Digital asset brokers and taxpayers are expected to face some growing pains with this tax season’s debut of a new crypto-specific information return, but the real test of the new reporting regime will come next year, according to a pair of veteran digital asset experts.
Deloitte Senior Manager Jonathan Cutler and Managing Director Seth Wilks told Checkpoint that while tax year 2025 will be a transitional period for Form 1099-DA, Digital Asset Proceeds From Broker Transactions, brokers and customers alike must stay on top of tracking gross proceeds before mandatory cost basis reporting is phased in for tax year 2026.
Broker Reporting Rules
The final regs under IRC § 6045, released in July 2024, establish the rules for the new reporting regime mandated by the Infrastructure Investment and Jobs Act of 2021. The rules apply to “brokers,” a term broadly defined to include not only custodial digital asset exchanges but also certain digital asset payment processors, wallet providers, and kiosk operators that effect sales for customers. For sales occurring on or after January 1, 2025, these brokers must file Form 1099-DA to report transaction details to the IRS and furnish a copy to the customer.
Recognizing the complexity of the digital asset ecosystem, the IRS issued accompanying guidance to ease the transition. Notice 2024-57 temporarily excludes certain complex transactions, such as those involving decentralized finance (DeFi) protocols like wrapping, staking, and liquidity pool lending, from the reporting requirements pending further study. To address compliance burdens, Notice 2024-56 provides transitional penalty relief for brokers who demonstrate good faith efforts to comply with the 2025 reporting rules. It also delays the implementation of backup withholding requirements.
Further guidance in Rev Proc 2024-28 addresses a fundamental shift in how taxpayers must track their assets. The IRS has officially disallowed the “universal method” of aggregating cost basis across multiple wallets and now mandates an “account-by-account” approach starting January 1, 2025. The revenue procedure provides a safe harbor for taxpayers to allocate their existing basis to assets held in specific wallets as of that date.
Tax Year 2025
For the 2025 tax year, broker reporting on Form 1099-DA is limited to gross proceeds from digital asset sales. Cost basis reporting is not required. This initial phase is designed to get the framework in place while giving brokers and taxpayers time to adapt. For this year, the form is “mainly a flag to the IRS that the taxpayer transacted in crypto,” Cutler. Because of this limited scope, “there should not be any reason why the disposal data is wrong or the gross proceeds is wrong,” Wilks added.
Despite the simplified reporting, the first year is not without its challenges. Cutler highlighted the potential for an immense volume of forms, as every sale transaction technically requires a separate Form 1099-DA. To manage this burden, brokers are expected to provide customers with a single consolidated statement. “We suspect most brokers will use consolidated statements to try to reduce volume,” Cutler said, which would summarize thousands of trades into a single, spreadsheet-like document. This approach avoids sending a customer, and the IRS, potentially thousands of individual PDFs for a year’s worth of trading activity.
The primary responsibility for tax year 2025 falls on taxpayers to maintain their own complete and accurate records. Because the Form 1099-DA will not include basis information, taxpayers “really need their own records to be tight,” Cutler advised. Wilks noted that many taxpayers and their CPAs will be caught by surprise and will need to rely on specialized software to track and calculate gains and losses. This information is critical for correctly completing Form 8949, Sales and Other Dispositions of Capital Assets.
Cutler also warned of potential “foot faults” as some brokers may struggle with timely furnishing of the new forms. Notice 2024-56 provides transitional “good faith” penalty relief for brokers, meaning taxpayers have little formal recourse beyond contacting customer service if forms are delayed. However, both experts stressed that taxpayers should not be stalled by a missing form.
Wilks noted that since third-party tax software often pulls data directly from exchange APIs, a taxpayer’s own records should theoretically match what the broker will eventually report. Taxpayers who have their own transaction statements can confidently file, he advised.
Tax Year 2026 and Beyond
Beginning with the 2026 tax year, the reporting requirements will expand substantially with the introduction of mandatory cost basis reporting. However, this rule is narrowly applied only to “covered securities,” defined as digital assets acquired on or after January 1, 2026, and held continuously in the same broker’s account until sale. Any asset acquired before that date, or any asset transferred from an outside wallet or another broker, is considered a “noncovered security,” for which brokers are not required to report basis.
This narrow definition is expected to cause “a pretty good amount of confusion,” said Wilks, agreeing with Cutler’s estimate that in the first year of basis reporting, perhaps only 5% of a customer’s transactions might qualify as covered. The most difficult structural hurdle is the lack of a mechanism for broker-to-broker cost basis transfer statements, a standard feature in the traditional securities world. When a digital asset is moved between brokers, “that breaks the chain” of basis, Cutler explained.
A nuance in the final rules allows brokers to use customer-provided acquisition information for “lot selection purposes only,” according to Wilks. A taxpayer can instruct their broker to sell specific lots, such as those with the highest cost basis, to manage their tax outcome. However, the broker is not permitted to report that customer-provided basis to the IRS on the form itself.
Wilks drew a parallel to the introduction of cost basis reporting for traditional securities, which began around 2011 and took nearly five years to fully phase in. Unlike with securities, crypto investors “move our assets all the time,” he said, which creates holes in the basis data. With the growth of DeFi, he added, this could become “an ongoing” challenge “where we never have an adequate 1099-DA.”
For more on digital asset broker reporting requirements, see Checkpoint’s Federal Tax Coordinator ¶ S-3703.2.
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