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Digital Asset Reporting in 2026 Filing Season Presents Challenges for Brokers and Traders

Digital Asset Reporting in 2026 Filing Season Presents Challenges for Brokers and Traders

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    The IRS has released draft instructions for Form 1099-DA, Digital Asset Proceeds From Broker Transactions. The release implements the new requirements that brokers must report information on 2025 sales and exchanges of digital assets by U.S. customers in 2026, with additional stages of reporting and backup withholding coming into effect for 2026 transactions. Information reporting forms will be sent to the IRS and to customers. Even with the new instructions, brokers and crypto traders will face issues with the scope of reporting, which brokers and which digital assets come under the exceptions, and how to prepare for tracking cost basis information next year.

    The 2021 Infrastructure Investment and Jobs Act mandates that both individuals and businesses who receive $10,000 or more in digital assets report to the IRS the name, date of birth and Social Security number of the person who makes transfers during the year. Full reporting has been delayed by the IRS until now, and the Trump Administration, in its digital asset policy report, has urged Treasury and the IRS to work to relief compliance burdens on the industry.

    Reporting Timeline

    The reporting will take effect in two steps:

    • 2025 Transactions: Brokers must report gross proceeds for all digital asset sales occurring on or after January 1, 2025. No basis reporting is required for 2025 transactions.
    • 2026 Transactions: The additional reporting of cost basis information becomes mandatory for “covered securities” (certain digital assets) for transactions occurring on or after January 1, 2026.

    Definition of Broker

    The IRS identifies brokers are as follows:

     A broker includes any person who, in the ordinary course of a trade or business, stands ready to effect sales of digital assets to be made by others.

    You are considered a broker with respect to sales of digital assets if:

    • You are a person that regularly offers to redeem digital assets that were created or issued by you, or
    • You effect dispositions of customers’ digital assets as an agent, a dealer, or digital asset middleman.

    This language is considered to be a broad definition of broker and includes operators of custodial digital asset trading platforms, digital asset hosted wallet providers, centralized exchanges and other intermediaries and middlemen. However, transitional relief has delayed the application to some non-custodial entities like decentralized exchanges (DeFi).

    The IRS has provided transitional relief to help brokers implement the new rules, including penalty relief for missed reporting and for incorrect voluntary basis reporting for 2025 transactions, and an extension of backup withholding relief through 2026.

    Information Required on Form

    The standard information required on Form 1099–DA includes:

    • Name and address of taxpayer
    • TIN number
    • Code for digital asset and name of digital asset
    • Number of digital asset units sold
    • Transaction date
    • Gross proceeds and type of sale, i.e., cash, services, other property
    • Whether the broker relied on customer-provided acquisition information

    When basis reporting kicks in for the 2026 tax year, brokers must also report:

    • Adjusted basis of the asset sold
    • Date the asset was originally purchased
    • Whether the sale yields short–term, long–term or ordinary gain or loss

    Covered Securities and Digital Assets

    The instructions describe covered securities as digital assets acquired after 2025 for cash, stored-value cards, different digital assets or any property or services for which the broker provided custodial services. A digital asset is a covered security only if it was held in that account at all times until the broker assists in disposing of the assets. It is important to note that any digital asset acquired before 2026 or transferred into a broker’s platform before 2026 is a “noncovered security” and brokers do not report basis for those assets.  

    Under the instructions, a digital asset is any digital representation of value that is recorded on a cryptographically secured distributed ledger (such as a blockchain or any similar technology) and that is not cash (that is, U.S. dollars or any convertible foreign currency issued by a government or central bank).

    Because of the evolving government approach, it is likely to take a few years for the scope of compliance for brokers and crypto traders to stabilize. It is important for both the 2025 and 2026 reporting years that those involved in digital asset investment to put in place the mechanisms needed to track and report covered assets.

    Interesting Crypto Data Points

    • According to Coinbase, the market value of cryptocurrencies as of mid-December 2025 is $2.94 trillion.
    • About 28% of Americans or 65 million people hold crypto assets, according to Security.org.
    • Among those who plan to buy crypto, Bitcoin, Ethereum and Dogecoin are among the top three most desired currencies, also noted by Security.org.

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