Crypto Analyzer

New IRS Draft Tax Form Proposes Tracking of Certain Crypto Transactions

## Proposed IRS Draft Tax Form to Track Certain Crypto Transactions

The Internal Revenue Service (IRS) has unveiled a new draft tax form that proposes the tracking of specific cryptocurrency transactions. This draft form, named Digital Asset Proceeds From Broker Transactions, requires taxpayers to fill out Form 1099-DA. This form aims to collect trader identification and detailed transaction data from crypto “brokers.”

According to Shehan Chandrasekera, a crypto accountant and head of tax at CoinTracker, this new form could signal the end of privacy for crypto traders in the United States. The form mandates that brokers, including centralized and certain decentralized exchanges, as well as wallets, must generate and submit transaction information to the IRS and taxpayers starting from January 1, 2025.

The form captures essential data points such as the date of acquisition, date of sale, proceeds, and cost basis of crypto assets sold. While this data is necessary for accurate tax filings, concerns arise with the collection and reporting of additional data points, particularly wallet addresses, to the IRS, which could pose major privacy and security risks.

The IRS’s inclusion of “unhosted wallet providers” in the form raises questions, as it would categorize unhosted wallets under the “broker” definition, even against feedback from industry proponents.

Gordon Law, a tax and crypto law firm, is closely examining Form 1099-DA to determine which entities would fall under the broker definition outlined by the IRS. The firm suggests that centralized exchanges, decentralized exchanges, wallets enabling crypto transactions, Bitcoin ATMs, and other physical kiosks would be considered brokers.

Notably, the IRS proposal excludes miners, node operators, hardware wallets, software developers, and smart contract developers from the broker definition.

While some in the crypto community may contest the classification of decentralized exchanges (DEXes) as brokers on the new form, the IRS is expected to uphold its position by arguing that DEXes can identify users and enforce Know Your Customer (KYC) requirements.

As the IRS moves towards tighter regulation of cryptocurrency transactions, impacted taxpayers and industry stakeholders should stay informed about these proposed changes to ensure compliance and potentially mitigate any privacy concerns that may arise.