The U.S. Internal Revenue Service (IRS) has issued a draft of Form 1099-DA for reporting earnings from brokered digital asset transactions. According to the form's instructions, brokers are required to report earnings from the disposal of digital assets to both clients and the IRS on Form 1099-DA, as well as the basis of disposal in certain cases. This implies that brokers, including non-custodial wallet providers, must report earnings from digital asset disposals to the IRS, which includes details like wallet addresses and locations of transactions on relevant blockchains.
The draft of Form 1099-DA suggests that there could be a variety of specific token codes that can be filled out, including fields for wallet addresses and transaction locations on relevant blockchains. This means brokers must report earnings from digital asset disposals and, in some cases, the basis for these disposals to clients and the IRS.
This version of the form requires filers to check a box that describes the type of broker, such as self-service kiosk operators, digital asset payment processors, custodial wallet providers, non-custodial wallet providers, or "other." This highlights the requirement for brokers to report on digital asset disposals and their basis where applicable.
This release is preliminary and may still change based on the final outcome of tax rules proposed last year. Although establishing cryptocurrency tax norms in the U.S. is a necessary step to eliminate investor uncertainty and confusion, cryptocurrency businesses are anxious about how the IRS will identify digital asset brokers (including wallet providers) that need to comply with the new system, decentralized platforms, and payment processors.
Miles Fuller, Head of Government Solutions at TaxBit, noted, "Some of these boxes are related to economic activities, like kiosks or payment processors, while others are based on customer relationships, like custodial or non-custodial wallet providers." He added, "I am curious about how the IRS expects to use this information and how certain brokers currently covered by regulations, such as centralized exchanges or decentralized protocols, will adapt to these boxes."
Fuller also expressed interest in the Treasury's IRS approach, anticipating that brokers will "use some form of digital asset registry to identify the cryptocurrencies being sold on the form." He remarked, "There is currently no formal registry, so it will be interesting to see how this unfolds."
Jessalyn Dean, Vice President of Tax Information Reporting at Ledgible, pointed out the so-called wash sales, and the transactions dictated by the form are only recorded internally by cryptocurrency companies. In her analysis of the form, she argued that at least one of the boxes regarding non-deductible losses needs more guidance on how it operates.
Dean stated, "As expected, it looks and feels similar to Form 1099-B, which is used for reporting traditional financial product sales." He also noted that the IRS "included many lines and boxes in the form."
The IRS is currently seeking public comments on the draft form. It is unclear when the tax agency will finalize the rules, although the 2025 form suggests completion at some point this year.
The IRS's collection of certain data points, such as wallet addresses, "could raise significant privacy and security concerns." This point needs adequate attention, and privacy and security issues should be considered when finalizing the rules. Cryptocurrency tax experts have emphasized this, hoping that the tax agency will take these concerns into account.
In conclusion, the IRS's draft of Form 1099-DA for reporting earnings from brokered digital asset transactions sets clear requirements. However, privacy and security considerations should be thoroughly addressed when establishing final rules, and public feedback should be sought to ensure that the new regulations balance regulatory needs with individual privacy rights.
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