Crypto Tax Reporting Gets an Upgrade With Revised 1099-DA Form

The IRS’s updated draft of Form 1099-DA, which will be used by digital asset brokers to report transactions starting in 2025, is a marked improvement over the initial draft, making it more practical for brokers to complete and easier for taxpayers to verify. The new version’s changes are promising, though some challenges and ambiguities linger.

One notable change in the draft, issued Aug. 9, is the removal of the “broker type” box. Although this change simplifies the form, it doesn’t resolve the broader debate over what constitutes a digital asset broker. A key issue remains with decentralized finance, or DeFi, where platforms often lack the mechanisms to collect taxpayer information, unlike centralized exchanges.

The IRS has delayed reporting requirements for these platforms, but this doesn’t imply an exemption. The agency has clarified that it needs more time to craft guidance suited to the decentralized nature of DeFi platforms—not that it plans to exclude them from tax reporting.

Another major change is the elimination of the requirement for detailed transaction-level data, including the transaction ID; digital asset addresses for parties involved; and whether the sale is recorded on the distributed ledger.

This requirement had posed significant challenges: Many brokers lack the infrastructure to collect such detailed data, and taxpayers might struggle to verify this information. There also were questions about what the IRS intended to do the data even if it were collected. By removing this requirement, the agency has made the form more manageable for all parties involved while leaving it optional for brokers to collect the information.

The updated form also makes several adjustments that could improve practicality, such as the removal of the requirement to report the time of transactions for the date acquired and sold. Unlike stocks, digital assets lack centralized pricing, so price variations are common across trading venues at any given moment.

Also, digital asset markets never close, allowing for a wide range of prices throughout the day that could be used as a tax basis. In the past, some crypto mining firms have had to restate their earnings for not using the intraday low price, indicating that this change is far from trivial.

A reading of the tea leaves suggests the IRS may prefer a standardized daily price from a prominent exchange on Form 1099-DA, rather than an arbitrary intraday price chosen by the reporting broker. If this approach is confirmed in the forthcoming instructions, it will simplify tax reporting and promote consistency.

Additionally, the updated form requires further details only if all proceeds are in cash, rather than if proceeds partially include cash. This change lowers the reporting burden and simplifies the tax filing process.

The updated form introduces a new requirement for reporting brokers to separate out qualifying stablecoins and specified non-fungible tokens. This is an important step in recognizing that not all digital assets are created equal and that tax treatment should reflect their differences.

Leading stablecoins such as Tether and USDC are pegged to the US dollar. Transactions involving them should presumably have minimal tax implications, as parties transacting them typically don’t look to profit from price changes—unless stablecoins lose their pegs during crypto market turmoil, as seen with TerraUSD. Separating out qualifying stablecoins raises the question of whether the IRS intends to apply different tax treatments to such tokens, possibly even exempting them.

NFTs, on the other hand, are non-interchangeable, unique digital assets. They tend to have lower trading volumes and less transparent pricing than major cryptocurrencies, creating opportunities for tax scams and fraud. By separating NFTs on the tax form, the IRS may be better equipped to identify potential red flags associated with these tokens.

The updated form also introduces a box to indicate whether transaction proceeds are from funds “reserved for future use” or “qualified opportunity fund.”

The latter is mainly relevant for corporations and partnerships investing in qualified opportunity zones, where new investments may qualify for preferential tax treatment. “Reserved for future use” is a placeholder that allows the IRS to quickly update the form to accommodate future changes in reporting requirements.

The inclusion of this box recognizes the variety of investors in crypto transactions and offers flexibility for different tax treatments as new investment types arise.

The updated Form 1099-DA offers a more realistic approach to crypto tax reporting, but the IRS still needs to provide clear guidance on the definition of a digital asset broker—especially regarding DeFi platforms. Although the simplifications in the new form are a positive development, the underlying complexities of the crypto market demand ongoing attention and adaptation.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Vivian Fang is the Richard E. Jacobs Chair of Finance at the Kelley School of Business, Indiana University. She has been teaching and researching cryptocurrencies since 2018.

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