The Digital Chamber recently submitted crucial feedback on the IRS draft Form 1099-DA. The proposed Form 1099-DA for digital asset transactions, is designed for taxpayers to report gains and losses from digital assets. The current proposal requests excessive and potentially intrusive information. There must be a clear and streamlined reporting process to reduce audit risks.

What is happening:

  1. The Current Draft Form 1099-DA: The Draft Form 1099-DA requests excessive information beyond what is necessary for tax reporting, including fields like sale transaction IDs and digital asset addresses, which raises privacy concerns.
  2. Administrative Burdens: The current draft imposes administrative burdens on taxpayers and digital asset brokers, particularly smaller firms and startups, who must update systems to accommodate the new reporting requirements.
  3. Recommendations for Final Form: The Digital Chamber has submitted recommendations to the Internal Revenue Service (IRS) to streamline the final version of Form 1099-DA by including only essential information needed for tax reporting purposes, with additional details retained by brokers for potential examination needs.

Why it is important:

  1. Balancing Reporting Burdens: Streamlining the form helps digital asset brokers by reducing unnecessary reporting tasks and privacy concerns. It also makes sure that regulatory requirements are practical and cost-effective.
  2. Accuracy and Audit Readiness: Accurate reporting and specifying different tax treatments for items like non-fungible tokens (NFTs) or Qualified Opportunity Fund interests on the final form can reduce audit issues and help the IRS maintain efficient processes.

The Digital Chamber’s Action:

  1. The Digital Chamber is pushing the IRS to provide detailed instructions to ensure accurate reporting. The form should account for different tax treatments for assets like NFTs. It’s necessary to get this right to avoid audit issues.
  2. TDC is working with the IRS and Treasury to shape fair rules that support both innovation and compliance.

View the full Comment Letter here.

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