The Internal Revenue Service is
This bill builds on the bipartisan Infrastructure, Investment and Jobs Act of 2021, which President Biden signed into law. The law classifies virtual currency exchanges and trading platforms as brokers and requires them to report their customers' profits and losses annually to the IRS for tax purposes. Customers and their IRS will begin receiving forms in time for the 2026 tax season. issued by the IRS
Cryptocurrency brokers were supposed to start tracking transactions last year. Under the proposed regulations, a broker that provides custodial services for digital assets would be required to do so on or after January 1, 2026, if the digital asset is acquired and the broker continues to hold custodial services for the customer. must submit a report on an adjusted basis for sales of digital assets effective at . Accounts after January 1, 2023.
This preview coincides with the highly anticipated “Bitcoin Halving” event, which is expected to increase the value of certain cryptocurrencies.
“To celebrate Bitcoin Halving, the IRS has gifted the digital asset community a draft of IRS Form 1099-DA, which will be used in 2025 by ‘brokers’ to report digital asset transactions to their customers.” ,” Tony Tous said. He is leader of KPMG's Principal Investments, Alternative Investments and Digital Assets Tax practice, said in a statement. “We are still awaiting final regulations as to who qualifies as a broker and the exact timeline for reporting, but the draft form speaks for itself. Brokers such as providers, digital asset payment processors, and kiosks are listed, indicating that the Treasury Department is not reversing its broad definition of the scope of “brokers” that would drag DeFi and wallet providers into reporting. Box 10b (Security Not Covered) also suggests that the cost base is still tracked. From January 1, 2023 (we suspect not everyone will).”
Cryptocurrency companies have lobbied Washington lawmakers and regulators to narrowly define the meaning of the term “broker” and limit their exposure to reporting requirements before and after infrastructure legislation is passed. It has cost a lot of money. Including these specific categories in the form provides some clarity as to who is expected to issue the form and which crypto investors can expect to receive the form.
Other boxes that appear on the draft form provide hints about how the final regulations will be applied.
“The inclusion of the ‘wash sale loss not allowed’ clause in Box 1i does not mean that virtual currencies are subject to the wash sale rules,” said the virtual currency tax and accounting software company. Jessalyn Dean, vice president of tax information reporting at Red Bull, said in an article.
Wash sale rules may be a concern for crypto investors. If an investor buys back a crypto asset soon after selling it, that could mean wash sale rules apply, which are meant to prevent investors from claiming tax losses on assets they continue to hold.
The checkbox on the draft form in box 11d says, “Check if the sale is recorded on a distributed ledger.”
“This is necessary because very often the digital asset address or transaction ID cannot be provided because the transaction occurred within an internal record-keeping system,” Dean explained.
Another checkbox on the form can confuse some brokers as to what to do. “Box 5 indicates that brokers are not deductible for losses due to ‘reportable changes in control or capital structure,’ and references instructions on Form 8949 and Schedule D,” Dean wrote. Ta. “However, neither of these instructions gives any guidance as to what types of events in virtual currencies or digital assets may apply in these situations. , simply leaves you in the dark to figure it out, and even comes with the statement that “your broker should advise you about losses in a separate report.” ”
This may be an area where the Treasury Department and IRS will need to provide further guidance in final regulations or FAQ pages.
