IRS raises eyebrows in digital assets industry with draft broker form

The Internal Revenue Service (IRS) has recently proposed a draft form, 1099-DA, for the year 2025. This form is intended for reporting proceeds from digital asset transactions facilitated by brokers. The move marks a significant shift towards establishing a more formalized tax framework for digital assets, which could have far-reaching implications for the financial sector.

**Significance of Form 1099-DA**

The introduction of Form 1099-DA is a pivotal development, as it underscores the integration of digital assets into the mainstream financial services industry. Amy Kalnoki, the COO of Bitwave, has emphasized that such regulatory clarity is crucial for broader enterprise adoption of blockchain technology. The form not only cements digital assets as legitimate entities within the financial landscape but also opens the door for more financial players to engage with these assets without regulatory ambiguity.

**Details and Potential Challenges**

The draft form requires brokers to report every transaction, specifying transaction numbers and the assets involved. This requirement could result in the reporting of hundreds of millions of transactions to the IRS, introducing significant administrative burdens across the cryptocurrency ecosystem.

**Controversy Regarding Scope**

The scope of what entities qualify as 'brokers' and thus need to comply with this reporting, has been a contentious issue. Coin Center, a blockchain advocacy group, has expressed concerns over including providers of unhosted wallets in this category. These companies, which facilitate direct user control over cryptocurrencies, are akin to car manufacturers in terms of the autonomy they deliver to end users. There is a prevailing view that users of such platforms should independently report transactions under existing IRS guidelines.

**Government Stance and Industry Outlook**

This initiative may illustrate the U.S. Treasury’s determination to maintain a broad definition of 'broker' to encompass various actors within the digital asset space. The controversial redefinition began last year, sparking significant debate within the industry. As this form is currently in draft status, it provides an opportunity for accounting professionals and industry stakeholders to prepare for eventual integration into their compliance practices once finalized.  

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