The IRS just released a proposed regulations draft containing long-awaited details about the information reporting requirements for brokers. Although the new IRS Form 1099-DA for cryptocurrency, NFTs, and other digital assets was first announced back in 2021, very few details had previously been published.
Now, the IRS has released details of who should be considered a digital asset broker (and therefore required to submit Form 1099-DA), what should be reported on this form, and when regulations should kick in. The IRS is accepting public feedback on these proposed regulations through October 30, 2023.
Our experienced crypto tax attorneys have read this 282-page document so you don’t have to! Read on for the most important things to know about Form 1099-DA.
What Is Form 1099-DA?
Form 1099-DA is a new tax form dedicated to digital assets. It will be issued to traders/investors annually by digital asset brokers beginning in January of 2026.
Cryptocurrency is one of the world’s fastest-growing industries, but no tax form is currently dedicated to reporting income or capital gains and losses from crypto.
Most cryptocurrency traders have run into issues using the tax forms provided by crypto exchanges, as they are not suitable for cryptocurrency reporting; the 1099-DA aims to solve that problem. The IRS looks to make crypto tax information more accessible and ensure all cryptocurrency traders are reporting their gains and losses.
Learn more about the tax forms currently issued by crypto exchanges, and the problems with each, in our video below:
Why Is Form 1099-DA Being Created?
The IRS has long targeted cryptocurrency as a top source of unreported income. Surveys indicate that a significant number of crypto investors in the US are not compliant in their tax reporting; the new reporting requirements will greatly increase the IRS’s ability to catch crypto tax evaders.
In 2021, President Biden signed the Infrastructure Act into law. The law categorizes crypto exchanges and trading platforms as “brokers,” meaning they are now required to report customer gains and losses to the IRS annually.
Who Needs to Submit Form 1099-DA?
Anyone who is considered a digital asset broker will need to submit Form 1099-DA to both customers and the IRS.
The IRS’s proposed regulations go into extensive detail about who should be considered a broker. They emphasize entities that are “in a position to know” the identities of the parties involved in digital asset transactions. Their proposal would categorize all of the following as brokers:
- Centralized exchanges (such as Coinbase)
- Decentralized exchanges (such as Uniswap)
- Wallets that allow users to buy, sell, and trade digital assets (such as Metamask)
- Bitcoin ATMs and other physical kiosks
Although the crypto community is likely to push back against decentralized exchanges (DEXes) having to report to the IRS, we anticipate that the IRS will not be flexible on this requirement. DEXes do not currently collect tax information about their customers, but the IRS is likely to argue that they are, in fact, “in a position to know” users’ identities and will enforce Know Your Customer (KYC) requirements.
Notably, the IRS’s proposed regulations do not consider any of the following to be brokers:
- Miners, node operators, or others who are simply maintaining the blockchain
- Hardware wallets that do not directly allow users to buy, sell, and trade digital assets (for example, a wallet that must be connected to an exchange in order to complete any of these transactions)
- Software developers who indirectly facilitate digital asset transactions (for example, by developing code for a company like Coinbase)
- Smart contract developers who receive income from a smart contract they created, but do nothing to maintain or update it
Previously, due to the broad language of the Infrastructure Act, there was a great deal of concern that these parties would be considered brokers and would face reporting requirements that they couldn’t possibly fulfill.
What Will Be Reported on Form 1099-DA?
Form 1099-DA will report information about the sale or disposition of digital assets. The IRS specifies that this includes cryptocurrencies, NFTs, and stablecoins.
Form 1099-DA will report the same information that’s currently reported on Form 1099-B for stocks:
- When you got the digital asset (Acquisition date)
- How much you paid for it (Cost basis)
- When you sold or swapped it (Sale or disposition date)
- How much money you got from selling or swapping it (Sales proceeds)
- Gross proceeds (Total proceeds from that exchange or broker, not taking cost basis into account)
This will apply to sales made after January 1, 2025, so you can expect your first 1099-DA form in January of 2026.
Potential Issues with Form 1099-DA
The proposed regulations regarding Form 1099-DA present several potential issues for both taxpayers and brokers. The new form is unlikely to solve all your crypto tax reporting headaches.
Previously Unreported Crypto
First things first: Anyone who’s been omitting crypto income from their tax returns should be aware that the IRS is likely to discover their activity once the new reporting requirements kick in. We recommend speaking to a tax attorney ASAP, as these taxpayers are at high risk of a cryptocurrency tax audit or even a criminal tax investigation.
