The IRS on April 19 made available an early release draft of the information return for reporting digital asset transactions that will be furnished by brokers, reflecting proposed regs issued last year.
The new 2025 Form 1099-DA is generally expected to be included on federal income tax returns by taxpayers who answer “yes” to the digital asset question that asks if they, at any time during the relevant tax year, received, sold, exchanged, or disposed of a digital asset or financial interest in a digital asset. Common examples of digital assets to be reported include cryptocurrencies, stablecoins, and non-fungible tokens.
“You may be required to recognize gain from these dispositions of digital assets,” read the draft instructions. “Reporting is also required when your broker knows or has reason to know that a corporation in which you own a digital asset that is also stock has had a reportable change in control or capital structure.”
Form 1099-DA asks for various information about the type and amounts of digital assets transacted, as well as the addresses and Taxpayer Identification Number of parties involved. Taxpayers are expected to report when they acquired the asset, when it was sold or disposed, and cost basis. The form also includes a question on the “amount of nondeductible loss in a wash sale transaction involving digital assets that are also stock or securities for tax purposes.”
Generally, the Code Sec. 1091 “wash sale rule” disallows taxpayers from purchasing a “substantially identical” security within 30 days of selling and claiming a loss. The rule under current law does not apply to digital assets.
Jessalyn Dean, vice president of tax information reporting at Ledgible, commented that the question “is included for purposes of digital assets that are also stock or securities already subject to wash sale rules (e.g. certain tokenized equities).”
Box 11d, which should be checked if the sale is not recorded on the distributed ledger, “is necessary because very often digital asset addresses or transaction IDs cannot be provided because transactions occurred within internal record keeping systems,” Dean added.
Late August 2023, the IRS came out with long-awaited proposed regs that sought to clear up confusion around various digital asset issues like how the definition of a “broker” under the Infrastructure Investment and Jobs Act (IIJA; PL 117-58) applies to centralized exchanges, payment processors, and decentralized finance, or “DeFi.”
At a reg hearing last November, commenters cautioned the IRS that it will be inundated with incomplete, inaccurate, or redundant information from an influx of Forms 1099-DA if the regs as currently proposed are finalized. Some suggested the IRS make more distinctions between centralized and decentralized exchanges for the sake of determining who is a broker.
Dean observed that brokers supplying Forms 1099-DA may have trouble with Box 5, used for indicating losses that are nondeductible because of a “reportable change in control or capital structure.” While the form cites Form 8949, Sales and Other Dispositions of Capital Assets, and instructions for Schedule D (attached to income tax returns), neither “give any guidance on what kind of events in crypto and digital assets could apply in these circumstances.”
“They defer to the broker to simply figure it out in the dark” by telling Form 1099-DA recipients that the broker “should advise you of any losses on a separate statement,” Dean said.
For more information regarding Form 1099-DA, see Checkpoint’s Client Letter on cryptocurrency reporting.
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