New IRS Form Targets Comprehensive Reporting of Digital Assets

The Internal Revenue Service (IRS) is currently seeking public feedback on a proposed new form, 1099-DA, which is designed to report proceeds from digital asset transactions conducted by brokers, set for introduction in 2025.

This initiative marks a significant step towards the formalization of tax regulations for digital assets, potentially easing regulatory uncertainties and encouraging broader participation in the financial sector.

Amy Kalnoki, Chief Operating Officer of Bitwave, a company that offers automated accounting solutions for cryptocurrency firms, emphasized the importance of this development.

“Form 1099-DA illustrates that digital assets are increasingly being recognized as legitimate entities within the financial services sector,” Kalnoki told Axios.

She added that “enterprises will fully adopt blockchain technology only when there is absolute regulatory clarity.”

However, the introduction of Form 1099-DA is expected to face resistance from the cryptocurrency industry.

The form requires brokers to report each transaction’s number and the specific assets transferred, suggesting a comprehensive reporting requirement that could encompass hundreds of millions of transactions annually.

“This will introduce significant new burdens across the entire ecosystem,” Kalnoki noted.

Further complicating the issue is the debate over which entities should be classified and obligated as brokers.

Coin Center, a blockchain advocacy group, has expressed concerns particularly about including providers of unhosted wallets—software and devices that allow users to manage their cryptocurrencies independently—as brokers.

Comparing the situation to the automotive industry, where manufacturers are not required to track where vehicle owners drive, Coin Center argues that such wallet providers should not be responsible for reporting customer transactions.

These transactions, they argue, should be managed by the users themselves, in line with existing IRS guidelines.

Tony Tuths, a principal on digital assets at KPMG, pointed out that the IRS’s move indicates a steadfast approach in its broad definition of “broker,” a term that has been a point of contention since the agency proposed redefining it last year.

As the IRS continues to refine Form 1099-DA, the final version will allow accounting professionals to integrate it into their compliance practices, further solidifying the framework for digital asset taxation.



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