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IRS Issues Draft Form For Reporting Digital Asset Transactions

S.J. Steinhardt
Published Date:
Apr 22, 2024

The IRS has issued its draft Form 1099-DA, a new tax form that cryptocurrency brokers will begin to use next year to report digital asset transactions, Accounting Today and CPA Practice Advisor reported.

The form is the result of the 2021 Infrastructure and Investment Jobs Act, which classifies crypto exchanges and trading platforms as brokers and requires them to report on their customer's gains and losses to the IRS every year starting with tax year 2025, Accounting Today reported.

The IRS issued proposed regulations last August that would require brokers to report sales and exchanges of digital assets by customers.

“These proposed regulations are designed to help end confusion involving digital assets and provide clear information and reporting certainty for taxpayers, tax professionals, and others,” IRS Commissioner Danny Werfel said in a statement at the time. “A key part of this effort fits in with the larger IRS compliance focus on wealthy taxpayers. We need to make sure digital assets are not used to hide taxable income, and the proposed regulations are designed to provide a clearer line of sight into activities by high-income people as well as others using them. We want to make sure everyone pays what they owe under the tax laws, and our research and experience demonstrate that third-party reporting improves compliance.” 

Brokers will be required to generate Form 1099-DA for each sale transaction and submit that information to the IRS and to their customers starting on Jan. 1, 2025.

The preview coincides with a "Bitcoin halving" event that's expected to drive up the value of that particular cryptocurrency, Accounting Today reported.

"To celebrate Bitcoin Halving Day, the IRS has gifted the digital asset community with a draft IRS Form 1099-DA — the form that 'brokers' are supposed to begin using in 2025 to report digital asset transactions to customers," said Tony Tuths, a principal and leader of the alternative investments and digital asset tax practice at KPMG, in a statement. "While we are still waiting on final regulations to see who qualifies as a broker and for an exact timeline for reporting, the draft form is telling. The 'Broker type' box lists brokers such as Unhosted Wallet Provider, Digital Asset Payment Processor and Kiosk Operator. This may indicate that Treasury is not backing down from its expansive scope definition of 'broker,' which will drag DeFi and wallet providers into reporting. Also noteworthy is Box 10b (noncovered security), still suggesting that cost basis was to be tracked from Jan. 1, 2023 (which it's likely not everyone has been doing)."

Draft form 1099-DA captures unsurprising data points, such as date acquired, date sold, proceeds, and cost basis of crypto assets sold—information that is needed and helpful for the taxpayer to complete their crypto tax filings, Shehan Chandrasekera, head of tax strategy at CoinTracker, said in a post on X, CPA Practice Advisor reported.

The IRS noted that this early draft form release may change based on decisions made in response to comments received on the proposed regulations issued last August. Public comments can be submitted to the IRS about draft or final forms, instructions, or publications at Include “NTF” followed by the form or publication number (for example, “NTF1099-DA”) in the body of the message to route your message properly, the agency said.

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