IRS Releases Latest Version of 1099-DA Draft for Digital Asset Reporting

On August 9, 2024, the Internal Revenue Service (IRS) introduced a new version of the proposed form 1099-DA draft. There have been several changes to the initial draft in response to more than 44,000 comments. Form 1099-DA is a proposed IRS form for reporting digital asset transactions. It aims to capture information related to sales or exchanges of digital assets, including cryptocurrencies. The IRS is currently seeking feedback on the draft, so the form may still undergo changes before implementation. 

Form 1099-DA will be effective for transactions occurring on or after January 1, 2025, and brokers will be required to file Forms 1099-DA (Digital Asset Proceeds from Broker Transactions) for such transactions beginning in 2026.

What’s in it for brokers and taxpayers?

Section 6045 expanded the definition of a broker to include “any person who (for consideration) is responsible for providing any service effectuating transfers of digital assets on behalf of another person.” If you are a broker dealing with digital assets, especially cryptocurrency, then you are required to file 1099-DA. 

Digital Asset Trading Platforms: People or organizations that own and manage marketplaces for the purchase or trading of tokens or digital commodities.  
 
Hosted Wallet Providers: Entities that have possession of the private keys for the users’ digital assets and provide custodial services.  
 
Digital Asset Kiosks: Devices whereby consumers can acquire digital assets.  
 
Payment Processors: Business that handles payment transactions for individuals who deal with digital assets.

What’s Next?

Public Comments and Feedback: There is now an open comment period on the form at the IRS. Once the draft filer instructions have been posted, a notice will be published in the Federal Register to allow for a 30-day comment period. This is your opportunity to offer your comments and have a say in what the final article will be like. If you observe matters that may pose problems or think there are aspects that still need explanations, then perhaps it is prudent to keep abreast and possibly submit comments as needed.  

Stay Updated: It’s important to stay updated on these changes to ensure your firm and your clients remain compliant.  

Key Points

• Brokers must report the total amount of proceeds from digital asset transactions starting January 1, 2025.
• From January 1, 2026, brokers will need to report the cost basis of each transaction, requiring more detailed tracking of digital asset transactions.
• Transitional Relief: The IRS is offering transitional relief for brokers who make a genuine effort to comply with the new requirements, including potential relief from penalties and backup withholding for the tax year 2025.  
  

Conclusion: 

The IRS’s release of the draft Form 1099-DA on August 9, 2024, marks a significant milestone in the regulation of digital assets. The form is still evolving, and thus the requirements are yet to be implemented; brokers and other parties involved in the trading of digital assets will need to familiarize themselves with the new reporting standards. As the trends evolve, it will be very important to keep up with the trends in order to be able to come into compliance and avoid penalties.  
 
To assist you in dealing with all these, we present to you Tax1099, your one-stop solution to all things about digital asset reporting. Sign up for our newsletter to be notified of any cryptocurrency tax and IRS regulation updates.