The right software isn't defined by the number of features it offers—it's defined by whether it can support the complete digital asset tax reporting lifecycle.
As more financial institutions prepare for Form 1099-DA reporting, the market for digital asset tax reporting software continues to grow. Nearly every provider claims to offer comprehensive compliance, automated reporting, and streamlined operations.
But once organizations begin evaluating vendors, an important question quickly emerges:
What should we actually be looking for?
Too often, vendor evaluations become feature comparisons. One platform has a more intuitive dashboard. Another has additional reporting capabilities. Another promises faster implementation.
While those features certainly matter, they shouldn't be the foundation of your evaluation.
The more important question is whether a provider can support your institution's complete tax reporting operating model—from onboarding customers through annual reporting and reconciliation.
During Ledgible's webinar, Building a 1099 Operating Model for Success, experts from Ledgible, Sovos, and Comply Exchange identified four operational capabilities that every institution should evaluate when selecting a digital asset tax reporting provider. Together, they form the foundation of a successful 1099-DA compliance program.
1. Payee Data Collection and Verification
Everything begins with customer tax documentation.
If customer data is inaccurate, incomplete, or outdated, every downstream process—from withholding calculations to tax reporting—becomes significantly more difficult.
That's why payee data collection should be viewed as much more than an onboarding exercise. It is an ongoing compliance process that spans the entire customer lifecycle.
Organizations should evaluate whether providers can support:
- Electronic and paper W-8 and W-9 collection
- Real-time validation of tax documentation
- TIN matching
- Tracking document expiration dates
- Monitoring changes in customer circumstances
- Automated remediation workflows
Jessica Zeltser, Director of Client Services at Comply Exchange, emphasized that institutions should evaluate how providers support the entire lifecycle of tax documentation—not just initial collection. Validation, remediation, maintenance, and reporting all contribute to long-term compliance.
For digital asset platforms, customer experience is also an important consideration. Crypto users often expect frictionless onboarding, making it critical to balance compliance requirements with a streamlined customer journey.
2. Tax Withholding Logic
Once customer documentation has been collected, institutions need systems capable of determining whether tax withholding applies—and if so, how much.
This extends far beyond performing simple calculations.
A comprehensive withholding engine should evaluate:
- U.S. versus non-U.S. status
- Treaty eligibility
- Backup withholding requirements
- Exemptions
- B-Notice processing
- Product-specific withholding rules
- Tax deposit calculations
Institutions should also understand exactly where withholding responsibilities begin and end.
Does the provider simply determine the applicable withholding rate?
Do they calculate the withheld amount?
Do they initiate integrations into the institution's payment systems?
Or do they manage additional filing and operational processes?
These distinctions become especially important during implementation.
As discussed during the webinar, institutions cannot simply avoid withholding requirements by limiting which customers they serve. Core systems still need to identify customer status, evaluate withholding obligations, and support the applicable regulatory framework—even if withholding is ultimately not required for a particular transaction.
3. Cost Basis Calculations and Tracking
If there is one capability that truly distinguishes digital asset tax reporting from traditional tax reporting, it is cost basis.
Unlike many traditional financial products, digital assets often move between wallets, custodians, and exchanges. Assets may be acquired on one platform and sold on another. Customers may transfer assets into an institution with no historical acquisition information available.
That complexity makes cost basis one of the most technically demanding aspects of Form 1099-DA compliance.
However, not every institution requires the same level of support.
Organizations should first determine whether cost basis is even applicable to their business model.
For example:
- Does the institution custody digital assets?
- Does it facilitate sales or exchanges?
- Are only income-type transactions being reported?
- Are crypto-native assets involved?
- Are tokenized securities also supported?
Once scope has been established, institutions should evaluate whether providers support:
- FIFO, LIFO, HIFO, and other lot relief methodologies
- Customer-provided basis information for non-covered assets
- Real-time lot selection
- Front-end customer interfaces
- Integration with custody and trading platforms
As Jessalyn Dean explained during the webinar, institutions should think carefully about the relationship between the back-end cost basis engine and the customer-facing experience. The calculation engine may perform the technical work, but customers still need intuitive ways to understand and manage their tax lots.
4. Tax Information Reporting
For many organizations, tax reporting is viewed as the finish line.
In reality, it's only one stage in a much larger operational process.
Generating Form 1099-DA files is important—but institutions also need to consider everything that happens before and after those forms are created.
Vendor evaluations should include questions around:
- IRS IRIS readiness
- State reporting requirements
- Recipient statement delivery
- Electronic versus printed statements
- Corrections and amendments
- B-Notice management
- Managed services
- Annual filing support
Wendy Walker highlighted one particularly important consideration during the webinar: the IRS's transition to the IRIS filing platform. Since Form 1099-DA will be processed through IRIS, institutions should understand how providers have prepared for this transition and what operational changes it introduces.
Institutions should also remember that software alone does not complete the reporting process. Data still needs to be validated, reconciled, transmitted to tax authorities, and delivered to recipients accurately and on time.
Looking Beyond Individual Features
While these four capabilities provide a strong framework for vendor evaluation, institutions should resist evaluating them in isolation.
A provider may offer excellent cost basis calculations but require significant manual work to manage withholding.
Another may excel at reporting but rely on third-party integrations for onboarding.
Another may provide strong software but limited implementation or operational support.
The goal is not simply to identify providers with the longest feature list.
It's to identify partners capable of supporting an integrated operating model.
That means asking questions about:
- Data movement between systems
- Reconciliation processes
- Exception reporting
- Regulatory updates
- Security
- Scalability
- Customer experience
- Managed services
These operational capabilities often become the deciding factors once implementation begins.
Selecting a Long-Term Partner
Digital asset tax reporting regulations will continue to evolve.
Products will change.
Reporting requirements will expand.
Customer expectations will increase.
The software your institution selects today should be capable of adapting alongside those changes—not simply meeting today's minimum compliance requirements.
Evaluating providers through the lens of these four operational capabilities helps shift procurement away from feature comparisons and toward long-term operational success.
That's ultimately the goal of any digital asset reporting initiative.
Not simply selecting software.
Building an operating model capable of supporting compliance for years to come.
Continue Building Your 1099-DA Operating Model
Selecting the right vendor requires understanding more than product demonstrations. It requires evaluating how technology supports the broader operating model for digital asset tax reporting.
In the on-demand webinar, experts from Ledgible, Sovos, and Comply Exchange explore each of these four capabilities in greater detail, along with practical guidance for structuring an RFP, evaluating supplier responses, and preparing for implementation.
Watch the on-demand webinar: https://ledgible.io/on-demand-webinar-building-a-1099-operating-model-for-success
Whether you're beginning your first 1099-DA vendor evaluation or refining an existing procurement process, focusing on these four foundational capabilities will help ensure your institution is evaluating solutions based on long-term operational success—not just software features.
