IRS Issues Draft Form for Reporting Digital Asset Proceeds from Broker Transactions

On April 19, 2024, the IRS published draft Form 1099-DA for reporting digital asset proceeds from broker transactions. The draft form is to be furnished by brokers of digital assets beginning in 2025. The instructions for draft Form 1099-DA provide that taxpayers who receive the form have “generally sold, exchanged, or otherwise disposed of a financial interest in a digital asset and should check the ‘Yes’ box next to the question on page 1 of Form 1040.”

By way of background, in 2021, Internal Revenue Code Section 6045 covering “returns of brokers” was amended as part of the Infrastructure Investment and Jobs Act. Section 6045(c)(1)(D) was added, which provides that the definition of broker includes “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” This additional definition is effective for returns required to be filed, and statements required to be furnished, after December 31, 2023.

Last August, the IRS released proposed regulations that sought to clarify the broker definition and provided rules for determining the amount realized and basis in transactions involving digital assets. Final regulations have not yet been released. In the meantime, the draft Form 1099-DA provides insights into the types of digital asset transactions and related information that will need to be reported to the IRS. 

The form provides that the following types of brokers will have a reporting requirement (the appropriate box on the form must be checked): 

• Kiosk Operator;
• Digital Asset Payment Processor;
• Hosted Wallet Provider; and 
• Unhosted Wallet Provider. 

There is also an “Other” broker type option. The form also asks for information about the digital asset’s basis, the proceeds received in the transaction (including whether the proceeds are made up of cash or other property), whether any loss was disallowed under the wash sale rules, and whether the asset is a “noncovered security.”

Concerns have been raised that the reporting requirements may be overly burdensome and that brokers will need time to implement reporting systems. Others have said that the form may give rise to privacy issues because it requires the address of the digital asset to be listed. 

The IRS is accepting comments on the draft Form 1099-DA and its instructions, which may be submitted at IRS.gov/FormsComments with “NTF1099DA” included in the body of the message.