IRS releases FAQs on crypto broker reporting

The Internal Revenue Service has posted guidance in the form of questions and answers on digital asset broker reporting on the new Form 1099-DA.

The requirement for companies to report on crypto transactions emerged under the Infrastructure Investment and Jobs Act of 2021. It classifies crypto exchanges and trading platforms as brokers and requires them to report on their customer's gains and losses to the IRS every year starting with tax year 2025. Customers and the IRS are supposed to start receiving the forms in time for the 2026 tax season.  The Treasury and the IRS issued final regulations on the reporting, which is required to be made on Form 1099-DA, beginning with transactions on or after Jan. 1, 2025.

The FAQ page, posted last week on IRS.gov, explains the rules for a number of different scenarios, such as digital asset kiosks and terminals, custodial digital asset brokers, and businesses that provide custodial services to large digital asset institutions and investors, but don't execute sales transactions themselves.

"Several questions address the treatment in some cases of transfers and transactions based on customer-provided acquisition information and provide additional instructions on how to fill Form 1099-DA in those scenarios," said Tomer Siegal, vice president of product at the Ledgible, a provider of crypto tax and accounting software, in a LinkedIn post.

He noted that the FAQs also provide more examples and clarifications on the allocation and treatment of transaction fees in various scenarios. "The FAQs affirm that digital asset kiosks that effect sales of digital assets are digital asset middlemen, subject to the section 6045 reporting obligations, and must file a Form 1099-DA," he wrote. "A business that only provides custodial services and transfers assets to an exchange (without effecting the sale itself) generally does not have a reporting obligation. A custodial broker is permitted (but not required) to use "reasonably reliable" acquisition information, such as statements from a transferring custodial broker, to determine lot ordering for a sale. However, this information generally cannot be used to report the basis on Form 1099-DA."

The FAQ also acknowledges a mistake in the 2025 Form 1099-DA, Siegal pointed out, where it incorrectly states that the gross proceeds for sales of nonfungible tokens where there are gross proceeds attributable to first sales by the creator or minter of the NFT should be reflected in Box 1f (Proceeds) and Box 11c (aggregate reporting of specified NFTs attributed to 1st sale by minter). The IRS only wants you to report the gross proceeds in Box 11c and to leave Box 1f blank. The FAQs also confirm that for testing whether a qualifying stablecoin has "de-pegged" (that is, deviated significantly from the value of its reference asset), a broker only needs to consider if the stablecoin de-pegged on its own trading platform.

"A number of FAQs address brokers accepting 'customer provided acquisition information' (CPAI) for purposes of ordering the correct cost basis lot disposals," wrote Jessalyn Dean, senior policy advisor of U.S. tax reporting for Ledgible, in a separate LinkedIn post. "But they use a very unlikely example of the transferring broker sending purchase confirmations (e.g. PDFs). I wish they had given clarity instead with the more realistic example of a taxpayer wanting to link up their retail crypto tax aggregator software. Brokers are not going to be 'sending purchase confirms' to each other."

Some of the FAQs deal with specific checkboxes on Form 1099-DA. "Q4, Q5, and Q6 confirm that Box 8 (check if broker relied on CPAI) will be checked in perpetuity for all sales/exchanges until all assets in the account are sold, even if that specific sale/exchange was not 'impacted' by the reliance on CPAI," Dean wrote. "Q9 highlights that there is a mistake in the 2025 Form 1099-DA instructions for sales of NFTs where there are gross proceeds attributable to first sales by the creator or minter. The instructions incorrectly state that both Box 1f (Proceeds) and 11c should be completed. It turns out that the IRS only wants you to report the gross proceeds in Box 11c and to leave Box 1f (Proceeds) blank. This will surely cause confusion."

The de-pegging can apply across different crypto companies. "Q14 confirms that for testing whether a Qualifying Stablecoin has de-pegged during the 10-day measurement period, a broker only needs to consider if the stablecoin de-pegged on its own trading platform," said Dean. "So Coinbase will not need to know if USDC has de-pegged on Binance in order to classify the asset as a Qualifying Stablecoin in their own (Coinbase) Form 1099-DA reporting."