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April 19, 2024

Understanding the IRS's Proposed 1099-DA for Digital Assets

As of April 19th, the Internal Revenue Service has just released their first draft of the new 1099-DA, signifying the first major material step to tax information reporting for digital assets. Ledgible tax information reporting expert, and VP, Jessalyn Dean, got her hands on the first draft. In this short post, we'll walk you through what stands out, what's surprising, and everything you need to know.

First impressions:

  • US #IRS has published the draft Form 1099-DA for reporting sales of #DigitalAssets. Let's have a look inside. 🔎 🛠

They have packed a lot of lines and boxes into this form.

Look and feel:

  • As expected, the look and feel is similar to the Form 1099-B for reporting sales of traditional financial products (e.g. equities).
  • Most of the boxes line up as expected with the required information as listed in the proposed regulations from August 2023 (link in the comments for more details on that).

Interesting inclusions:

  • The inclusion of a "wash sale loss disallowed" Box 1i does not mean that crypto is subject to wash sale rules. It is included for purposes of digital assets that are also stock or securities already subject to wash sale rules (e.g. certain tokenized equities).
  • A Box 11d is included to indicate that a sale is not recorded on the distributed ledger. This is necessary because very often digital asset addresses or transaction IDs cannot be provided because transations occurred within internal record keeping systems.

More guidance needed:

  • Box 5 is for a broker to indicate that a loss is non-deductible due to a "reportable change in control or capital structure" and references Form 8949 and Schedule D Instructions. However, neither of those instructions give any guidance on what kind of events in crypto and digital assets could apply in these circumstances. They defer to the broker to simply figure it out in the dark with the further statement that "The broker should advise you of any losses on a separate statement".

Have thoughts?

Curious to learn more? Take a deep dive into the digital asset regulations by the IRS from the experts at Ledgible here.

Learn more about the 1099-DA here.

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