Ready or Not, Crypto Asset Reporting Is Here
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Beginning tax year 2025, Digital Asset Brokers will be required to report digital proceeds to their customers and the Internal Revenue Service. In preparation for this reporting, the IRS released draft Form 1099-DA (the “Form”).
This draft version is similar to IRS Form 1099-B and conforms to regulations included in the 2021 Infrastructure Investment and Jobs Act. The IRS encourages comments and user feedback on this draft Form, which may change based on revisions to regulations as they are finalized.
The Form categorizes Brokers as kiosk operators, digital asset payment processors, hosted or unhosted wallet providers, or other. A clarifying definition of Brokers, for reporting purposes, includes digital asset trading platforms, digital asset payment processors, certain digital asset hosted wallet providers, and persons who regularly offer to redeem digital assets that were created or issued by that person.
The Form is intended to increase taxpayer compliance by making digital asset tax information more accessible. Previously the IRS noted that “third-party reporting generally leads to higher levels of taxpayer compliance because the income earned by taxpayers is made transparent,” and believes this will facilitate “identify[ing] taxpayers with digital asset transactions that are otherwise difficult to discover.”
Currently, digital asset transactions are reported by checking a box on the taxpayer’s federal tax return and reporting income, gain, or loss. Taxable transactions include any in which taxpayers receive, sell, exchange, or dispose of a digital asset such as through mining, staking, airdrops of new tokens following a hard fork in a blockchain and receive digital assets as payment.
Common examples of digital assets include, but are not limited to, cryptocurrency, stablecoins, non-fungible tokens (NFTs), and tokenized securities, and are defined as digital representations of value recorded on a cryptographically secured, distributed ledger or any similar technology.
The taxation of digital assets is becoming increasingly complex. While the intention of Form 1099-DA is to increase compliance, taxpayers should continue to track cost basis, fair market value and other critical information to ensure proper reporting. For assistance with digital asset tax matters, please contact us.
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