Home » New Updates on IRS Regulations 1099DA. Brokers Handling Digital Assets

New Updates on IRS Regulations 1099DA. Brokers Handling Digital Assets

The IRS has recently published updates on the 1099-DA reporting requirements for brokers dealing with digital assets

These latest updates on the IRS 1099DA Draft changes are aimed at simplifying the compliance landscape. Especially for non-custodial and certain custodial providers, while also setting new precedents for future regulations. In this short post, we’ll cover the high-level changes and their implications.

In light of the recent updates to the IRS Form 1099-DA draft, it is essential to revisit our previous analysis on this topic. Our earlier article, “Understanding the IRS Form 1099-DA Draft” provided an overview of the initial draft for crypto brokers.

We highly recommend reading the initial analysis here and then continuing with these updates.

Delay in Reporting Requirements for Non-Custodial Providers

One of the most significant updates is the delay in reporting requirements for non-custodial providers. This move addresses one of the major points of contention that stakeholders have raised in response to the above regulations. According to Reuters’ article about the Treasury Department, they still aim to require it in the future, but have reserved the right to clarify this further. 

For now, only centralized exchanges are subject to these reporting requirements. This delay allows non-custodial providers to avoid the complex task of gathering and reporting customer information. This is a positive development from both an operational and compliance perspective.

Patrick Camuso

CAMUSO CPA

The IRS has recently published updates on the 1099-DA reporting requirements for brokers dealing with digital assets

Changes to Reporting Requirements for Stablecoins and NFTs

Impact on stablecoins reporting

Initially, all stablecoin transactions were to be included in the 1099-DA reporting requirements. However, the new guidelines stipulate that only transactions exceeding a certain threshold, particularly those involved in purchasing digital assets, need to be reported.

Specifically, stablecoin transactions are only subject to reporting if they exceed $10,000 in value when purchasing anything else except other crypto assets. This reducing the overall burden of compliance for brokers.

Before they were including all stablecoin transactions. Whereas now, if going from stable to purchase crypto is non reportable. If using stables to purchase anything else, it’s reportable over the $10k threshold.

Impact on NFTs reporting

Another major change involves Non-Fungible Tokens (NFTs). Transactions involving NFTs that do not exceed $600 are exempt from reporting. Additionally, brokers are permitted to report NFTs on an aggregated basis, further simplifying the process. For instance, if a customer receives multiple low-value NFTs, they can be reported in bulk rather than individually.

If the NFTs, if the transactions don’t exceed $600, they’re not going to be required to be reported. They’re also allowing NFTs to be reported on an aggregated basis

Read What Crypto Investors Should Know About The IRS Tax Regime For 2025 by Dr. Sean Stein Smith.

Digital Asset Tax Reporting: Insights from KPMG

What is the Omni-Wallet Concept and Tax Lot Relief?

  • The omni-wallet concept involves choosing a tax lot relief methodology for digital asset transactions.
  • Some taxpayers sell digital assets from one wallet but attribute them to another wallet for tax purposes (e.g., selling crypto X from wallet 2 but claiming it was from wallet 7).
  • This practice aims to reduce capital gains by using a higher tax basis token.

What Does IRS Revenue Procedure 2024-28 Say?

  • According to Revenue Procedure 2024-28, you should only identify tax lots within the same wallet as the actual token sold.
  • Mixing and matching lots from different wallets for tax reporting purposes is not allowed.

When would this begin to affect taxpayers?

  • The IRS won’t apply taxes and penalties if you qualify for a safe harbor.
  • Starting from January 1, 2025, you can elect same-wallet lot relief.
  • Before 2025, you can allocate the remaining tax basis and holding periods among wallets reasonably (deadlines may vary).

How Can I Qualify for the Safe Harbor?

  • Maintain good records showing original tax basis, holding periods, and lots relieved/not relieved.
  • Consider seeking assistance from crypto tax and accounting professionals specializing in digital assets.

Accounting Method Requirements

Historically, the accounting methods applied by brokers have been inconsistent, posing significant challenges for both the IRS and taxpayers. The new regulations mandate the First-In, First-Out (FIFO) accounting method unless specific identification is used. Specific identification requires taxpayers to denote which assets are being sold at the time of the transaction, either through asset segregation or by informing their brokers.

Failure to adopt these accounting methods correctly has led to misinterpretation and non-compliance. The new guidelines aim to clarify these ambiguities, ensuring that brokers and taxpayers are on the same page.

Now the requirements for specific identification is that you’re going to have to specify which asset you’re selling at the time of sale or before the time of sale. And you’re going to have to be able to specifically identify that asset.

Impact on Custodial Services and Exchanges

The question of how these updates affect custodial services such as Fireblocks or BitGo remains pertinent. Only entities that allow the transacting of assets will be included, with pure software wallets that do not facilitate transactions being excluded. This differentiation is crucial as it exempts certain front-end protocols and decentralized exchanges like Uniswap from the KYC (Know Your Customer) requirements.

Long-term Regulatory Perspective

While these changes appear to ease the immediate compliance burden, the IRS remains focused on implementing further reporting requirements. The need for KYC processes and other regulatory measures, especially for decentralized exchanges, remains a topic of concern for the IRS. Companies must stay vigilant and be prepared for future changes, which are likely to aim at extending reporting requirements to wider aspects of the cryptocurrency ecosystem.

Conclusion

The latest updates from the IRS on 1099-DA reporting requirements bring some relief to brokers and taxpayers, particularly those dealing with stablecoins and NFTs. However, the broader regulatory landscape indicates that more stringent requirements are likely on the horizon. Non-custodial providers can breathe a sigh of relief, but it’s crucial to remain prepared

Author

  • Patrick Camuso

    Patrick Camuso, a Certified Public Accountant (CPA), is the founder and managing member of Camuso CPA. With extensive experience in crypto taxation, he specializes in serving digital asset investors and Web3 businesses. Explore in-depth tax strategies, navigate complex accounting issues with expert guidance, and stay informed with our insightful analysis.

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Patrick Camuso

Patrick Camuso, a Certified Public Accountant (CPA), is the founder and managing member of Camuso CPA. With extensive experience in crypto taxation, he specializes in serving digital asset investors and Web3 businesses. Explore in-depth tax strategies, navigate complex accounting issues with expert guidance, and stay informed with our insightful analysis.

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