IRS Reveals Preliminary Tax Reporting Form For Digital Assets
The US Internal Revenue Service (IRS) has unveiled the early draft of a tax form for reporting income from cryptocurrency transactions. The newly released Form 1099-DA, tagged as “Digital Asset Proceeds from Broker Transactions,” is currently open to comments from relevant stakeholders in anticipation of its final version by the IRS.
IRS Aims To Launch Crypto Tax Form By 2025
In August 2023, the US Treasury Department and the IRS proposed a set of rules that would mandate brokers and crypto exchanges to report specific transactions of digital assets with the aim of ensuring fairness among all financial players.
Generally, these proposed rules were part of the 2021 Infrastructure Investment and Jobs Act targeted at improving transparency from brokers on their client’s crypto transactions. Eight months later, the IRS has now launched the preview of a tax form for this purpose.
Notably, Form 1099-DA recognizes brokers as kiosk operators, digital asset payment processors, hosted wallet providers, and unhosted wallet providers. For context, this covers all centralized exchanges, decentralized exchanges, noncustodial wallets, as well as Bitcoin ATMs.
The form requires traders to provide information such as digital asset address, sale transaction ID, the units of digital asset transacted, and the security status of this digital asset. The IRS intends to introduce the use of Form 1099-DA in January 2025 but digital asset brokers are expected to start issuing the tax form to traders/investors from January 2026.
However, the IRS’s latest form could result in potential issues for taxpayers, one of which is the exposure of previously unreported crypto transactions, which could lead to a criminal tax investigation. Other potential issues that could arise from the use of Form 1099-DA cover areas such as self-transfers, information exchange among digital asset brokers, and transactions involving foreign exchanges.
Crypto Community Opposes Latest IRS Draft
In a rather unsurprising response, the general crypto community has criticized certain aspects of the IRS Form 1099-DA. Ji Kim, the chief legal and policy officer of the Crypto Council for Innovation, has specifically expressed disappointment over the agency’s inclusion of “unhosted wallet providers” as brokers.
In a post on X, Kim stated that such a listing shows that the IRS does not recognize the limited access of wallet providers to the details of users’ transactions as well as the identity of these users. Meanwhile, Shehan Chandrasekera, Head of Tax Strategy at CoinTracker.com expressed the proposed tax form threatens the privacy and pseudo-anonymity of the US crypto space.
Presently, the early draft of Form 1099-DA remains subject to comments, and certain aspects of the form may change in response to the general feedback.
Total crypto market cap valued at $2.262 trillion on the daily chart | Source: TOTAL chart on Tradingview.com
Featured image from CNBC, chart from Tradingview
