Welcome to the ultimate resource on Form 1099-DA (“Digital Asset Proceeds From Broker Transactions”), your go-to page for all the latest information on this critical IRS form.
The first-ever tax form created specifically for digital assets will dramatically change the legal landscape for crypto tax reporting. However, the IRS is still developing this form and its instructions. With the planned effective date of January 1, 2025 fast approaching, many things remain unclear—particularly for digital asset brokers.
At Gordon Law, we’ve helped cryptocurrency investors and entrepreneurs navigate confusing regulations since 2014, and we’re here to help you avoid IRS problems in the midst of these dramatic changes.
Whether you’re a digital asset broker, an investor, or simply interested in the evolving tax landscape, this page will provide you with everything you need to know about IRS Form 1099-DA.
What is Form 1099-DA?
Form 1099-DA, officially titled “Digital Asset Proceeds From Broker Transactions,” is the first tax form created by the IRS specifically for reporting digital asset transactions. This form is part of the broader regulatory effort to enhance tax compliance in the rapidly growing digital asset market, including cryptocurrencies, NFTs, and stablecoins.
What’s the latest news on digital asset reporting requirements?
The IRS is still developing Form 1099-DA for digital assets. Here’s a brief timeline of developments, starting with the most recent:
- August 2024: Revised draft of Form 1099-DA
- July 2024: Final requirements for custodial brokers
- April 2024: First draft of Form 1099-DA
- August 2023: Proposed regulations for digital asset brokers
- November 2021: Infrastructure Investment and Jobs Act (IIJA) signed into law
This comprehensive guide, prepared by the crypto tax attorneys and blockchain accountants at Gordon Law, reflects the most recent changes as of August 16, 2024.
What’s next?
- 1099-DA reporting is expected to begin on January 1, 2025. This means all your 2025 trades performed through digital asset brokers will be reported to the IRS in 2026.
- Taxpayers should prepare for an unprecedented wave of crypto tax audits and criminal tax investigations.
- The IRS has yet to release the final version of Form 1099-DA or detailed instructions for the form. The latest draft, published on August 9, 2024, still leaves a great deal of uncertainty for both brokers and taxpayers.
- The IRS will release final regulations for non-custodial digital asset brokers at an unspecified future date.
Why was Form 1099-DA created?
The rise of digital assets has prompted the U.S. government to introduce more stringent cryptocurrency reporting requirements. The Infrastructure Investment and Jobs Act (IIJA), signed into law in 2021, categorizes crypto exchanges and trading platforms as “brokers,” meaning they are now required to report customer gains and losses to the IRS annually.
Form 1099-DA is designed to standardize this reporting process, ensuring that all digital asset transactions are accurately reported and taxed.
Who needs to submit Form 1099-DA?
Anyone who is considered a digital asset broker is required to submit Form 1099-DA to the IRS.
The definition of a cryptocurrency “broker” has stirred up controversy since the earliest discussions around Form 1099-DA. The IRS has not released a final definition yet, but the draft form and the proposed regulations provide some guidance around who must submit Form 1099-DA.
Who is considered a cryptocurrency broker?
The IRS 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.
The initial Draft Form 1099-DA would have required brokers to check a box indicating which “broker type” they fall into:
- Kiosk operator (Bitcoin ATM)
- Digital asset payment processor (including both centralized and decentralized exchanges)
- Hosted wallet provider
- Unhosted wallet provider
- Other
However, this box has been removed from the updated 1099-DA draft, signaling possible changes in the definition of a broker.
Controversy over “broker” definition
The definition of a digital asset broker has been a point of contention in these new reporting regulations ever since the Infrastructure Investment and Jobs Act (passed in November 2021) was proposed.
The inclusion of unhosted wallets has been an ongoing concern, since many believe this casts too wide a net in the definition of a broker. Some wallets operate like an exchange, while others simply provide a user interface with no direct control over the users’ transactions.
The IRS still has not released the final definition of a digital asset broker. Many professionals now believe that wallets will not be considered brokers unless they operate more like an exchange.
Who is exempt from Form 1099-DA reporting?
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
- 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 information is reported on Form 1099-DA?
Form 1099-DA will primarily report information that helps taxpayers calculate capital gains from digital assets, as well as ordinary income. This includes:
- 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)
What’s not reported?
According to Notice 2024-57, brokers will not have to report the following types of transactions on Form 1099-DA until the IRS issues further guidance:
- Wrapping and unwrapping transactions
- Liquidity provider transactions
- Staking transactions
- Transactions described by digital asset market participants as lending of digital assets
- Transactions described by digital asset market participants as short sales of digital assets
- Notional principal contract transactions
All of these excluded transactions are part of decentralized finance, or DeFi, and they present unique challenges when it comes to tax reporting. Learn more about DeFi taxes here.
Cost basis reporting: Transitional and ongoing challenges
The cost basis of a digital asset is an essential piece of your tax calculations; it’s impossible to calculate capital gains without it. Cost basis will continue to present a reporting challenge as we transition to the Form 1099-DA era.
