The Internal Revenue Service (IRS) has simplified the reporting requirements in the latest iteration of Form 1099-DA, which crypto brokers and taxpayers will use to report digital asset transactions.

According to the August 9 update, the new draft has removed several requirements that were part of the April version when the IRS first introduced the form. Taxpayers are no longer required to provide information about wallet addresses and transaction IDs, along with the exact time of day for each transaction, requiring only the date. This revision comes in response to feedback from the cryptocurrency industry.

In April, the IRS first unveiled the draft Form 1099-DA, which not only required detailed transaction information but also mandated that brokers disclose whether they were kiosk operators, digital asset payment processors, hosted wallet providers, unhosted wallet providers, or “others.” The draft was met with criticism, particularly for listing unhosted wallet providers as brokers. Critics pointed out that these providers do not have access to the nature of transactions or the identities of the parties involved.

The latest update eliminates the requirement for taxpayers to specify the “broker type,” along with the other changes, to better align with the realities of the digital asset industry. The crypto community welcomed the change, with some calling it a step in the right direction.

This is GREAT News if they are indeed removing the request for wallet addresses.

Attorney Drew Hinkes from the law firm K&L Gates described the updated form as “massively improved” because it requires “considerably less” data reporting. The Blockchain Association, an industry advocacy group, had previously warned that the earlier requirements could have led to up to $254 billion in compliance costs.

If approved, the form is expected to take effect in the 2025 tax year, with filings due in April 2026. The IRS has also invited public comments on the draft form within 30 days.

Form 1099-DA originally stems from reporting rules proposed by the IRS and the Treasury Department in August 2023 as part of the Infrastructure Investment and Jobs Act passed in 2021. The idea was to treat crypto brokers like their traditional counterparts. IRS Commissioner Danny Werfel said at the time that the rules were designed to close the tax gap and ensure consistent tax treatment across different asset classes.

The proposal’s definition of brokers was broad, including trading platforms, payment processors, and certain hosted wallets. Decentralized exchanges were also included in the reporting requirements. Back then, the Treasury explained that the key issue wasn’t how a platform operates but ensuring that all digital asset transactions are reported, regardless of the platform.

Critics in the crypto sector were quick to raise concerns over the potential impact on defi platforms like Uniswap. Subsequently, in a final draft released in June 2024, decentralized exchanges and self-custody wallets were exempt from the reporting requirements.

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