under real-world complexity.

“Most tools were designed for basic buy-and-sell activity,” Scott said. “Once you introduce DeFi, LPs, bridges, and wrapping, the math breaks. The biggest issue isn’t missing features; it’s the lack of explainability. If you can’t explain how a number was calculated, it won’t hold up under audit.”

The DeFi Blind Spot

The 1099-DA only covers centralized exchanges. Everything else—liquidity pools, token bridges, wrapped assets, cross-chain swaps, NFT sales—falls outside its scope. A requirement for decentralized platforms to begin reporting in 2027 was repealed earlier this year.

That creates a permanent gap in the compliance infrastructure. Investors active in DeFi must track and substantiate their own records. Most software, Scott found, gets it wrong.

“Bridging isn’t selling, and wrapping isn’t disposal, but most software treats them that way,” she said. “DeFi activity exposes the cracks in legacy tax logic.”

The problem compounds when platforms allow manual edits. Users can adjust timestamps, reclassify transactions, and modify cost basis figures. Each edit may resolve an immediate error, but undermines the documentation an auditor would expect.

“Automation without transparency is just a faster risk,” Scott said.

Immutable Records

DeFi Tax takes a different approach. The platform reads directly from the blockchain—the permanent, unalterable record of every transaction. No CSV uploads. No manual inputs. No editable fields.

“We don’t optimize for speed or simplicity at the expense of accuracy,” Scott said. “DeFi Tax is built around audit defense. Every figure needs to be traceable, consistent, and defensible. That mindset changes everything about how the system is designed.”

Scott distinguishes between generating numbers and generating documentation. A tax report isn’t useful if it can’t answer follow-up questions.

“An auditor doesn’t just want totals,” she said. “They want to know how you got there. Audit-ready reporting is structured, consistent, and explainable.”

The Clock Is Running

The IRS now receives copies of every 1099-DA filed by exchanges. Automated matching systems compare those forms against tax returns. Discrepancies trigger notices. The informal era of crypto tax compliance is ending.

“As reporting requirements tighten, crypto audits are becoming more common,” Scott said. “The risk isn’t just enforcement; it’s being unprepared when questions come.”

With April 15 weeks away, Scott advises investors to reconcile their records now—not after filing, not after a notice arrives.

“Don’t wait until tax season or an audit to understand your exposure,” she said. “If you can’t explain your report today, that’s a signal to fix it.”

The $14,500 overpayment figure represents an average. For active traders or long-term holders who have moved assets across multiple platforms over several years, the exposure is likely higher.

Scott said the confusion reflects a fundamental misunderstanding about investor intent.

“Most people aren’t trying to avoid crypto taxes,” she said. “They’re trying to understand them.”