Brokers may leave cost basis blank if any of the following are true:
- The broker did not provide custodial services for the asset
- The asset was transferred from another broker or account (an extremely common occurrence in digital asset trading)
- The asset was acquired before January 1, 2026
What taxpayers need to know:
- Taxpayers are responsible for determining and reporting their own cost basis if they find the box blank on a form they receive.
- Digital asset brokers will not be required to share cost basis information with each other. If you move digital assets between accounts often, you’ll still need to dig up a lot of your own cost basis information.
- The rules for determining cost basis have changed. For digital assets acquired before January 1, 2025, taxpayers must use their previous tax reports and the guidance provided in Revenue Procedure 2024-28 to transition to the new requirements.
Universal vs wallet-by-wallet cost basis
The new reporting regulations have introduced a very important change to cost basis methods. Going forward, taxpayers must separate each wallet or account when calculating cost basis.
- Universal cost basis: Previously, it was unclear whether taxpayers could account for their crypto on a universal basis, yet this is what most digital asset investors did. Using a universal approach, taxpayers were able to simply account for their assets on a first-in-first-out (FIFO) basis across all of their wallets and accounts. They didn’t have to factor in the location of the assets being sold.
- Wallet-by-wallet cost basis: Beginning in 2025, taxpayers are required to track the cost basis of their crypto on a wallet-by-wallet Moving forward, taxpayers will be responsible for determining the cost basis across each wallet or account.
Transitional guidance in Revenue Procedure 2024-28
Form 1099-DA will report the cost basis for digital assets acquired on or after January 1, 2025. Revenue Procedure 2024-28 is designed to bridge the gap and help taxpayers transition to the new reporting requirements.
For taxpayers who have been taking a universal approach to assigning cost basis, Revenue Procedure 2024-28 allows them to make a “reasonable allocation” of cost basis into their existing wallets or accounts. Taxpayers can accomplish a reasonable allocation using one of these methods:
- Specific Unit Allocation: This is an option if you’ve already used the Specific ID method for prior years. With Specific Unit Allocation, the assets that were previously specifically identified can stay the same. For any remaining, unspecified assets, the remaining cost basis can be assigned to each asset type within each wallet or account.
- The deadline for making this type of allocation is the earlier of (1) the date and time of the first sale of the asset the taxpayer wishes to specifically allocate cost basis, or (2) the due date of the taxpayer’s federal income tax return.
- Global Unit Allocation: Alternatively, taxpayers can make a Global Unit Allocation. With this method, you prescribe an ordering rule describing the manner in which the cost basis will be ordered and then allocated to each account.
- For example, a global allocation might identify those units of cryptocurrency that have the earliest or latest acquisition dates and, for each of those dates, the highest or lowest amounts of unused cost basis, and allocate such units successively to wallet A, wallet B, and wallet C.
- The deadline for making this type of allocation is the later of (1) the date and time of the first sale of the asset the taxpayer wishes to specifically allocate cost basis, or (2) the due date of the taxpayers Federal income tax return.
Missing cost basis when transferring between brokers
With stocks, when you move assets from one broker to another, the original broker must provide a statement to share the asset’s cost basis and acquisition date with the new broker. Digital asset brokers are not currently set up to do the same.
Most crypto traders move digital assets between different accounts very frequently, perhaps even several times within a single transaction.
Since IRS regulations allow brokers to leave cost basis blank if the asset was transferred from another broker, most will probably take the path of least resistance. This means that taxpayers will find a missing cost basis for any digital asset that was moved to a different wallet or account.
Other potential problems with Form 1099-DA
Although Form 1099-DA is intended to make crypto tax reporting easier, there are several potential issues for both taxpayers and brokers. The new form is unlikely to solve all your crypto tax reporting headaches, and may create serious problems.
The solution? Continue to create your own crypto tax report using software or an experienced digital asset accountant.
1. Previously unreported crypto
Once brokers start sending Form 1099-DA, the IRS will likely uncover anyone who has not historically reported their digital asset activity properly on their tax returns.
If you believe you fall into this category, contact one of our tax attorneys as soon as possible to address this problem. You may be at risk of a cryptocurrency tax audit or criminal tax investigation.
2. Transferring crypto between wallets and exchanges
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 crypto transactions on Form 8949 can help prevent problems.
3. Foreign exchanges
Offshore exchanges that don’t serve US customers will not be required to issue Form 1099-DA.
If you use these exchanges (perhaps by using a VPN service), 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.
How to prepare for Form 1099-DA
Digital asset brokers
Anyone who may be considered a digital asset broker should seek advice from an experienced crypto tax lawyer as soon as possible. We’ll help you determine whether you’re required to file Form 1099-DA and plan for how to comply. Potential brokers include:
- Custodial and non-custodial cryptocurrency exchanges
- Hosted and unhosted wallet providers
- Bitcoin ATMs
Taxpayers
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 can do all your reporting for you! We also offer Crypto Audit Defense plans for those who are concerned about their audit risk.
At Gordon Law, we’ve helped thousands of cryptocurrency investors and entrepreneurs avoid trouble with the IRS. Don’t wait until you receive Form 1099-DA! Whether you’re a broker or simply a taxpayer, schedule a confidential consultation with one of our attorneys today. Let’s help you prepare for this new era of IRS crypto reporting.
