The U.S. Internal Revenue Service (IRS) has released a draft tax form 1099-DA for reporting gains from broker-dealer digital asset transactions. According to the instructions for the form, brokers must report gains from the disposal of digital assets to clients and the IRS on Form 1099-DA, as well as the basis for the disposal of digital assets in some cases. This means that brokers, including non-custodial wallet providers, must report gains from the disposal of digital assets to the IRS, including space and where to find transactions on the relevant blockchain.
The draft 1099-DA form shows that the agency will likely have a series of individual token codes that can be filled in, including space for wallet addresses and where to find transactions on the relevant blockchain. This means that brokers will have to report the proceeds of digital asset dispositions to customers and the IRS on Form 1099-DA, as well as the basis for the disposition in some cases.
This version of the form requires filers to check a box describing the type of broker: kiosk operator, digital asset payment processor, custodial wallet provider, noncustodial wallet provider, or “other.” This means brokers must report proceeds from digital asset dispositions to clients and the IRS on Form 1099-DA, as well as the basis for the disposition in certain circumstances.
The announcement is preliminary and could still change depending on how the tax rules proposed last year are ultimately decided. While establishing cryptocurrency tax practices in the U.S. is one of the necessary steps to eliminate uncertainty and confusion among investors, cryptocurrency businesses are nervous about how the IRS will identify digital asset brokers that need to comply with the new system, which could include wallet providers, decentralized platforms and payment processors.
“Some of these boxes are tied to economic activity, such as a kiosk or payment processor, while others are based on customer relationships, such as a custodial or non-custodial wallet provider,” said Miles Fuller, head of government solutions at TaxBit. “I’m curious how the IRS anticipates using this information, and how certain brokers covered by current regulations, such as centralized exchanges or decentralized protocols, might fit into these boxes.”
Fuller is also interested in the Internal Revenue Service of the Treasury Department, which anticipates brokers will “use some kind of digital asset registry to identify the cryptocurrencies being sold on the forms,” he said. “There’s no formal registry yet, so it’ll be interesting to see how that plays out.”
Jessalyn Dean, vice president of tax information reporting at Ledgible, pointed to so-called wash sales and transactions that the form stipulates are only recorded internally by cryptocurrency companies. In her analysis of the form, she argued that at least one of the boxes regarding nondeductible losses needs more guidance on how it works.
“As expected, the look and feel is similar to the 1099-B form that reports sales of traditional financial products,” Dean said, noting that the IRS “packed a lot of lines and boxes into that form.”
The IRS is seeking public comment on the draft form. It’s unclear when the tax agency will issue a final rule, though the 2025 form suggests it will be done sometime this year.
The IRS’ collection of certain data points, such as wallet addresses, “may raise significant privacy and security issues.” This needs to be taken seriously, and privacy and security issues should be considered when finalizing the rules. Cryptocurrency tax experts have highlighted this point and hope that the tax agency will take these issues into account.
In summary, the draft 1099-DA form released by the IRS sets clear requirements for reporting broker-dealer digital asset gains. However, when formulating the final rule, privacy and security issues should be fully considered and public comments should be sought to ensure that the new rule can balance regulatory needs and individual privacy rights.