On August 9, 2024, the Internal Revenue Service (IRS) released an early draft of the much-anticipated Form 1099-DA, a new tool designed to streamline and enhance the reporting of digital asset transactions. This form will become mandatory for brokers beginning in 2025, marking a significant advancement in the agency’s efforts to ensure that digital assets are accurately reported and taxed in accordance with federal laws.
Form 1099-DA, officially titled “Digital Asset Proceeds From Broker Transactions,” represents the IRS’s response to the growing complexity of digital asset transactions and the need for clearer reporting mechanisms. Brokers will be required to use this form to report sales and exchanges of digital assets, starting with transactions that occur in calendar year 2025. The finalized versions of these forms will be distributed to both taxpayers and the IRS in early 2026.
However, it is important to note that Form 1099-DA is still a work in progress and should not be used for reporting purposes at this time. The draft is currently open for public review and comment, and revisions may be made based on the feedback received before the form is finalized. As such, taxpayers and brokers are advised to wait for the final version of the form before using it for any official reporting.
IRS Commissioner Danny Werfel emphasized the importance of this development, stating, “This new form will provide more clarity for taxpayers and give them another tool to help them accurately report their digital assets transactions. We know third-party reporting greatly improves compliance with the nation’s tax law. This step will also help us make sure digital assets are not used to hide taxable income, including in high-income categories, while providing taxpayers who play by the rules more information to accurately report their income.”
The draft form is now available for public review on IRS.gov, and the agency is inviting comments from interested parties to ensure the form meets the needs of both taxpayers and the IRS. Alongside the draft form, the IRS has also posted recipient instructions, with filer instructions expected to be released soon. Once the draft filer instructions are published, a 30-day public comment period will begin, allowing stakeholders to provide feedback before the form is finalized.
This initiative is part of the broader IRS effort to address the complexities introduced by the rise of digital assets. Digital currencies, tokens, and other blockchain-based assets have significantly complicated tax reporting, leading to increased scrutiny by the IRS. Commissioner Werfel noted, “Digital assets greatly increase the complexity of our tax system, and the IRS continues to work to make improvements in this area as part of our larger efforts to transform the agency.”
The release of Form 1099-DA follows the finalization of regulations announced in late June, which set the groundwork for this new reporting requirement. The regulations, detailed in Treasury Decision 10000, along with related notices such as Notice 2024-56 and Notice 2024-57, provide transitional relief and specific guidance for brokers as they prepare to comply with the new requirements. These measures include penalty relief for brokers who make good faith efforts to meet the reporting standards during the initial years of implementation.
In particular, Notice 2024-56 offers transitional relief from penalties for brokers who fail to file accurate information returns or payee statements for digital asset sales made in 2025, as long as they demonstrate good faith efforts. Similarly, Notice 2024-57 exempts certain digital asset transactions, such as staking and wrapping, from reporting requirements under the new rules, acknowledging the need for further study to determine appropriate reporting standards for these complex transactions.
The introduction of Form 1099-DA is a crucial step in the IRS’s ongoing mission to modernize and enforce tax compliance in the digital age. As the agency continues to adapt to the challenges posed by digital assets, it remains committed to reducing taxpayer burden wherever possible while ensuring that all taxable income is properly reported and taxed.
(Source: https://www.irs.gov/newsroom/irs-updates-draft-version-of-form-1099-da-digital-asset-proceeds-from-broker-transactions-requests-comments-on-form-planned-for-2025, https://www.irs.gov/irb/2024-29_IRB#NOT-2024-56, https://www.irs.gov/pub/irs-dft/f1099da–dft.pdf)
