IRS Releases Early Draft of Form 1099-DA for Reporting Digital Asset Transactions

The IRS recently unveiled a preliminary draft of the information return for reporting digital asset transactions, aligning with proposed regulations issued last year. Here’s what you need to know about the upcoming Form 1099-DA: 

Overview: 

• The 2025 Form 1099-DA will likely be included on federal income tax returns for taxpayers who engaged in digital asset transactions during the tax year. 
• Digital assets to be reported include cryptocurrencies, stablecoins, and non-fungible tokens. 

Key Points from the Draft Instructions: 

• Taxpayers may need to recognize gains from digital asset dispositions. 
• Reporting is required when a broker knows or has reason to know about reportable changes in control or capital structure for a corporation holding digital assets. 

Information Required on Form 1099-DA: 

• Details of digital asset transactions, including type and amounts. 
• Addresses and Taxpayer Identification Numbers of involved parties. 
• Dates of acquisition, sale, or disposal, along with cost basis. 
• Question on nondeductible loss in wash sale transactions involving digital assets that are also stock or securities. 

Notable Observations: 

• The “wash sale rule” under Code Sec. 1091 does not currently apply to digital assets. 
• Box 11d is included for cases where the sale is not recorded on the distributed ledger. 
• Proposed regulations aim to clarify issues surrounding digital assets, including the definition of a “broker” under the Infrastructure Investment and Jobs Act. 

Challenges and Concerns: 

• Commenters have cautioned about potential issues with incomplete or inaccurate information on Forms 1099-DA. 
• Some suggest the IRS should differentiate between centralized and decentralized exchanges to determine who qualifies as a broker. 
• Brokers may face challenges with Box 5, indicating nondeductible losses due to changes in control or capital structure, as guidance on applicable events is lacking. 

In conclusion, while the release of Form 1099-DA represents progress in addressing digital asset reporting, there are still uncertainties and challenges to navigate. Learn more at Thomson Reuters and view the format on the IRS site.