Sudden Introduction of New 1099-DA Draft in the U.S.! Uncommon Signal from IRS: Extensive Collection of Bitcoin Trader Identities and Wallet Address Transfer Data

On Friday (April 19), the U.S. Internal Revenue Service (IRS) released the first tax form draft dedicated to digital asset transactions, known as 1099-DA. This form is intended for use in the 2025 tax filing system and aims to report gains on digital assets traded by brokers. Experts warn that the new draft allows for the extensive collection of identities of Bitcoin traders, as well as additional data on crypto wallet address transfers.

According to the newly proposed 1099-DA draft, brokers must use the 1099-DA form to report the gains processed on digital assets to taxpayers and the IRS. In some cases, the basis of the digital assets processed must also be reported.

Source: IRS

Currently, the IRS is seeking public comments on this draft form, indicating that it is a preliminary version and may still change based on the final outcomes of the tax rules proposed by the authorities in 2023.

CoinDesk reports that this tax form has raised widespread concerns and privacy issues within the industry. Some cryptocurrency companies are nervous about how the IRS will identify digital asset brokers who need to comply with new tax regulations, as the IRS is considering including wallet service providers, decentralized platforms, and payment processors in the definition of a broker.

This means that the new draft could threaten the development of the decentralized finance (DeFi) market.

The form requires brokers to specify their type, including operators of self-service terminals, digital asset payment processors, custodial/non-custodial wallet providers, or other digital asset taxpayers.

Market experts believe that this digital asset tax form draft is likely to raise significant privacy and security concerns.

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Over the weekend, Shehan Chandrasekera, Tax Strategy Director at cryptocurrency tax firm Cointracker, wrote on Twitter: "I think that cryptocurrency will no longer be pseudo-anonymous or privacy-protected, at least in the United States."

He explained that the 1099-DA form is the first tax form specifically designed to collect, on a large scale, the identities and detailed transaction data of digital asset traders from brokers.

"Starting January 1, 2025, brokers, including CeFi exchanges, certain DeFi exchanges, and wallets, will need to generate this form for every sale transaction and submit the information to the IRS," he continued.

He further noted that in addition to trying to capture basic information about crypto assets, such as purchase and sale dates, gains, etc., the 1099-DA form also collects some surprisingly additional data, including the transaction ID (TxID), wallet addresses of sales/transfers, and the number of digital assets sold/transferred. Especially, the collection of wallet address data might lead to significant privacy and security issues.

He also warned that, despite previous backlash from the DeFi industry, the new 1099-DA draft form still intends to include non-custodial wallets within the definition of a broker, meaning that "in the future, you may need to provide KYC information before creating a non-custodial wallet and while interacting with platforms through it."

"This could greatly change the way users interact with cryptocurrency platforms."

"This will change the DeFi market as we know it today."