The IRS released a draft of the 2025 digital asset reporting for American taxpayers

The United States Internal Revenue Service (IRS), the nation's tax service, has issued a draft of the new Form 1099-DA, “Digital Property Derivatives from Brokerage Transactions,” for reporting income from digital asset transactions. The form is expected to be used in 2025 for reporting in 2026.

A broker prepares a Form 1099-DA for each customer that sells or exchanges digital assets. Brokers include kiosk operators, digital asset payment processors, hosted wallet providers, unhosted wallet providers and more in the form. Copies of the 1099-DA are sent to clients and the IRS, which uses them for verification purposes.

The form asks for token codes, wallet addresses, and blockchain transaction locations. In the year By August 2023, cryptocurrencies, fiat tokens and stablecoins will be reportable under the proposed rule. The rule reads:

“By reporting third-party information that specifically identifies digital asset transactions, the IRS can more easily trace taxpayers involved in digital asset transactions.”

The crypto community weighed in on the proposed reporting requirements after they were announced. The Blockchain Association said the regulation contains “fundamental misunderstandings about the nature of digital assets and decentralized technology.”

Paul Grewal, Chief Legal Officer of Coinbase, said the proposed rules would set a dangerous precedent for monitoring users' day-to-day financial activities by requiring the reporting of every digital asset transaction – even the purchase of a coffee.

Commenters were unhappy with the 2024 reporting rules.

Related: 99.5% of Crypto Investors Will Not Pay Taxes by 2022, Study Says

Tax experts have posted their comments on the web. According to the crypto tax and accounting service Ledgible, the reporting of decentralized finance when there is no intermediary to meet the reporting requirements, is specifically against the new law. The administrative burden of brokers can increase significantly, as many process a large number of transactions.

Also, according to Gordon Lowe, brokers will be required to share information on digital asset transfers to accurately determine the cost basis (the initial cost or purchase price). They have no mechanism for sharing such information. Additionally, if a crypto owner transfers assets between exchanges, there is no way to distinguish between automatic transfers and taxable transfers.

Taxpayers who have underreported their crypto income in previous years may be caught filing their taxes in 2025. Users of foreign currency that do not regularly serve US citizens do not file the form, but the IRS may be able to detect the offshore activity. A taxpayer transfers assets to a US exchange.

The IRS continues to accept comments on the draft form.

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