Here’s the scoop:

On April 19, the IRS shared a draft version of a tax form (1099-DA) that is designed to address the reporting requirements for transactions involving digital assets, particularly with respect to unhosted wallets. It’s not set in stone yet; they’re looking for your input to refine it.

Key Update:

The IRS has introduced a new category in draft Form 1099-DA, labeling “unhosted wallet provider” as a check box. This inclusion suggests a move to categorize unhosted wallets under the broker definition, aligning with broader regulatory efforts to integrate KYC (Know Your Customer) practices into cryptocurrency interactions.

How It Could Affect You:

• For Crypto Users: You might have to reveal more about yourself (i.e., provide personal identification information) when using these wallets.
• For Platforms: Get ready for more hoops to jump through when dealing with unhosted wallets. Interactions with platforms via unhosted wallets will likely require additional verification, affecting user experience and operational dynamics.
• For DeFi: Big changes could be on the horizon, with a push for more oversight and user ID checks, which could significantly alter how DeFi operates.

Have Your Say:

The IRS is all ears! Share your thoughts at IRS.gov/FormsComments. Don’t forget to kick off your message with “NTF” plus the form or publication number (like “NTF1040”) to make sure it goes to the right place.

Note on Draft Forms:

• OMB Approval: Draft forms and instructions are pending OMB approval and are not valid for filing until officially released.
• Availability: Drafts are available at IRS.gov/DraftForms and remain accessible even after the final versions are posted at IRS.gov/LatestForms.
• Paperwork Reduction: Comments aimed at reducing filer burden should be directed through the Federal Register process. More information is available on the IRS website.

For more information on digital asset tax policy, please email policy@digitalchamber.org