Home Insights 1099-DA Explained: The IRS Targets Digital Assets

1099-DA Explained: The IRS Targets Digital Assets

Until now, the taxation of cryptocurrency and other digital assets has been a field characterised by ambiguity and a lack of guidance. But as these asset classes become increasingly ubiquitous in the global financial sector, it was inevitable that more formal regulations and reporting would follow.

Starting in 2026, the IRS will introduce a requirement to file Form 1099-DA, the first ever IRS form focused specifically on crypto and digital assets. But what is this form, who is required to file it, and how does it affect investors?

This article is focused on the details and requirements of Form 1099-DA. For a more general look at crypto assets and their US taxation, please see “What are the US Tax Considerations for Cryptoassets ?”.

Background

The 1099 series of forms is nothing new to the world of US tax reporting. Forms 1099 are information returns generally used to report to the IRS various types of payments other than those related to employment, for example, the Form 1099-DIV for dividend reporting, and 1099-NEC for payments to non-employee contractors. This newest addition to the 1099 series of forms is the 1099-DA, or the 1099-Digital Asset, a form used by digital asset brokers to report certain transactions involving digital assets, such as cryptocurrencies and non-fungible tokens (NFTs).

The 1099-DA will be required starting in 2026 for transactions occurring starting from 1 January 2025, and aims to simplify and standardize the reporting of crypto-related income, currently reported in other Forms 1099. Under the final regulations, crypto brokers operating in the United States will be required to issue Form 1099-DA, providing comprehensive details about certain transactions conducted by investors on their platforms. This will also include real estate reporting entities in case of transactions where digital assets are used in the acquisition of real estate.

Who needs to file Form 1099-DA?

Form 1099-DA is required to be filed by “digital asset brokers”. This term has a broad definition, but includes entities that effectuate transactions of digital assets on behalf of customers and have access to or verify parties’ identities.

This broad definition may generally be considered to cover the following:

Digital asset trading platforms (centralized exchanges);
Digital asset payment processors and hosted wallet providers;
Certain digital asset kiosk operators; and
Operators of some decentralized exchanges, but only if they have a degree of control or knowledge.

It generally does not include miners and validators, hardware or software wallet developers, or decentralized exchanges and protocols with no control over user identities or transactions.

The key factor in being considered a “broker” under this definition is control and knowledge, both the ability to effectuate transfers or sales for customers and the ability to identify the parties and access transactional data. A platform that is purely peer-to-peer and cannot identify this information generally does not qualify.

As you might suspect, the above definition can potentially result in transactions where multiple persons could be considered to be the “broker”. In such cases, the general rule is that only one broker is required to file a Form 1099-DA for a given sale, and who this is will be determined by the parties. Brokers can enter into a written agreement specifying who will report. In the absence of such an agreement, the executing broker who executes the order will generally be responsible by default.

What needs to be reported on 1099-DA?

The purpose of the 1099-DA is for digital asset brokers to report customers’ sales or exchanges of digital assets. Previously, this type of information would have been reported on 1099-B, the general-use form for broker transactions. 1099-DA will replace this function of the Form 1099-B and report the breakdown of realization of the crypto investments, which includes but is not limited to the information below:

Name and 9-digit code for digital assets issued by the Digital Token Identifier Foundation (DTIF)
- Any digital asset not registered with the DTIF, like most NFTs, will simply be reported as ‘’99-9999999’’
Number of units disposed of
Acquisition date
Total proceeds, reduced by transaction costs such as transaction fees, commissions, and transfer taxes
Cost basis, but only for transactions occurring on or after 1 January 2026
Checkbox on Form 8949, which informs investors how to report capital gains or losses on their tax returns
Filer’s personal information

As noted above, there will be a phased implementation of this reporting requirement. While the first submissions of this form will be required for transactions occurring after 1 January 2025, full cost basis holding period data will only be required to be reported for transactions occurring after 1 January 2026. This phased implementation is intended to allow brokers greater time to obtain and process historic asset information that may not be readily available.

Generally, a separate Form 1099-DA is required for each digital asset transaction with an exception for the reporting of certain broker fees. Digital asset brokers are required to file such forms with the IRS and send copies to the recipient investor, who then need to include the details on their tax returns (for individuals, Form 1040, Schedule D, and Form 8949). This involves declaring any profits or losses from digital asset transactions, along with any other income specified on the form.

Starting in 2027, the IRS will additionally require brokers providing front-end services to report applicable transactions using Form 1099-DA.

Advantages:

The implementation of Form 1099-DA is expected to alleviate some of the complexities associated with crypto tax reporting, providing investors with clearer guidance and aiding compliance efforts. Currently, there is no Form 1099 specific for crypto transactions and therefore digital asset brokers generally report transactions on Form 1099-B, while certain payment platforms report on Form 1099-K payments in cryptocurrency received by individuals. Form 1099-DA is expected to standardize the reporting of most of these transactions in a single form. As an example, transactions involving the disposition of a crypto asset that is also a security (i.e., dual classification assets, such as tokenized securities) will generally be required to be reported on Form 1099-DA, precluding the use of Form 1099-B going forward. There are a few exceptions requiring the use of Form 1099-B (e.g., dual classification assets that are shares in money market funds) and Form 1099-MISC (e.g., rewards and staking payments exceeding $600).

Risk and exposure:

Critics have highlighted certain potential issues with Form 1099-DA, including the unclear definition of crypto brokers – which raises questions around the potential administrative burden for businesses, and the challenges of tracking cost basis accurately for investors who use multiple platforms for their transactions. As every transaction may impact the cost basis of a specific token, it is important to keep the full transaction records for trading across different exchange platforms. In addition, some fear that the requirements could stifle innovation in the decentralized finance (DeFi) space and lead to withdrawals of services from the US.

Failure to comply with this new requirement will face the same enforcement regime as for other information returns, with civil penalties imposable depending on lateness and the size of the business. Additionally, reporting under Form 1099-DA is subject to regular backup withholding rules (e.g., in cases where the taxpayer fails to furnish the broker with a Form W-9 or W-8BEN). There are transitional rules and relief related to backup withholding for sales occurring before 2027.

Conclusions:

Despite its forthcoming introduction, it is unlikely that Form 1099-DA will contain all the necessary information for filing crypto taxes accurately. Investors may still need to track additional income streams from other activities such as staking and mining. Therefore, the new 1099-DA does not contain all the information related to crypto transactions. For example, investors still need to pay attention to income reported on Form 1099-MISC.In preparation for the release of Form 1099-DA, investors are advised to maintain meticulous records of their crypto transactions and remain compliant with existing tax reporting requirements.

The introduction of Form 1099-DA is the next step in the IRS’s stated goal of treating crypto and other digital assets more like traditional securities, both in reporting structure and tax enforcement. The IRS is signalling that crypto is no longer a shadow asset class for tax purposes, with third-party reporting, basis tracking and data-matching enforcement soon to become the norm.

Please do not hesitate to contact our team if you have any questions.

Article written by James Debate

References: