IRS Draft Form 1099-DA Targets Unhosted Crypto Wallets: Controversy and Criticism

The IRS has caused quite a stir in the crypto community with its recent draft version of the 1099-DA reporting form, which includes unhosted crypto wallets as targets for reporting. This move has sparked controversy and criticism from industry experts and professionals.

Ji Kim, Chief Legal and Policy officer at the Crypto Council for Innovation, expressed disappointment with the IRS’ approach, stating that unhosted wallet providers lack knowledge about crypto transactions and the parties involved. She emphasized that this could have negative implications for end users who may need to undergo KYC verification when using unhosted wallets.

Shehan Chandrasekera, Head of Tax at CoinTracker, also criticized the form, warning that the collection and reporting of data, especially wallet addresses, could raise privacy and security concerns. However, he noted that enforcement efforts are likely to target unhosted wallet providers rather than end users.

The Form 1099-DA requires brokers to provide on-chain data, including transaction IDs and wallet addresses related to each sale. While some experts raised concerns about privacy and security, others like Jessalyn Dean from Ledgible pointed out exceptions to the rule, allowing brokers not to provide certain information if not applicable.

It is important to note that the rules outlined in the draft form are not yet finalized, and brokers should not use it in their current tax reports. There is a 60-day comment period on the form, indicating that changes may still be made based on feedback from industry stakeholders.

Overall, the IRS’ move to include unhosted crypto wallets in its reporting form has sparked debate and raised concerns within the crypto community. As the regulatory landscape continues to evolve, it is crucial for industry players to stay informed and engaged to navigate these changes effectively.