Crypto exchange Kraken filed nearly 56 million cryptocurrency transaction reports with the U.S. Internal Revenue Service for the 2025 tax year. Many were for small transactions, raising criticism that the current tax system is excessively increasing taxpayers' burden.

Blockchain outlet CoinDesk reported on Tuesday that Kraken disclosed the status of filings under the newly introduced Form 1099-DA in a blog post that day. Of all reports, about 18.5 million were for transactions under $1, and more than half were $10 or less. Transactions over $600 accounted for 8.5 percent, while 74 percent were under $50.

Form 1099-DA is also sent to taxpayers, who must carry out separate reconciliation based on it. Kraken said existing tax filing software does not sufficiently support crypto transactions, so active investors may have to use separate tax programs at an additional annual cost of $250 to $500.

Kraken said the time and cost required to process small transactions are excessively large relative to the actual tax revenue effect. It argued that the current structure, which requires each micro-transaction to be reconciled using incomplete data, only increases taxpayers' burden.

It also pointed to problems with the current reporting method. Brokers who report transactions are required to report only gross sale proceeds, not net gains or losses reflecting cost basis. As a result, taxpayers receive incomplete data that shows sale amounts but lacks acquisition price information, forcing them to do additional calculations.

Kraken flagged 2 structural problems under the current tax law. First, it said there is no de minimis exemption for small crypto payments. That means even small purchases can be taxable. It gave an example in which paying for a $7.99 meal in bitcoin creates a taxable event, requiring the taxpayer to find the cost basis of the bitcoin used, calculate gains or losses for that portion and report it on Form 8949.

It also cited the tax treatment of staking rewards as a burden. Tokens received through staking are currently treated as ordinary income based on their market value at the time of receipt. But most holders do not sell them immediately. That can require paying tax on tokens that have not been sold, and if the price falls by the time of reporting, the tax can become larger than the assets' current value. Kraken called this "phantom income" and said many of its 1099-DA filings under $1 were such staking distributions.

Kraken stressed the need for policy changes. It said a de minimis exemption provision limited to stablecoins that is under discussion in Congress should be expanded to all crypto transactions, and that an inflation-linked exemption threshold should be introduced. It also said safeguards are needed to prevent abuse such as transaction splitting.

It also called for introducing a choice on when staking rewards are taxed. Taxpayers should be able to choose between taxation at the time of receipt and taxation at the time of an actual sale, it said. Kraken added that this would require a legislative basis in Congress.

The case shows that taxpayers' burden could rise sharply if small transactions and staking are taxed across the board as crypto taxation is brought into the formal system. The market views whether tax thresholds will be eased in the future as an important variable for the investment environment.