IRS Rolls Out New 1099-DA Form for Crypto Tax Reporting by 2026
The IRS has unveiled a new tax form, the 1099-DA, designed to bring greater transparency to cryptocurrency transactions. This initiative represents a pivotal step toward standardizing crypto tax reporting, but it also introduces new challenges for accountants and platforms as they prepare for its phased implementation in the coming years.
What is the 1099-DA and Who Does It Affect?
The 1099-DA tax form introduces new reporting requirements for brokers, starting with gross proceeds in 2025 and expanding to include cost basis data by 2026. Targeting custodial brokers like centralized cryptocurrency exchanges that manage client assets and facilitate trading, the rules also extend to decentralized exchanges (DEXs) and NFT marketplaces. However, the decentralized structure and limited data collection practices of these platforms pose significant challenges to meeting the compliance standards.
The Journey to the 1099-DA
The IRS’s approach to defining “brokers” has been a contentious issue since 2023 when the term sparked debates across the crypto industry. Earlier drafts of the 1099-DA form included a section requiring brokers to specify their type, but this provision has since been removed. By sidestepping this issue for now, the IRS acknowledges the need for further clarification regarding the roles of DeFi participants but has deferred issuing comprehensive guidance.
Implications for Taxpayers and Accountants
The introduction of the 1099-DA form presents both opportunities and challenges for cryptocurrency taxpayers and their accountants. While the form simplifies compliance by providing taxpayers with transaction summaries from brokers, it often lacks crucial cost basis information, leaving accountants responsible for filling in these gaps. This added complexity requires tax professionals to ask detailed questions and collaborate closely with clients to ensure accurate filings. As Seth Wilks, the IRS’s executive director of digital asset strategy, noted, understanding how to address missing data will be key to navigating the new reporting requirements effectively.
The Impact on Decentralized Platforms
Decentralized exchanges and NFT marketplaces, known for prioritizing user privacy and autonomy, face a major shift under the 1099-DA reporting requirements. Compliance will likely necessitate significant changes to their data collection and reporting practices, potentially reshaping their operations. For smaller platforms, the financial and logistical hurdles of implementing these measures pose additional challenges, sparking concerns about how they can adapt without compromising their decentralized principles.
Looking Ahead: Opportunities and Challenges
The IRS's introduction of the 1099-DA aims to clarify taxable cryptocurrency transactions and enhance compliance, but its rollout presents challenges for stakeholders. Tax professionals must navigate new workflows and educate clients on taxable events, while exchanges and marketplaces face significant infrastructure upgrades to meet reporting requirements, a process likely to take years. Despite these growing pains, the form represents a critical step toward integrating cryptocurrencies into traditional financial systems, offering standardized reporting practices that could demystify crypto taxation for users and regulators alike.