IRS raises eyebrows in digital assets industry with draft broker form
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The Internal Revenue Service is seeking comment on a draft form for 2025, 1099-DA, to report "digital asset proceeds from broker transactions."
Why it matters: As tax treatment of these assets becomes more formalized, the industry moves out of the regulatory grey area, allowing more players in the financial industry to get involved.
Between the lines: "Form 1099-DA shows that digital assets are becoming first-class citizens in the financial services industry," Amy Kalnoki, the COO of Bitwave, which provides automated accounting and audit software for crypto firms, told Axios.
- "Enterprises will only embrace blockchain technology when there is absolute regulatory clarity."
Yes, but: There's likely to be pushback from the cryptocurrency industry.
The form indicates that a transaction number should be reported, along with which assets were transferred.
- This suggests that every transaction conducted by a broker should be reported to the IRS. That's going to mean hundreds of millions of transactions reported to the agency.
- "This will be net-new overhead on everyone in the ecosystem," Kalnoki said.
Then there's the question of what kind of companies need to submit these forms. The blockchain think tank Coin Center has already taken issue with the idea that providers of what governments call "unhosted wallet providers" should be included as brokers.
- The companies in question here make software and devices that allows people to easily control their own cryptocurrency themselves.
Context: Asking such companies to report all their customers transactions would be akin to asking car makers to report everywhere people who buy their vehicles travel to. Both products are designed for the end user — not the company that made the products — to take responsibility for them.
- Presumably, users of such software are already reporting their transactions under existing guidance from the IRS.
Zoom in: "This may indicate that Treasury is not backing down from its expansive scope definition of 'broker,'" Tony Tuths, the principal on digital assets at KPMG noted in a statement.
- This debate kicked off last year when the agency first floated its redefinition of "broker."
What's next: This is just a draft form. When the form is final, accounting professionals can start getting it into their compliance workflows.
