IRS Simplifies Crypto Reporting Requirements in Latest Tax Form Draft
The Internal Revenue Service (IRS) has adopted major revisions to both digital assets as the filing instructions and the digital assets (DA) are concerned, said the latest draft of Form 1099-DA. The newest rendition of the form released on August 9, 2024 is a more slimmed-down version addressing the industry’s concerns by the elimination of the cumbersome information. The new version of the form which was released on August 9, 2024, has a new more streamlined direction, one that was made because of feedback from the industry and the removal of some of the burdensome rules.
Key Changes in Form 1099-DA
In the revised draft, taxpayers will not be forced to disclose wallet addresses or transaction IDs for digital asset transactions. On top of this, the IRS has eased the demand to give the exact time of transactions but now they ask for only the transaction date. This is a very different path from the initial draft that came in April 2024, this draft was met with big criticism from the crypto community.
Industry Reaction to the New Draft
Crypto people happily have received these alterations. Attorney Drew Hinkes of K&L Gates, considered the updated form to be “drascally improved,” where he even stated that less data reporting is required. The Blockchain Association, a lobbyist organization for the industry, had previously cautioned that the earlier, more rigorous requirements might have cost up to $254 billion in compliance costs.
Background and Context
The IRS started the implementation of the new rules to the digital assets namely reporting requirements in Form 1099-DA which were in August 2023 when the IRS and the Treasury Department issued regulations in line with the Infrastructure Investment and Jobs Act of 2021. The new regulations were part of the moves to bring digital asset brokers to the same level with conventional financial brokers in a bid to mitigate tax gap and have similar tax treatment of different assets.
The April 2024 draft was in the center of debates for its intricate definition of brokers that covered both decentralized exchanges, payment processors, and specific wallet providers. Following a period of industry opposition, a final version was released in June 2024 exempting decentralized exchanges and self-custody wallets from the reporting requirements.
What’s Next?
If passed, a new model of Form 1099-DA would take effect in the fiscal year 2025, with the deadline for filing being in April 2026. The IRS allows the public to comment on the form for 30 days and then closes the reviewing process allowing stakeholders to have the final say on the reporting requirements before they are cemented.
