IRS: ‘Unhosted Wallets’ as Brokers in Crypto Tax Form

On April 19, the IRS introduced a draft of the 1099-DA form, which includes unhosted crypto wallets, sparking criticism from experts like Ji Kim of the Crypto Council for Innovation and Shehan Chandrasekera of CoinTracker.

They argue that unhosted wallet providers often lack visibility into crypto transactions, leading to potential privacy and security risks for users, especially with additional KYC verifications for unhosted wallets and DeFi platforms.

The form requires brokers to report on-chain data like transaction IDs and wallet addresses. While Chandrasekera voiced concerns about these requirements, Jessalyn Dean from Ledgible noted an exemption allowing brokers to omit certain data, which she considers essential given many brokers’ internal transaction handling.

According to Dean, the form also mentions “Wash sale loss disallowed,” which doesn’t affect crypto but applies to other digital assets.

This draft follows President Biden’s 2021 Infrastructure Act, which categorized some crypto services as brokers. The IRS and Treasury proposed a similar form in August 2023. Despite its release, the form remains in draft and is not yet for tax reporting. Ledgible has announced a 60-day public comment period.

Additionally, the IRS has advised individual crypto investors to report their activities using Form 1040, with a recent warning about potential tax evasion in the crypto space.

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