This tax filing form will become mandatory starting on January 1, 2025. Brokers who fill out the form will need to indicate their role, such as a service operator, digital asset payment processor, hosted or offline wallet operator, or any other digital asset provider. If individuals receive Form 1099-DA, it means they have engaged in activities involving digital assets that have resulted in financial gains. They will need to check the “Yes” box to indicate this.
The introduction of the 1099-DA form marks a significant milestone as it is the first tax form specifically created to collect identification and transaction details on a large scale from brokers.
Both centralized exchanges and some decentralized exchanges and wallets will be required to send this form to the IRS and their users, similar to how stockbrokers operate with their clients. For every purchase and sale transaction, Form 1099-DA will record crucial information such as the date of acquisition and sale of crypto assets, as well as the total proceeds and costs of the crypto assets sold. Additionally, the IRS will also gather the transaction ID (TxID), the selling address of the crypto assets, and the quantity of crypto assets sold.
Shehan Chandrasekera, Head of Tax at Cointracker, expresses concerns regarding the new form, particularly in terms of privacy and security for users. The inclusion of offline wallet providers in the form implies that the IRS considers them as brokers. As a result, users will now be required to provide identification information when creating an unhosted wallet or when interacting with platforms that involve unhosted wallets. According to Chandrasekera, this could fundamentally alter how users interact with cryptocurrency platforms and may eliminate privacy for cryptocurrencies in the United States.
In a recent announcement, the IRS made it clear that it plans to intensify its crackdown on cryptocurrency traders who attempt to evade taxes. However, blockchain detective ZachXBT believes that the IRS may not possess sufficient expertise in investigating crimes related to digital assets.