Navigating the complexity of 1099-DA (crypto tax) compliance

Is your business prepared for the new IRS digital asset reporting requirements?

Brokers that take possession of the digital assets being sold by their customers, including operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks and certain processors of digital asset payments (PDAPs), are now required to report gross proceeds on sales of digital assets for Form 1099-DA.

In the following years, more requirements will be phased in by the IRS. Custody brokers need to ensure they navigate new regulations for trading transactions they effectuate without much disruption to their operations. Beyond remaining compliant, businesses need a well-designed, reliable and scalable tax compliance solution.

Being ready requires a thorough understanding of the current and future 1099-DA requirements, how to implement them, and how it plays into an organization’s overall tax compliance strategy.

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What is
Form 1099-DA?

“Digital Asset Proceeds From Broker Transactions,” or Form 1099-DA, is created specifically to standardize the reporting of transactions involving digital assets.

The key intent was to address concerns regarding potential underreporting of digital asset transactions and ensure better tax compliance within the cryptocurrency ecosystem.

What’s the IRS’ intention in implementing
this form?

Final regulations for
Form 1009-DA

The final regulations apply to brokers and businesses that hold digital assets being sold by its customers, including certain operators of custodial digital asset trading platforms and processors of digital asset payments.

These businesses are required to report gross proceeds for certain transactions for the 2025 calendar year in 2026, though there is no mandatory requirement to report cost basis information.

Effective on or after January 2026, brokers are required to report transactions of digital assets that count as covered securities.

"Organizations should prioritize understanding the new regulations now and well ahead of tax season to ensure they’re prepared to report 2025 transactions on the new 1099-DA form."

Wendy Walker
VP, Regulatory Affairs (Regtech), Sovos

Did you know.... 8 billion 1099-DA forms are expected to be filed in 2026?

"With billions of 1099-DA forms expected, the sheer scale of reporting will test even the most prepared organizations. Manual processes won’t cut it—technology and automation are essential to keeping pace with the IRS’ expectations."

Wendy Walker
VP, Regulatory Affairs (Regtech), Sovos

A closer look at Form 1099-DA’s specific informational reporting requirements for 2025

Here’s what the IRS expects you to report when it comes to certain types of digital assets:

  • Detailed cost basis (optional for 2025 transactions)
  • Gains and losses (Only required for 2025 if cost basis is reported in Box 6)
  • Gross proceeds
  • Whether the digital asset is a non-covered security

…1099-DA still requires complex reporting.

Think about the IRS’ goal: It wants increased visibility into crypto transactions in order to enforce income tax compliance. 

That means businesses need to be intimate with what’s required to ensure accurate data to report to the IRS.

The final form is simpler, but…

Reporting digital assets will also come at the state level, Montana was the first state to announce a 1099-DA reporting requirement, and it’s likely that other states may soon follow. Read more about the reporting requirement.

Brokers need to be prepared….

Not being in compliance could mean your business faces penalties up to $4,098,500 per year, and increases with inflation.

Consider what it could mean if you don’t have the right systems and processes in place to easily meet Form 1099-DA requirements. 

It’s not only about paying penalties.

It’s also about ensuring your business is well-positioned to be more efficient in all aspects of ever-changing reporting requirements. 

"Non-compliance doesn’t just mean fines. It could mean audits, operational delays, and loss of trust from customers and regulators. Investing in compliance now protects your business in the long term."

Wendy Walker
VP, Regulatory Affairs (Regtech), Sovos

Accurate reporting for Form 1099-DA and beyond means having increased real-time visibility into all your data.

Here’s now you can prepare for any other clarifications or changes to regulatory developments for Form 1099-DA:

  • Create or refine strong processes for TIN collection and validation for 1099-DA reporting
  • Ensure your organization is prepared to meet backup holding requirements
  • Ensure robust box-level validations to ensure data reported is accurate
  • Consider using 1099 reporting solutions that offer more automation such as Bulk TIN matching, real-time TIN verifications, and other types of enhanced data validations for electronic statements

Staying ahead and alert of current and future Form 1099-DA requirements

What is your strategy to stay compliant?

Form 1099-DA requirements add another layer of complexity, one that requires you to accurately collect, verify, and aggregate large volumes of transaction data. Otherwise, your tax team can quickly get overwhelmed.

Effective technology solutions act as the foundation in managing reporting compliance.

Your organization’s success requires a scalable solution that can accurately report transactions and ensure accurate withholding. Tools like ones offered at Sovos provide the automation and accuracy to streamline operations and build trust.

Instead of cobbling together manual and random software, the right technology can automate repetitive tasks, detect any compliance issues that have to do with tax reporting requirements, and ultimately help optimize workflows across your organization.

“As this is the first year of 1099-DA reporting, both the form and filing process will evolve as governments and taxpayers adapt. States will likely follow with their own versions, each with their own format.”

Wendy Walker
VP, Regulatory Affairs (Regtech), Sovos

Looking for more insights?

Download Sovos’ detailed guide on navigating 1099-DA compliance, including regulatory requirements to best practices you can implement today. We’ve been a trusted partner in broker reporting and have since expanded into digital asset reporting using a proven solution to help our businesses remain compliant.