The Internal Revenue Service (IRS) of the United States is the tax service of the country. Recently, the IRS released a draft of its new Form 1099-DA “Digital Asset Proceeds from Broker Transactions,” for reporting income generated through digital asset transactions. The form is expected to begin its usage in 2025 for reporting in 2026.
Usage of 1099-DA
A broker will prepare Form 1099-DA for every customer who exchanges or sells any digital assets. As per the issued form, brokers will include kiosk operators, digital asset payment processors, hosed wallet providers, unhosted wallet providers and others. The copy of the 1099-DA form will be provided to customers and the IRS, who will use them for the purpose of verification.
The form will require several information from customers including token codes, wallet addresses, and blockchain transaction locations. In August 2023, the rule is proposed for cryptocurrencies, non-fungible tokens and stablecoins are reportable.
The rule had, “With third party information reporting that specifically identifies digital asset transactions, the IRS could more easily identify taxpayers with digital asset transactions that are otherwise difficult to discover.”
Views on the Proposal
The community of crypto weighs in on the proposed reporting requirements after it was announced. The Blockchain Association said the rule includes fundamental misunderstandings about the nature of digital assets and decentralized technology.
Paul Grewal is the Chief Legal officer of Coinbase said the proposed rules would set a conscious and dangerous surveillance of the everyday financial activities of consumers. It requires nearly every digital asset transaction, even for the purposes like purchasing of a cup of coffee will be reported.
However, commenters were not very happy with the reporting rules listed for 2024.
Tax Experts Sharing Their Views
The experts of tax have upfrontly poster their comments on the web. As per the crypto tax and accounting service Ledgible, reporting decentralized finance, where there might not be any intermediary available to complete all the reporting requirements.
It would significantly increase administrative burden on brokers, as many people processes multiple number of transactions. Addition to this, the brokers that will be forced to exchange information on digital asset transfers to determine initial value or price on the cost basis correctly as per the Gordon Law.
Moreover, it does not have any way to differentiate between self-transfers and taxable transfers if the owner of the crypto transfers assets between exchanges.
The taxpayer who have misreported their income through cryptocurrencies in the previous years may be caught when they will be reporting their income and taxes in 2025.
The users of the foreign exchanges are not supposed to formally serve to US citizens who will not submit the form but IRS has the capability to detect the offshore activity if the taxpayer transfers assets to a US exchange.
The IRS continues to receive and work on the comments already received on the draft form.
