In August, the Department of the Treasury and the Internal Revenue Service (IRS) released proposed regulations that would establish a broker-led reporting process for the sale and exchange of customers’ digital assets. 

The proposal created a new tax reporting form, Form 1099-DA, which would require key parties—“digital asset trading platforms, digital asset payment processors, and certain digital asset hosted wallets,” according to the IRS—to report to the IRS the gross proceeds that customers received from their digital assets. These forms would have to be shared with customers as well. Starting January 2026, brokers would also have to report gain, loss, and basis information related to digital-asset sales. 

The regulations would also extend to entities within the real-estate reporting process when digital assets are used in real estate transactions, and the value of digital assets would be included in Form 1099-S after January 2025. The proposed rules also address backup withholding.

“We need to make sure digital assets are not used to hide taxable income, and the proposed regulations are designed to provide a clearer line of sight into activities by high-income people as well as others using them,” said IRS Commissioner Danny Werfel. “We want to make sure everyone pays what they owe under the tax laws, and our research and experience demonstrate that third-party reporting improves compliance.”

Key to the form is a straightforward definition of what a digital asset is. The proposed rules define digital assets as “digital representations of value that use cryptography to secure transactions that are digitally recorded using distributed ledger technology on a distributed ledger, such as a blockchain or similar technology.” Crucially, these assets “do not exist in physical form” and are exclusively virtual. 

This specification is a welcome departure from the hodge-podge of revenue rulings and FAQs that previously governed crypto and many digital assets. “They don't really have any good regulations out there yet,” Emery Sheer, a Florida-based accountant who runs a YouTube channel on crypto taxation, told me when I wrote about this topic for WIRED in 2022. With a designated 1099 and a set group of responsible parties, crypto- and DA-adjacent groups can know what information they need to submit to the IRS, and how. 

But the rules aren’t fully set in stone yet. 

“It is certain that the form will be implemented in the US,” Jessalyn Dean, VP of Tax Information Reporting at blockchain accounting and tax platform Ledgible, told The Financial Revolutionist. “What is less certain is whether the broad scope of its application will be narrowed in terms of both the digital asset providers required to file it and the types of transactions that are reportable.”

It’s also difficult for crypto platforms to determine the cost basis of a user’s assets if they’ve been held on more than one platform. This may lead many platforms to report a user’s cost basis as “missing,” and may compel users to sign up separately with services like CoinLedger, CoinTracker, and Ledgible.

On the ideological front, the reporting requirements may aggravate more philosophically driven subsets of blockchain users. Many DeFi consumers engage in the space due to its pseudonymous capabilities; that becomes nearly impossible when social security numbers and other identifiers enter the mix, and when DeFi platforms have to adjust for record-keeping and reporting requirements. 

From 1099-DA thus has cascading effects for the digital-asset space. Platforms lacking KYC protocols will have to implement them before 2025—or, in an unlikely turn, officially fork into explicitly illicit territory to meet the demands of evasive or libertarian users. 

Across the board, these platforms appear more invested in the potential of blockchain technology than the regulators governing their continued existence. The FR’s interview with Ledgible, for example, suggested it was doubling down on its belief that blockchain-based technology represents the future of governance—and not just finance. 

“Interestingly, in the future, Form 1099 reporting could be made obsolete by leveraging blockchain and identity tokens to withhold tax at the source and report directly to the IRS in real time,” Dean of Ledgible told The FR. “Innovations in this space could help to solve many of the regulatory reporting gaps that still need to be addressed especially around decentralized digital asset providers.”

Whether regulators agree with that sentiment is highly uncertain. An answer probably requires industry and consumer responses to 1099-DA to be settled first—and for regulators to understand the capabilities and risks of blockchain-based technologies.