The U.S. Internal Revenue Services has revealed what the agency has in mind for the first-even crypto tax reporting form.
Observers suggest the industry will need some more information before the draft form makes sense.
The U.S. Internal Revenue Service (IRS) has previewed what crypto investors’ future tax form might look like when it finishes its much-debated rule on how cryptocurrency transactions should be reported to the federal government.
The IRS offered a draft of the 1099-DA form that would be meant to figure out the taxable gains or losses when brokered digital assets change hands. The form reveals the agency will likely have an array of individual token codes that can be filled in, and it includes spaces for wallet addresses and where to find transactions on the relevant blockchain.
“Brokers must report proceeds from (and in some cases, basis for) digital asset dispositions to you and the IRS on Form 1099-DA,” according to the instructions included with the form, which shows a 2025 date. “You may be required to recognize gain from these dispositions of digital assets.”
This unveiling is preliminary and may still change depending on the final outcome of the tax rule proposed last year. While the establishment of U.S. tax practices for crypto is among the necessary steps toward ridding investors of uncertainty and confusion, cryptocurrency businesses are nervous about how the IRS will identify the digital asset brokers that would need to comply with the new system – potentially including wallet providers, decentralized platforms and payment processors.
This version of the form asks the filer to check a box that describes the type of broker they are: kiosk operator, digital asset payment processor, hosted wallet provider, unhosted wallet provider or “other.”
“Some of those boxes relate to economic activity such as kiosks or payment processors, while others are customer-relationship based such as hosted or unhosted wallet provider,” Miles Fuller, the head of government solutions at TaxBit, told CoinDesk. “I am curious how the IRS anticipates using this information and how certain brokers such as centralized exchanges or decentralized protocols that are covered under the current regulations may fit into these boxes.”
Fuller was also interested in the Treasury Department’s IRS anticipating that brokers would be “using some sort of digital asset registry to identify which crypto was being sold on the form,” he said. “No formal registry currently exists, so it will be interesting to see how that plays out.”
Jessalyn Dean, vice president of tax information reporting at Ledgible, pointed out references to so-called wash sales and that the form provides for transactions that are only recorded internally by crypto firms. She contended in her analysis of the form that at least one of the boxes on non-deductible losses would need more guidance on how it works.
“As expected, the look and feel are similar to the Form 1099-B for reporting sales of traditional financial products,” Dean said, also noting the IRS has “packed a lot of lines and boxes into this form.”
The IRS is inviting public comments about the draft form. It remains unclear when the tax agency will produce a final rule, though the 2025 form suggests a completion at some point this year.
UPDATE (April 19, 2024, 20:32 UTC): Adds comment from Miles Fuller at TaxBit.
