The U.S. Internal Revenue Service (IRS) on April 19 released the much-anticipated draft tax form for reporting digital asset transactions — Form 1099-DA, titled “Digital Asset Proceeds From Broker Transactions.” This form is applicable for tax filings in 2025 and marks a significant step in the agency’s efforts to enforce tax compliance in the cryptocurrency space.
According to the draft instructions, brokers must report proceeds (and in some cases, cost basis) from digital asset dispositions to both taxpayers and the IRS using Form 1099-DA. The form requires the broker to specify their category: a kiosk operator, digital asset payment processor, hosted wallet provider, unhosted wallet provider, or other digital asset filer. The IRS also notes that if a taxpayer receives a Form 1099-DA, they generally sold, exchanged, or otherwise disposed of a financial interest in a digital asset and must check “Yes” on the Form 1040 digital asset question.
Expert Raises Red Flags Over Privacy
Shehan Chandrasekera, head of tax strategy at crypto tax firm Cointracker, shared his analysis on social media platform X on Friday. He stated bluntly: “I don’t think crypto will be pseudo-anonymous or privacy-preserving anymore, at least in the US.” He described Form 1099-DA as “the first tax form specifically designed to collect your ID and detailed transaction data at scale from ‘brokers.’”
Chandrasekera explained that centralised exchanges, certain decentralised exchanges, and wallets will be required to generate this form for each sale transaction and submit it to the IRS and the taxpayer starting 1 January 2025 — similar to the existing system for stock brokers.
While he acknowledged that the form captures expected data points such as date acquired, date sold, proceeds, and cost basis, he highlighted a critical concern: “However, the collection and reporting of the following additional data points (especially wallet addresses) to the IRS at scale could lead to major privacy and security concerns.”
Detailed Data Points Required
For each sale transaction, 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, the IRS demands: the transfer-in TxID number, the transfer-in digital asset address, and the number of units transferred in.
Chandrasekera further noted that the IRS included “unhosted wallet provider” as a check box in the draft, signaling its intention to include unhosted wallets under the broker definition 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.”
He added that this requirement “could drastically change how users interact with crypto platforms” and would fundamentally alter the nature of decentralised finance (DeFi) as we know it today. The move has sparked debate among industry participants about the balance between tax enforcement and the preservation of privacy and decentralisation.