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1 May 20242 minute read

IRS seemingly ignores calls to narrow definition of broker in draft digital asset broker reporting form

The IRS released has released a draft of Form 1099-DA (Digital Asset Proceeds From Broker Transactions) and draft instructions for the form.  Form 1099-DA, when finalized, will be used for “brokers” to report certain digital asset transactions beginning in tax year 2025.  Although draft Form 1099-DA was released (on April 19, 2024) without any commentary, the draft form suggests that Treasury and the IRS have not been swayed by public calls to narrow the definition of broker as provided for in recently proposed regulations.  

Specifically, draft Form 1099-DA provides a box labelled “Broker type involved in transaction,” which lists kiosk operators, digital asset payment processors, hosted and unhosted wallet providers, and others.  See the draft form here.

The draft of Form 1099-DA is the latest development in the government’s efforts to expand existing tax reporting requirements applicable to stocks and securities to digital assets and cryptocurrency.  In November 2021, the Infrastructure Investment and Jobs Act expanded Section 6045 of the Internal Revenue Code to require tax reporting by brokers of transactions involving the sale or exchange of digital assets.  Section 6045 provided a broad definition of broker, that being any person “regularly providing any service effectuating transfers of digital assets on behalf of another person.”  

Nearly two years later, as we reported here, the IRS and Treasury Department promulgated proposed regulations under Section 6045.  The proposed regulations narrowed the definition of broker somewhat, clarifying that miners and validators are not brokers (provided they perform no other services), but continuing to treat as brokers decentralized finance and unhosted wallet services who earn fees from effectuating sales of digital assets.  

As we noted here, public comments on the proposed regulations numbered in the tens of thousands, with a significant portion expressing unease about the breadth and scope of the definition of broker.  While final regulations under Section 6045 have not yet been released, draft Form 1099-DA suggests that Treasury and the IRS may stick closely to the proposed regulations, with little to no revision in response to the comments. 

Taxpayers may submit comments to on draft Form 1099-DA and its instructions here with “NTF1099DA” included in the body of the message.