Summers are the ideal time for movies, baseball, long and winding road trips across the U.S. in search of the perfect family vacation or, just as important, a reasonable crypto tax reporting form.
In response to the IRS’s April 2024 release of the draft Form 1099-DA (Digital Asset Proceeds from Broker Transactions), the crypto industry loudly said, “This is crazy!”. But crypto traders, like the Griswolds on their quest to Walley World, were not deterred when things didn’t go their way. Rather than live with nonsensical reporting requirements in the IRS’s April 2024 draft Form 1099-DA, commenters cried foul to the IRS. The comments ranged from large industry associations to small-volume individuals resulting in significant improvements as reflected in the IRS’s August 9, 2024 revised draft. Now, crypto traders at all levels can enjoy the dog days of summer without the threat of the IRS chasing them down like “Benny the Jet” Rodriguez for every little detail beginning in 2026.
IRS’s issues dizzying amount of crypto guidance but reporting requirements remained in flux
The avalanche of guidance issued by the IRS during 2023 and 2024 shows that crypto remains one of the IRS’s top enforcement priorities. Much like the response to Clark Griswold’s request for directions to the express way, the IRS responded strongly to crypto traders and brokers requesting digital asset guidance.
From January to July 2023, the IRS issued four (4) Chief Counsel Advice (CCA) memorandums, two (2) Notices, and one (1) Revenue Ruling addressing the tax aspects of various crypto and digital asset transactions. The CCAs, Notices, and Revenue Ruling were quickly followed by proposed regulations regarding digital transactions issued on August 29, 2023. The proposed regulations sparked a firestorm as shown by the 44,000 public comments submitted to the IRS.
After nearly a year, the IRS responded to those comments when it issued final regulations on July 9, 2024. Those final regulations provided needed guidance for broker dealer information reporting, determining digital asset basis and gain or loss, and backup withholding with respect to digital asset transactions and exchanges. The final regulations also provide that real estate brokers must report the fair market value of digital assets involved in real estate transactions closing on or after January 1, 2026. The volume of guidance coupled with finalizing the regulations signals the end of the ‘quest for fun’ and suggests increased audit risks for those with paper hands.
New sheriff(s) in town – IRS hires former crypto execs
On February 27, 2024, the IRS hired two former crypto industry executives to spearhead efforts aimed at increasing crypto transaction reporting, compliance, and enforcement. While the addition of former crypto industry executives suggested that the IRS intended to acquire insight into the opaque industry and work towards sensible reporting guidelines, those executives oversaw the issuance of the dreadful April 2024 Form 1099-DA. With TIGTA reporting on the dearth of crypto enforcement, the IRS finally decided what information it truly needed from digital asset brokers.
Zip-A-Dee Doo-Dah – IRS responds to comments to draft Form 1099-DA
Responding to crypto industry comments, regarding the April 2024 draft form, the August 2024 revisions to Form 1099-DA removed boxes for reporting (1) the precise time of day that a transaction occurred, (2) the “broker type”, (3) wallet addresses, and (4) transactions IDs. With the reporting requirements set to take effect in 2026 and the recent Loper Bright decision eviscerating the Administrative Procedure Act, the IRS curiously provided only 30 days for the public to submit comments to the new draft form.
While crypto traders and brokers may not share the same joy and relief as the Griswolds after Mr. Walley declined to press charges, they should be pleased knowing that the IRS listened to their input by reducing the burden for reporting crypto transactions on their 2025 tax returns and removed proposed requirements that were unnecessary. What this means is that the August 2024 Form 1099-DA represents a reasonable reporting regime that will allow brokers to begin implementing procedures to collect the necessary information that they will need to report on every transaction so the IRS can call balls and strikes.
Summer ends and audits come
Like all information reporting, the IRS will be looking to match the broker reporting with the taxpayers’ reporting, but finalizing the regulations and Form 1099-DA provides a starting point for a wave of audits and criminal enforcement. The new draft form will enable reporting of enough information to allow the IRS to prioritize noteworthy transactions and avoid a “Curse of the Bambino”-level catastrophe.
Instead of returning from summer vacation disappointed, crypto traders and brokers are now able to drive off into the sunset with the necessary information to prepare for the new reporting requirements and the inevitable audits.
[1] https://www.youtube.com/watch?v=ix8s_TUYVW8
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