Selection of different cryptocurrency coins layered on top of US dollar banknotes
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The IRS has given a glimpse of the future of cryptocurrency reporting. The agency has released a draft Form 1099-DA. Digital assets generate revenue from broker transactions, It is currently available on the IRS website.
The form is the next step in the agency's efforts to strengthen cryptocurrency tax reporting and follows proposed regulations issued last year.
The proposed regulations would require, among other things, brokers to report sales and exchanges of their customers' digital assets. These transactions will be reported to the IRS on the new Form 1099-DA.
Under the proposed regulations, brokers, including digital asset trading platforms, digital asset payment processors, and certain digital asset hosted wallet providers, will be required to report sales or exchanges of digital assets on or after January 1, 2025. It is mandatory to do so. In certain circumstances, brokers are also required to include profit and loss and basis information for sales occurring after January 1, 2026. This is similar to his 2008 requirement that a broker report the cost basis of certain securities to his IRS upon sale. .
The proposed regulations would require real estate reporters treated as brokers (title companies, closing attorneys, mortgage lenders, real estate brokers) to report on the disposition of digital assets paid by a purchaser in a real estate transaction that closes. It is also planned to be made mandatory. These reporters must also include on their Form 1099-S the fair market value of digital assets paid to sellers in real estate transactions that end on or after January 1, 2025. Real estate transaction income. (Form 1099-S is an existing tax return form.)
According to the draft instructions for Form 1099-DA, if you receive this form, which generally means you sold, exchanged, or otherwise disposed of a financial interest in a digital asset, you will be asked to do so next to the question on the page. You must check a certain “Yes” box. 1 of Form 1040.
IRS Form 1040
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The question on Form 1040 for tax year 2023 states:
At any time in 2023, did you: (a) receive (as compensation, prize, or payment for property or services); or (b) sell, exchange, or otherwise dispose of the Digital Assets (or a financial interest in the Digital Assets)?
For purposes of Form 1040, the IRS defines a digital asset as “a digital representation of value that is recorded on a cryptographically secured distributed ledger or similar technology.” This includes non-fungible tokens (NFTs) and virtual currencies such as cryptocurrencies and stablecoins. And in the “If it walks like a duck and quacks like a duck” category, the IRS states that “if a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes.” states.
The information reported on Form 1099-SA is similar to Form 1099-B (consolidated statement obtained from a broker) and includes information on the type and amount of digital assets acquired, sold, or disposed of, and associated withholding. included.
Form 1099-DA
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(You can see the full size form and instructions here.)
This form requires the broker to self-identify as a kiosk operator, digital asset payment processor, hosted wallet provider, non-hosted wallet provider, or other. Hosted wallets are typically crypto platforms like exchanges (such as Coinbase), while non-hosted (or self-custodial) wallets allow individual users to control their keys. The Treasury Department compares unhosted wallets to anonymous bank accounts and suggests they can be used to hide illicit financial activity.
Box 1i is interesting. “Wash sale losses are not allowed” must be reported. The wash sale rule prohibits taxpayers from buying or selling substantially identical securities within 30 days, but this rule does not currently apply to cryptocurrencies. So why is it there? “Indicates the amount of nondeductible losses in wash sale transactions involving digital assets that are also stocks or securities for tax purposes,” the instructions say. This could apply to assets such as tokenized stocks (shares of publicly traded companies in the form of digital tokens), but could also be a nod to a proposal to ban cryptowash sales altogether ( This is also not the current law).
Form 1099-SA also requires cost basis reporting (box 10a is checked and box 10b provides an explanation if the asset is considered a non-covered security for basis purposes).
Form 1099-DA also reports the transaction ID or hash from the associated ledger if the sale, exchange, or other disposition was recorded on a distributed ledger such as a blockchain. A transaction hash is a unique string generated by the blockchain for each transaction.
And, of course, the IRS added the familiar draft warning.
This is an early release draft of IRS tax forms, instructions, and publications that the IRS is providing for your reference. Please do not submit draft forms. Also, do not rely on draft forms, instructions, or publications for submission. The forms and procedures must be approved by OMB before they can be officially released, so we will post drafts until they are approved.
If you have comments about the draft form, the IRS accepts comments online at IRS.gov/FormsComments. To route the message properly, include “NTF” followed by the form number (in this case “NTF1099DA”) in the body of the message.
Please visit the IRS website (www.irs.gov/Form1099DA) for information on developments related to Form 1099-DA and its instructions, including any laws enacted since Form 1099-DA and its issuance.You can also check our information forbes Our tax and digital asset teams are here to help.
