IRS
The Internal Revenue Service (IRS) has released a draft of Form 1099-DA, "Digital Asset Proceeds From Broker Transactions," signaling a significant shift in the reporting requirements for digital asset transactions. This new form, which aligns with the final regulations (T.D. 10000) issued in June, is set to be used by brokers for reporting certain 2025 transactions involving the sale or exchange of digital assets.
Key Changes and Implications for Tax Preparers:
1. Streamlined Reporting:
The draft form has undergone several modifications from its initial version. Notably, boxes related to wallet addresses and hashes have been removed, although brokers are still required to collect this information. This change simplifies the form while maintaining essential data collection.
2. Broker Classification:
The box designating broker type has been eliminated. This change reflects the Treasury's decision to exclude rules for noncustodial brokers from the final regulations, with separate rules anticipated in the future.
3. Asset Identification:
Boxes 1a through 1c, which deal with asset identification, remain unchanged. This consistency suggests the potential development of an IRS-based asset code registry to accommodate the diverse range of digital assets beyond common cryptocurrencies like Bitcoin and Ethereum.
4. Stablecoins and NFTs:
Boxes 11a through 11c introduce aggregate reporting for qualified stablecoins and non-fungible tokens (NFTs). Box 11c specifically addresses proceeds that may be characterized as ordinary income from the initial sale of an NFT by its creator.
5. Reporting Timeline:
Brokers are expected to submit these forms to both taxpayers and the IRS in early 2026, covering transactions from the 2025 tax year.
6. Transition Relief:
The form incorporates transition relief as outlined in Notice 2024-56, Notice 2024-57, and Rev. Proc. 2024-28, providing some flexibility during the initial implementation period.
IRS Commissioner Danny Werfel emphasized that this new form will enhance taxpayer clarity and improve compliance through third-party reporting. The IRS aims to prevent the use of digital assets for hiding taxable income, particularly among high-income categories, while providing law-abiding taxpayers with more accurate information for income reporting.
Miles Fuller, senior director of government solutions at TaxBit and former IRS attorney, notes that the approach to asset identification suggests the need for a comprehensive asset code registry. He also highlights the importance of precise asset identification, given that similar names can be used for distinct digital asset projects.
The IRS will publish a notice in the Federal Register once the draft filer instructions are posted, initiating a 30-day comment period. Tax preparers and other interested parties can submit comments on the IRS website's forms and publications comments page.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
Subscribe to the TPN Newsletter!
Like what you're reading?
Subscribe to our FREE newsletter and we'll deliver content like this directly to your inbox.