Background
Starting Jan. 1, 2026, custodial brokers of digital assets will be required to file new IRS Form 1099-DA, Digital Asset Proceeds From Broker Transactions, to report certain transactions occurring on or after Jan. 1, 2025 involving digital assets such as cryptocurrency and non-fungible tokens (NFTs). A draft of the form was initially published after proposed regulations were introduced last year. Refer to our prior alert for details. Then, draft Form 1099-DA was updated on Aug. 9, 2024 to align with final regulations set forth under I.R.C. section 6045 as well as transitional relief described in Notice 2024-56, Notice 2024-57 and Revenue Procedure 2024-28. According to the IRS, the form is intended to provide more clarity for taxpayers and to help them accurately report their digital asset transactions.
What’s new? Key changes to updated Form 1099-DA
The IRS released the initial draft of Form 1099-DA on April 19, 2024 and the updated version on Aug. 9, 2024 with draft form instructions published in September 2024. Below we outline key changes from the initial draft in April to the updated draft released in August, and other important updates regarding form 1099-DA:
Elimination of certain fields - The initial draft 1099-DA required brokers to report digital asset wallet addresses and transaction IDs for each transaction, as well as the date, time and number of units for transfers into a hosted wallet. This data is no longer reportable on the updated draft 1099-DA. New Boxes 12a and 12b only require reporting of the date and number of these transferred digital assets, but brokers still have an obligation to collect transaction ID’s and wallet addresses for each transaction and maintain these records for at least 7 years, as the IRS may request this information for taxpayer examinations.
Additionally, the prior draft of Form 1099-DA included a field with checkboxes for brokers to indicate their digital asset broker type which has now been removed. These changes should significantly reduce the burden for brokers as it relates to complexity, cost, and accuracy. However, it is recommended that brokers review their current systems and processes and adjust to accommodate for these changes and to ensure that they continue to collect transaction IDs and wallet addresses even though they are no longer reportable.
New boxes for optional reporting methods for Stablecoins and NFTs - New Boxes 11a through 11c were added to the revised form to align with optional reporting methods set forth in the final regulations for aggregating basis for qualifying stablecoins and specified non-fungible tokens (NFTs).[1] Box 11a allows brokers to specify the reason a digital asset is eligible for aggregate reporting and gives you options to select either stablecoin or NFT sales while box 11b further allows the broker to identify the number of such aggregated transactions and box 11c identifies the amount of the aggregated gross proceeds allocable to the first sale of any specified NFT minted or created by the taxpayer.
These features of the 1099-DA aim to simplify reporting and reduce administrative burdens by exempting transactions below certain thresholds and allow for aggregate reporting when thresholds are reached. However, many entities and individuals that are now treated as brokers under the final regulations will face challenges when implementing system updates to calculate applicable de minimis amounts per customer, and to aggregate applicable transactions.
Explanation of missing tax identification numbers (TIN) removed - The updated draft 1099-DA removed the “Explanation of no recipient TIN” box that appeared on the prior version. Brokers no longer need to provide an explanation every time a TIN is missing, which reduces the risk of potential errors and manual intervention in some cases. This change also streamlines the process making it quicker and less cumbersome to complete the form, thus allowing brokers to focus more on accurate reporting of transactions rather than administrative details.
Simplified reporting of the form of gross proceeds - The updated draft simplifies reporting of the form of proceeds, requiring the broker to check if the proceeds were only in the form of cash. The prior draft required detailed reporting of non-cash proceeds received in the transaction, with separate boxes to identify when the proceeds were in the form of cash or non-cash, as well as the type of non-cash proceeds received. The proposed regulations defined gross proceeds from the sale of digital assets to encompass more than just cash received by the customer. The final regulations adopt the proposed regulations definition, which specifically includes the below under the definition of gross proceeds reportable on Form 1099-DA:
- Cash received: The actual amount of cash paid or credited to the customer;
- Fair market value of property: This refers to the value of any non-cash property received in exchange for the digital asset. For Debt instruments, this typically corresponds to the issue price of the debt; and
- FMV of services: the value of any services received along with the transaction.
The above items are summed together to determine gross proceeds, which are then adjusted for the transaction costs and ultimately reported on updated form 1099-DA.
Digital asset code required - The updated 1099-DA and instructions require brokers that have registered with the Digital Token Identification Foundation (DTIF) to report the nine-digit code issued by the DTIF and the name of the asset. If the digital asset is not registered with the DTIF, the updated draft 1099-DA and instructions requite brokers to enter “999999999”. The digital token identification code (DTI code) is expected to enhance standardization efforts within the industry and further streamline reporting.
Notably, this requirement is a departure from guidance issued before the regulations were finalized which only required that the name of the digital asset be provided when the digital asset code was not registered with the DTIF. Now, if there is a valid DTI code provided on the form, the broker is required to include the name of the digital asset on form 1099-DA as it appears in the DTIF registry. If the digital asset is not reflected on the DTIF registry, the name is still required to be provided on form 1099-DA as it is commonly known. Brokers should therefore be prepared to invest in new technology and train staff as needed on the new requirements. Additionally, there may be a need for brokers to inform their customers about the DTI code and how it impacts their transactions. Clear communication will help clients understand the changes to ensure they provide necessary information when filing their taxes.
Tracking cash only proceeds - Box 7 (check if only cash proceeds were paid in the transaction) on the updated form 1099-DA introduces a novel feature to the information reporting space by requiring brokers to check box 1f (which reports proceeds from a digital asset transaction) if the transaction contains only cash. This level of detail is generally not required on other forms 1099, so brokers will need to adapt their reporting systems to include this additional checkbox which will require tracking to ensure that the cash only status is accurately reported.
Flagging customer provided info – New Box 8 (check if broker relied on customer-provided acquisition information) on the updated form 1099-DA requires brokers to identify whether they relied on customer-provided acquisition information to identify which digital asset was disposed. The prior draft did not have this option. This is significant because traditional information reporting forms like 1099-B do not require brokers to explicitly state this information. The added layer will provide regulators with better insight into the reliability of the reported information, but the operational impact on brokers continues the narrative that enhanced systems and processes will need to be implemented in order to adhere to and comply with the newly introduced requirements.
Cost basis reporting timing – The draft instructions for form 1099-DA are consistent with the final regulations and provide that for calendar year 2025, there will be no requirement to report a customer’s cost basis in digital assets on form 1099-DA. This reporting obligation will commence for certain sales occurring on or after Jan. 1, 2026, specifically for digital assets acquired on or after that date. The Final Regulations also set forth ordering rules for digital assets that are treated as covered securities for brokers to determine which units of the same digital asset should be treated as sold, disposed of, or transferred when reporting on form 1099-DA (and by default the basis of that digital asset) for customers that own multiple units of the same digital asset and acquired them on different dates or at different prices.
Conclusion
The Form 1099-DA aims to simplify reporting (compared to the original draft released in April of 2024) while still accomplishing the goal of transparency and reporting on digital asset income. However, there are still challenges facing brokers implementing new processes and procedures to collect necessary information from customers and to track and maintain other required data points for compliance with the rules. RSM US can assist clients with evaluating their readiness for complying with complex digital asset reporting regulations and with taking steps to begin collecting the required data for reporting on Form 1099-DA. For more information, please refer to RSM Digital Asset Services.
