IRS Introduces New Form 1099-DA for Cryptocurrency Transactions

The Internal Revenue Service (IRS) of the United States has unveiled a new tax form, Form 1099-DA, specifically designed for cryptocurrency brokers to record transactions involving digital assets. This move is part of the IRS’s ongoing efforts to enhance compliance and ensure that taxpayers accurately report their income from digital assets.

Expected to be in use by the beginning of 2025, Form 1099-DA will require brokers to disclose key information such as token codes, wallet addresses, and locations of blockchain transactions for each client who sells or trades digital assets. This level of reporting will enable the IRS to identify taxpayers with transactions that may be challenging to detect through traditional means of information reporting.

The decision to include cryptocurrencies, nonfungible tokens (NFTs), and stablecoins as reportable assets on Form 1099-DA reflects the growing importance of digital assets in the financial landscape. By mandating brokers to record these transactions, the IRS aims to ensure that taxpayers accurately report their income and fulfill their tax obligations related to digital asset activities.

Key data elements captured by the draft form include the date of acquisition, date of sale, proceeds, and cost basis of crypto assets sold. Taxpayers will need this information to accurately file their cryptocurrency tax returns. Additionally, the form includes a checkbox for “unhosted wallet provider,” indicating the IRS’s intention to classify unhosted wallets as brokers, potentially requiring users to provide know-your-customer (KYC) information.

While the draft form provides valuable insights into reporting requirements, it may undergo revisions based on feedback received during the comment period. The IRS encourages public input on draft or final versions of forms, instructions, or publications through its website.

In conclusion, the introduction of Form 1099-DA by the IRS marks a significant step in regulating and reporting revenue from digital asset transactions. By requiring brokers to record these transactions, the IRS aims to promote compliance and ensure accurate reporting of income from digital assets. Taxpayers should stay informed about their reporting responsibilities for digital assets to avoid potential fines or audits, as the digital asset landscape continues to evolve.