IRS Updates Draft Digital Asset Information Return

The IRS updated the early draft version of the information return for digital asset brokers to report certain sale and exchange transactions, reflecting recently finalized digital asset regs and additional transition guidance. (IR 2024-204, 8/9/2024)

New draft Form 1099-DA, Digital Asset Proceeds From Broker Transactions, revised August 9 incorporates final rules long-awaited by the cryptocurrency industry issued June 28. (TD 10000) Among the comprehensive regs are custodial broker reporting requirements statutorily provided in the Infrastructure Investment and Jobs Act (PL 117-58) and definitions for which entities are or are not considered digital asset brokers, from centralized digital asset exchanges to operators of decentralized finance, or DeFi, platforms.

Also considered in the new draft form is transitional relief described in a guidance package supplementing the regs, including Notice 2024-56, Notice 2024-57, and Rev Proc 2024-28.

“This new form will provide more clarity for taxpayers and give them another tool to help them accurately report their digital assets transactions,” said IRS Commissioner Danny Werfel. “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 IRS expects the form to apply to transactions beginning January 1, 2025, meaning in-scope brokers will send Forms 1099-DA to taxpayers and the IRS in early 2026. Draft instructions for filers will be posted “soon,” the IRS said. When they are, a notice will be posted in the Federal Register kicking off a 30-day comment period. Generally, taxpayers can also submit comments on IRS tax forms and publications on its webpage.

“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,” said the commissioner. “We will continue working this area to help ensure the tax laws are met while working to reduce burden wherever possible to help taxpayers in this challenging area.”