IRS Form 1099-DA Reshapes Digital Asset Tax Reporting for 2025 Transactions

The Internal Revenue Service (IRS) is implementing a significant overhaul of digital asset tax reporting with the introduction of Form 1099-DA, officially titled "Digital Asset Proceeds From Broker Transactions." This new form, designed to standardize crypto tax reporting, will require brokers to report transactions made in 2025, with forms being issued in 2026. The move aims to close historical gaps in reporting that have long plagued the rapidly evolving digital asset market.

Industry expert Shehan, co-founder and CEO of Count on Sheep, highlighted the profound impact, stating, > "With 1099-DAs, the game has completely shifted. Brokers will now issue official tax forms at year-end, and tax aggregators must 1) match their proceeds to DAs and 2) carefully marry calculated/missing cost basis with each transaction on DAs." He further warned of severe repercussions for non-compliance, adding, "If they don’t, you will receive matching notices from the IRS, a nightmare scenario for both users and platforms."

The core challenge stems from the fact that Form 1099-DA primarily reports gross proceeds, often without comprehensive cost basis information, particularly for digital assets acquired before 2026 or transferred between different platforms. This discrepancy can lead to the IRS assuming a zero-cost basis if proper documentation is not provided, potentially resulting in inflated tax liabilities for investors. To address this, Revenue Procedure 2024-28 mandates wallet-level cost basis tracking, adding a new layer of complexity for brokers and tax aggregators.

Digital asset brokers, including custodial and non-custodial exchanges, hosted wallet providers, and payment processors, are now required to comply. Entities like miners, node operators, and software developers are generally exempt unless they perform broker-like functions. Penalties for incorrect or incomplete reporting can be substantial, reaching up to $630 per form for intentional disregard, with no cap.

To mitigate risks, experts advise brokers and tax aggregators to implement robust Digital Asset Reconciliation (DAR) processes. This involves meticulously matching on-chain transactions with internal records, capturing fair market value at the time of transfer, and providing employees with accurate cost basis data. Taxpayers are also urged to maintain thorough records of their digital asset transactions to avoid potential audits and ensure accurate reporting.