Unveiled today is the preliminary version of a tax form that the US Internal Revenue Service (IRS) plans to use to collect payments made in cryptocurrencies.
In the meantime, interested parties may provide feedback on the recently published Form 1099-DA, which stands for “Digital Asset Proceeds from Broker Transactions,” in preparation for the IRS to issue the final form.
The US Treasury and the IRS put out a set of regulations in August 2023 to make sure everyone in the financial industry is playing by the rules. The regulations would require crypto exchanges and brokers to record certain digital asset transactions.
Brokers’ openness about their clients’ cryptocurrency transactions was the overarching goal of these proposed regulations, which were a component of the Infrastructure Investment and Jobs Act of 2021. After eight months, the Internal Revenue Service has finally released a tax form preview for this very reason.
The 1099-DA form specifically acknowledges brokers in the roles of digital asset payment processors, hosted wallet providers, unhosted wallet providers, and kiosk operators. To put everything in perspective, this includes all Bitcoin ATMs, noncustodial wallets, centralized and decentralized exchanges, and more.
Investors must fill out the form with details about the digital asset, including its location, sale transaction ID, the amount of units traded, and its security status. Though the IRS plans to begin accepting Form 1099-DA in January 2025, digital asset brokers will likely begin delivering the form to traders and investors in January 2026.
Nevertheless, taxpayers may encounter problems with the most recent IRS form, such as the possibility of a criminal tax probe stemming from the disclosure of unreported cryptocurrency transactions. Additional situations where Form 1099-DA might cause problems include self-transfers, the sharing of information among digital asset brokers, and transactions involving overseas exchanges.
It should come as no surprise that the crypto community at large has voiced its disapproval of the IRS Form 1099-DA. The inclusion of “unhosted wallet providers” as brokers has caused Ji Kim, chief legal and policy officer of the Crypto Council for Innovation, to voice his dismay.
Kim said in an X post that the IRS does not understand the restricted access that wallet providers have to user identities and transaction information. At the same time, CoinTracker.com’s Head of Tax Strategy, Shehan Chandrasekera, has voiced his concern that the new tax form would compromise the anonymity and privacy of US cryptocurrency users.
At this time, comments are still welcome on the preliminary version of Form 1099-DA, and the form’s overall structure may alter based on the comments received.
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