The Internal Revenue Service has simplified reporting requirements in the latest version of Form 1099-DA, which crypto brokers and taxpayers will use to report digital asset transactions.
According to the August 9 update, the new draft removes several requirements that were part of the April version when the IRS first introduced the form.
Taxpayers will no longer have to provide information about wallet addresses and transaction IDs, as well as the exact time of each transaction, but only the date. This revision comes in response to feedback from the cryptocurrency industry.
In April, the IRS first introduced a draft of Form 1099-DA, which not only required detailed transaction information but also required brokers to disclose whether they were kiosk operators, digital asset payment processors, hosted wallet providers, non-hosted wallet providers, or “other.”
The draft faced criticism, particularly because it listed providers of unhosted wallets as brokers. Critics pointed out that these providers would not have access to the nature of the transactions or the identity of the parties involved.
The latest update, among other changes, removes the requirement for taxpayers to specify “broker type” to better align with the realities of the digital asset industry.
The crypto community welcomed the change, with some calling it a step in the right direction.
Attorney Drew Hinkes of the law firm K&L Gates called the updated form a “massively improved” one because it requires “significantly less” data reporting.
The Blockchain Association, an industry advocacy group, had previously warned that the previous requirements could have resulted in compliance costs of up to $254 billion.
If approved, the form is expected to take effect in tax year 2025, with a filing due in April 2026. The IRS has also invited the public to provide comments on the draft form within 30 days.
Form 1099-DA originally stems from the reporting rules proposed by the IRS and Treasury in August 2023 as part of the Infrastructure Investment and Jobs Act passed in 2021. The idea was to treat crypto brokers like their traditional counterparts.
IRS Commissioner Danny Werfel said at the time that the rules were designed to close the tax gap and ensure consistent tax treatment across different asset classes.
The proposal’s definition of brokers was broad and included trading platforms, payment processors and certain hosted wallets. Decentralized exchanges were also included in the reporting requirements.
At the time, the Treasury Department said the key issue was not how a platform worked, but ensuring that all transactions involving digital assets were reported, regardless of the platform.
Critics in the crypto sector quickly raised concerns about the potential impact on DeFi platforms like Uniswap. In a final draft published in June 2024, decentralized exchanges and self-governing wallets were subsequently exempted from the reporting requirement.
