Jai Sahu
The regulation requiring the new 1099-DA form is still in the works, but the IRS has offered a preview of what the form to report brokered digital asset sales might look like.
- The U.S. Internal Revenue Service has showcased the proposed design for the very first cryptocurrency tax reporting form.
- Observers note that further details are necessary before the draft form becomes comprehensible.
The U.S. Internal Revenue Service (IRS) has provided a glimpse into what the future tax form for crypto investors could look like, pending the finalization of its debated regulation on cryptocurrency transaction reporting to the federal government.
The IRS has introduced a draft of the 1099-DA form, designed to calculate taxable gains or losses when brokered digital assets are traded. The form is expected to include unique token identifiers, spaces for wallet addresses, and areas to track transactions on the relevant blockchain.
“Brokers must report proceeds from (and in some cases, basis for) digital asset dispositions to you and the IRS on Form 1099-DA,” according to the instructions included with the form, which shows a 2025 date. “You may be required to recognize gain from these dispositions of digital assets.”
This initial unveiling is subject to changes based on the outcomes of the proposed tax rule from last year. The process of defining U.S. tax procedures for crypto remains crucial for reducing investor uncertainty and confusion, but there is anxiety within the cryptocurrency sector about how the IRS will identify which digital asset brokers must comply with the new regulations—this could include wallet providers, decentralized platforms, and payment processors.
The proposed form requires filers to specify their type of brokerage operation, choices include kiosk operator, digital asset payment processor, hosted wallet provider, unhosted wallet provider, or “other.”
“Some of those boxes relate to economic activity such as kiosks or payment processors, while others are customer-relationship based such as hosted or unhosted wallet provider,” Miles Fuller, the head of government solutions at TaxBit, told CoinDesk. “I am curious how the IRS anticipates using this information and how certain brokers such as centralized exchanges or decentralized protocols that are covered under the current regulations may fit into these boxes.”
Fuller also expressed interest in the IRS’s expectation that brokers will use a digital asset registry to help identify the cryptocurrencies being sold, as noted in the form, although no such registry currently exists.
Jessalyn Dean, vice president of tax information reporting at Ledgible, pointed out that the form includes sections for wash sales and deals with transactions that crypto firms record internally. She argued that more guidance is needed, particularly on boxes related to non-deductible losses.
“As expected, the look and feel are similar to the Form 1099-B for reporting sales of traditional financial products,” Dean noted, pointing out that the form incorporates many lines and boxes.
The IRS is soliciting public comments on the draft form. While it’s unclear when the final rule will be established, the 2025 date on the form suggests completion could be achieved this year.