The U.S. Internal Revenue Service (IRS) has unveiled a new draft Form 1099-DA, titled “Income from Digital Assets from Broker Transactions,” aimed at reporting income from digital asset transactions. This form is slated to become operational in 2025, with reporting commencing in 2026.
Each broker will be responsible for preparing a 1099-DA form for every client involved in selling or exchanging digital assets. The designated brokers include various entities such as kiosk operators, digital asset payment processors, custodial wallet providers, and non-custodial wallet providers. Copies of the 1099-DA will be distributed to both the customer and the IRS, serving as a means of verification.
Key details requested on the form include the token code, wallet address, and blockchain transaction location. In accordance with rules proposed in August 2023, the reporting requirements encompass cryptocurrencies, non-fungible tokens (NFTs), and stablecoins, reflecting a broad scope of digital assets. The IRS justifies these measures as facilitating the identification of taxpayers engaging in digital asset transactions that might otherwise evade detection.
Following the announcement of these proposed reporting requirements, feedback poured in from the cryptocurrency community. The Blockchain Association criticized the rules, citing a perceived misunderstanding of digital assets and decentralized technology. Similarly, Coinbase’s chief legal officer, Paul Grewal, expressed concerns that the proposed rule would necessitate reporting on nearly all digital asset transactions, potentially setting a precedent for intrusive monitoring of consumers’ financial activities.
Tax experts have also weighed in, highlighting various challenges posed by the new rules. For instance, reporting on decentralized finance (DeFi) transactions, which often lack intermediaries, presents a significant challenge. Moreover, the new regulations are poised to significantly increase the administrative burden on brokers, particularly those handling large transaction volumes. Furthermore, brokers face additional hurdles under the Gordon Act, which mandates the exchange of information about digital asset transfers to determine accurate cost bases. However, existing mechanisms for sharing such data are lacking, posing further complications. Additionally, the IRS may detect offshore activity if taxpayers transfer assets to U.S. exchanges, even if foreign users are not obligated to file the Form 1099-DA.