The Voluntary Disclosure Program is one potential path for avoiding prison; crypto was added to the VDP in 2022.
However, even taxpayers with the best intentions may run into problems.
Information Sharing Between Digital Asset Brokers
In order to report accurate cost basis information on IRS Form 1099-DA, digital asset brokers (exchanges, wallets, etc.) will have to share this data with each other whenever digital assets are transferred.
This type of information sharing already occurs between stock brokers—for example, if you move stocks from Robinhood to eTrade. However, cryptocurrency transfers occur much more frequently (often several times within a single transaction), and digital asset brokers are not currently set up to share cost basis information.
For example, let’s say you buy crypto on XYZ Wallet. Later, you move it over to Kraken and sell it. Kraken will need to report both the cost basis and the sales proceeds on Form 1099-DA, but what if XYZ Wallet never shared the cost basis?
Kraken will either have to list a cost basis of $0 or simply state that the information is missing.
We don’t anticipate that newly defined brokers will bend over backwards to dig up missing cost basis information from other brokers. Therefore, to get accurate calculations, you’ll have to use crypto tax software or a professional service to fix missing cost basis.
Most of our crypto tax clients use several cryptocurrency exchanges and wallets. Transferring your crypto between these accounts isn’t taxable, but digital asset brokers often have no way to differentiate between self-transfers and taxable sales.
Therefore, it’s likely that Form 1099-DA will incorrectly classify self-transfers and show inflated proceeds. A mismatch between your actual proceeds and the amount reported on 1099-DA could be a potential audit trigger.
Accurately reporting all transactions on Form 8949 can help prevent problems.
Offshore exchanges that don’t serve US customers will not be required to issue Form 1099-DA.
If you use these exchanges, you won’t get all the information you need to report crypto on your taxes. And if you move crypto around between foreign exchanges and US brokers, it’s fairly simple for the IRS to discover those foreign accounts.
Gross Proceeds on IRS Form 1099-DA
Gross proceeds means the total sales volume on any particular exchange, wallet, or other broker—not capital gains (profits).
For example, you could sell $100,000 worth of crypto on Coinbase in the course of a year, but if you initially spent $200,000 on it, then you actually lost money. However, Form 1099-DA would simply show that you sold $100,000 worth of crypto, making it appear as if you have taxable income.
This isn’t a new problem for the crypto community. Several exchanges used to report similar information using Form 1099-K, resulting in extremely high and completely inaccurate tax bills for crypto traders.
Even though the IRS wants brokers to report the cost basis for each transaction, we expect that, due to the issues outlined above, they’ll still be looking closely at the gross proceeds reported on 1099-DA.
To avoid issues, make sure you accurately report capital gains and losses on Form 8949.
When Will Form 1099-DA Be Released?
Taxpayers are expected to receive Form 1099-DA beginning in January 2026.
Originally, this reporting was supposed to begin in 2023, but the deadline has been extended due to logistical hurdles.
Wondering why it’s taking so long? In order to follow the new broker requirements, cryptocurrency exchanges must make many important changes to the way they operate. This includes following Know Your Customer (KYC) protocols, changing the way they handle their assets, enabling the transfer of cost basis between different exchanges, and more.
How To Prepare for IRS Form 1099-DA
Exchanges, Wallets, and Other Potential Brokers
Anyone who could be considered a digital asset broker should speak to an experienced crypto tax attorney right away. We can help you determine whether you need to issue Form 1099-DA and create a plan for how to comply.
Brokers that do not file the required 1099-DA forms can face penalties of up to $3,532,500 per year, so don’t risk noncompliance!
If you haven’t reported your crypto correctly in the past (either intentionally or by mistake), now’s the time to create an action plan. Intentionally omitting income sources on your tax return could lead to criminal charges, severe financial penalties, and even prison.
The IRS is typically much more lenient with taxpayers who are proactive with fixing mistakes. Call our experienced crypto tax attorneys today to discuss possible solutions, including amended tax returns and the Voluntary Disclosure Program.
Additionally, make sure you report correctly moving forward. You can use crypto tax software to calculate your capital gains, or Gordon Law Group can do all your reporting for you! We also offer Crypto Audit Defense plans for those who are concerned about their audit risk.
We’ve helped thousands of clients avoid trouble with the IRS. Don’t wait until the new form is released; schedule a confidential consultation with one of our attorneys today and find out how to prepare!