IRS Releases Draft Tax Form for Digital Assets – What It Means for Crypto Holders

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The Internal Revenue Service (IRS) has taken a major step toward formalizing cryptocurrency tax reporting with the release of a new draft tax form—Form 1099-DA. Designed specifically to capture gains from digital asset transactions, this form marks a pivotal moment in the U.S. government’s approach to regulating and monitoring crypto activity. Set to apply for the 2025 tax year, Form 1099-DA will require brokers, including non-custodial wallet providers, to report detailed transaction data directly to both taxpayers and the IRS.

This development signals a shift from the current patchwork of self-reported crypto taxes to a more structured, centralized reporting system—similar to how stock brokers report capital gains. As digital assets become increasingly integrated into mainstream finance, the IRS is moving to ensure compliance, transparency, and traceability across the ecosystem.

Understanding Form 1099-DA: Purpose and Scope

Form 1099-DA, titled "Digital Asset Broker Transaction Report," is intended to document gains realized from the sale or exchange of digital assets through broker platforms. The form will require brokers to disclose key details such as:

In addition, the form introduces specific fields that go beyond traditional financial reporting—most notably, the inclusion of wallet addresses and transaction IDs (TxIDs). These data points allow the IRS to map transaction flows on public blockchains, raising important questions about privacy and data security.

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Who Must File Form 1099-DA?

The IRS defines a “broker” broadly under this new framework. Entities required to issue Form 1099-DA include:

Notably, the inclusion of non-custodial wallet providers has sparked debate within the crypto community. Traditionally, non-custodial wallets—like MetaMask or Trust Wallet—allow users full control over their private keys without requiring identity verification. However, under the proposed rules, these services may now need to collect Know Your Customer (KYC) information before enabling certain interactions with centralized platforms.

Shehan Chandrasekera, Head of Tax Strategy at CoinTracker, emphasized the significance of this expansion:

“This is the first tax form specifically designed to collect personal identity and granular transaction data at scale from crypto brokers. From January 1, 2025, centralized and even some decentralized platforms will be obligated to generate a 1099-DA for every sale transaction.”

Privacy and Security Concerns in Focus

While enhanced reporting aims to improve tax compliance, experts warn of potential risks tied to data collection—especially when it involves blockchain identifiers like wallet addresses and TxIDs.

Why Wallet Addresses Matter

Unlike traditional bank accounts, cryptocurrency wallets are pseudonymous: they don’t inherently reveal user identities but can be linked through transaction analysis. By mandating brokers to report wallet addresses involved in sales and transfers, the IRS gains powerful tools to de-anonymize users by cross-referencing on-chain data with KYC information from exchanges.

Chandrasekera highlighted several sensitive data points now required on Form 1099-DA:

These fields create a comprehensive audit trail, enabling regulators to reconstruct user behavior across platforms and time.

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Impact on Decentralized Finance (DeFi)

One of the most significant implications of Form 1099-DA lies in its potential impact on DeFi protocols and peer-to-peer transactions. If non-custodial wallet providers are treated as brokers, users may face increased friction when interacting with dApps (decentralized applications), staking platforms, or liquidity pools.

Chandrasekera warned:

“Users may soon need to undergo identity verification just to connect their wallets to certain platforms. This could fundamentally alter how we interact with DeFi today—and challenge the core principles of decentralization and permissionless access.”

Developers and privacy advocates argue that such requirements could push innovation offshore or encourage greater use of privacy-preserving technologies like zero-knowledge proofs and stealth addresses.

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Frequently Asked Questions (FAQ)

What is IRS Form 1099-DA?

Form 1099-DA is a draft tax form released by the IRS to standardize reporting of gains from digital asset transactions. It requires brokers to report details like sale dates, proceeds, cost basis, and blockchain-specific data such as wallet addresses and transaction IDs.

When will Form 1099-DA take effect?

The form is expected to apply to transactions occurring in the 2025 tax year, with reporting beginning in early 2026. However, final guidance may adjust timelines based on public feedback.

Do I need to pay taxes if I only transferred crypto between my own wallets?

No—transfers between wallets you own are generally not taxable events. However, under Form 1099-DA, brokers may still report incoming and outgoing addresses, which could trigger IRS scrutiny if not properly documented.

Will using a non-custodial wallet protect my privacy?

Not necessarily. While non-custodial wallets don’t hold your keys, any interaction with a regulated broker (like an exchange) may require identity verification. Additionally, blockchain analysis can link wallet activity even without direct KYC.

How can I prepare for these new tax rules?

Start by maintaining accurate records of all crypto transactions, including dates, values, wallet addresses, and purposes. Consider using compliant tax software or consulting a crypto-savvy CPA to ensure readiness for 2025 reporting.

Could this lead to broader crypto surveillance?

Many experts believe so. The collection of wallet addresses and TxIDs establishes a foundation for large-scale blockchain monitoring. While aimed at tax compliance, this infrastructure could be expanded for other regulatory purposes in the future.

Conclusion

The introduction of IRS Form 1099-DA represents a turning point in U.S. crypto regulation. By mandating detailed transaction reporting—including blockchain identifiers—the agency is building a robust framework for tracking digital asset activity across both centralized and decentralized ecosystems.

While increased oversight may enhance tax compliance and reduce evasion, it also raises valid concerns about privacy, data security, and the future of permissionless finance. As stakeholders provide feedback on the draft form, the coming months will be critical in shaping how these rules balance accountability with innovation.

For crypto holders, the message is clear: transparency is becoming mandatory. Preparing now with accurate recordkeeping and compliance strategies will be essential for navigating the evolving landscape of digital asset taxation.