The IRS has released a draft of Form 1099-DA, Digital Asset Proceeds From Broker Transaction, as part of its efforts to enhance crypto tax reporting. This form is in line with proposed regulations that would require brokers to report customers’ sales and exchanges of digital assets to the IRS. These regulations apply to brokers like digital asset trading platforms, payment processors, and hosted wallet providers starting from January 1, 2025. Additionally, real estate reporting persons would also be required to report on transactions involving digital assets paid as consideration in real estate deals that close on or after January 1, 2025.
The draft instructions for Form 1099-DA clarify that receiving the form indicates that an individual has sold, exchanged, or disposed of a financial interest in a digital asset. The IRS defines digital assets as any digital representation of value recorded on a distributed ledger technology, including NFTs, cryptocurrencies, and stablecoins. The information reported on Form 1099-DA is similar to the 1099-B statements received from brokers and includes the types and amounts of digital assets acquired, sold, or disposed of, along with any related withholding.
The form requires brokers to identify themselves as kiosk operators, digital asset payment processors, hosted wallet providers, unhosted wallet providers, or other. Box 1i on the form requires reporting of “wash sales loss disallowed,” even though the wash sales rule currently does not apply to crypto. The cost basis of the digital asset is also reported on the form, along with the transaction ID or hash from the associated ledger if the transaction was recorded on a distributed ledger like blockchain.
The IRS has issued a warning regarding the draft status of the form and instructions, advising against filing based on draft forms and encouraging comments on the draft form through the IRS website. The Form 1099-DA reflects the agency’s ongoing efforts to enhance crypto tax reporting and ensure compliance with tax regulations in the increasingly popular digital assets space. Taxpayers and brokers in the crypto industry will need to familiarize themselves with the reporting requirements outlined in the draft form to ensure proper compliance with IRS regulations.
