starting in 2026, the IRS, which is responsible for taxation in the United States, has prepared a draft of a new form named Form 1099-DA. This form is intended for reporting income derived from digital asset transactions with brokers and is anticipated to be employed in 2025.
A broker is required to file a Form 1099-DA for each customer who has sold or exchanged digital assets. This applies to various types of brokers such as kiosk operators, digital asset payment processors, providers of hosted and unhosted wallets, among others. The form serves to report these transactions to both the customers and the Internal Revenue Service (IRS). The IRS utilizes the information from these forms for verification purposes.
Starting from August 2023, you will need to provide token codes, digital wallet addresses, and details of the blockchain transactions for reportable cryptocurrencies, non-fungible tokens, and stablecoins.
“With third party information reporting that specifically identifies digital asset transactions, the IRS could more easily identify taxpayers with digital asset transactions that are otherwise difficult to discover.”
Members of the cryptocurrency world expressed their opinions on the suggested reporting regulations following their unveiling. The Blockchain Association voiced concerns, stating that the directive harbors “basic errors regarding the essence of digital assets and distributed technology.”
Paul Grewal, Coinbase’s legal chief, expressed concern that the suggested regulations could establish an unwelcome trend. These rules might demand reporting of almost every digital asset transaction, including simple purchases like a coffee, leading to extensive monitoring of consumers’ financial activities.
Commenters were no happier with the reporting rules for 2024.
Tax specialists have shared their perspectives online as well. Notably, cryptocurrency tax and accounting firm Ledgible points out that reporting decentralized finance, which often lacks a central intermediary to meet reporting obligations, could pose unique challenges under the new regulation. Additionally, this change could impose substantial administrative work on brokers handling vast transaction volumes.
Additionally, brokers will need to exchange details on digital asset transfers to precisely determine cost basis, as suggested by Gordon Law. At present, they lack the necessary infrastructure for data exchange. Moreover, it becomes challenging to distinguish between non-taxable self-transfers and taxable transfers when a crypto user moves assets between exchanges.
Individuals who failed to report their cryptocurrency earnings accurately in past tax years could face detection when filing taxes in 2025. Those using foreign exchanges that do not cater to American clients might neglect submitting the necessary form, but the IRS may uncover offshore activities if the taxpayer transfers assets to a U.S.-based exchange.
The IRS is continuing to accept comments on the draft form.
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2024-04-20 00:14