The U.S. Internal Revenue Service (IRS) released the long-awaited draft tax Form 1099-DA on Thursday, April 18, 2024, for reporting digital asset proceeds from broker transactions. The form, applicable for tax filings in 2025, requires brokers—including kiosk operators, digital asset payment processors, hosted wallet providers, and notably unhosted wallet providers—to report proceeds from digital asset dispositions to both taxpayers and the IRS.
Key Data Points Required by Form 1099-DA
According to the draft instructions, brokers must specify their category and submit detailed transaction data. For each sale, the IRS requires: the sale transaction ID (TxID), the digital asset address from which the units were sold, and the number of units sold. For transfers, brokers must report the transfer-in TxID number, the transfer-in digital asset address, and the number of units transferred in. These requirements go beyond traditional stock reporting, as they seek to trace on-chain movements of digital assets.
Expert Analysis: A Threat to Privacy
Shehan Chandrasekera, head of tax strategy at crypto tax firm Cointracker, expressed grave concerns on social media. He stated: “I don’t think crypto will be pseudo-anonymous or privacy-preserving anymore, at least in the US.” He emphasized that while the form captures expected data points like date acquired, date sold, proceeds, and cost basis, the collection of wallet addresses on a massive scale “could raise significant privacy and security concerns.” A data breach or misuse of such granular information could expose users to targeted attacks or financial surveillance.
Impact on Unhosted Wallets and DeFi
Chandrasekera highlighted that the inclusion of “unhosted wallet provider” as a check box signals the IRS’s intention to bring non-custodial wallets under broker definitions, despite industry pushback. He warned: “Going forward, you will likely have to provide KYC information before creating an unhosted wallet and/or when interacting with platforms via unhosted wallets.” This could fundamentally alter the ethos of decentralized finance (DeFi), where users currently enjoy pseudonymous self-custody. He added that the form “could drastically change how users interact with crypto platforms” and reshape the DeFi landscape.
Industry Reaction and Next Steps
The draft has sparked debate within the crypto community. Privacy advocates argue that the IRS is overstepping, while compliance-focused firms see it as a necessary step toward mainstream adoption. The form is still subject to revisions based on public comments, but its implementation from January 1, 2025, appears likely. As regulatory clarity tightens, crypto users—especially those in the U.S.—must prepare for a new era of transparency, where every on-chain transaction could be reportable to tax authorities.