The Coming Changes to Crypto Compliance: Rev. Proc 2024-28 & Form 1099-DA Reporting

In 2024, Bitcoin more than doubled in value, while Litecoin surged 50% and Ethereum grew 80%. At the same time, crypto super PACs poured over $100 million into the latest election cycle, contributing to a shifting regulatory landscape. Whether driven by significant market gains, a more crypto-conscious legislative body, or increased staffing, the Internal Revenue Service (IRS) has taken a sharper focus on digital assets and their reporting requirements.

The introduction of Revenue Procedure 2024-28 and Form 1099-DA marks the agency’s latest move to track and tax crypto transactions. With these changes beginning in 2025 and fully taking effect in 2026, they could signal just the beginning of a broader transformation in crypto compliance.

Tax Year 2024: Limited Guidance & Complexity for Investors

Through tax year 2024, investors have had little firm guidance on calculating gains and losses from crypto transactions or allocating basis. Since cryptocurrency was classified as property in 2014, crypto investing has grown in both popularity and complexity, with many investors holding multiple wallets – either directly on blockchains or through brokers.

The Challenges of Cost Basis Allocation

When selling digital assets, taxpayers must determine cost basis using “any reasonable allocation of units of unused basis to a wallet or account.” Many have relied on the “universal” method, calculating basis across their entire digital asset holdings rather than distinguishing by asset or wallet. This approach simplified record-keeping by allowing first in, first out (FIFO), last in, first out (LIFO), or weighted average cost calculations to apply to an entire asset class.

The Role of Brokers in Reporting Crypto Transactions

For digital assets held by a broker, taxpayers are accustomed to receiving year-end gain/loss or transaction reports, often with crypto sales reported on Forms 1099-B, where the broker determines cost basis allocation. Staking and crypto-reward income has typically been reported on Form 1099-MISC.

While these forms provided taxpayers with useful information for preparing their tax returns, the new updates shift more basis tracking responsibilities to brokers, offering clearer informational reporting. However, taxpayers must understand the implications of noncompliance and how to navigate the new reporting requirements effectively.

Tax Year 2025: Transition to Updated Reporting Requirements

For assets purchased after January 1, 2025, the IRS initially planned to require taxpayers to default to a wallet-by-wallet FIFO cost basis allocation or opt into a specific identification method. Many taxpayers may have already received emails from their brokers about this change.

Broker Technology Updates & Transition Relief

On January 1, 2025, the IRS issued Notice 2025-07, giving brokers an extra year to update their technology for basis allocation requirements. In the meantime, brokers may use alternative methods to allocate the basis of digital assets sold. We recommend taxpayers establish a documented allocation methodology for the assignment of basis to all 2025 digital asset transactions.

Regulations 1545-BR39 clarify that the IRS considers decentralized finance (DeFi) platforms, such as Aave, Uniswap, and MakerDAO, to be digital asset brokers. These platforms facilitate cryptocurrency trading and peer-to-peer payments without taking custody of assets. However, the IRS classifies them as brokers because they enable the buying and selling of digital assets. As part of the transition, the IRS has granted DeFi platforms relief from withholding requirements on asset sales until January 1, 2028.

Specific Identification & Additional Reporting Costs

Taxpayers can still opt for a specific identification cost basis allocation, but this requires tracking details such as purchase date and time, purchase price, sale date and time, and fair market value – adding administrative costs. Those who had not previously used a FIFO method of cost basis allocation may face a higher tax liability than expected under the new transition.

The Impact of Form 1099-DA Reporting Requirements

Starting in tax year 2025, the IRS introduced Form 1099-DA, providing taxpayers with informational returns on their digital asset holdings. Brokers must distribute these forms to clients by February 16, 2026, and submit them to the IRS by March 31, 2026. For the first filing, brokers will only be required to report proceeds from 2025 sales.

Basis information for digital assets sold will not be required with the new form, though brokers may choose to provide it to their clients voluntarily. We recommend taxpayers discuss 2025 basis reporting with their brokers, as brokers may provide the information but won’t face penalties for incorrect reporting.

With FIFO basis reporting for covered securities fully effective in 2026, brokers may default to FIFO for any voluntarily provided basis information in 2025 unless taxpayers address this with their brokers in advance. The average basis method will also be available for digital assets that are tokenized securities and meet the requirements under Section 1012(c) or (d).

Options, futures contracts, and forwards are also subject to Form 1099-DA reporting requirements if the underlying asset is a digital asset. For broker fees paid with digital assets, the broker may combine the disposition transaction with the fee and report both the sale and expense as a single transaction on Form 1099-DA, provided the fee was paid with the same cryptocurrency that was sold.

Brokers will have the option to report sales of qualifying stablecoins and non-fungible tokens (NFTs) on an aggregate basis. They can choose to report an entire year’s activity for each specified stablecoin or NFT on a single Form 1099-DA for each type. If this optional reporting method is used, brokers will not be required to report acquisition dates or basis amounts.

To maintain their qualifying status, both stablecoins and NFTs must meet specific criteria:

• Qualifying Stablecoin: Defined under IRC §6045(g)(3)(D) as a digital asset designed to maintain a stable value relative to a specified asset, such as a fiat currency. It must be issued and redeemable on a 1:1 basis in exchange for the asset it tracks.
• Qualifying NFT: Defined in Rev. Proc. 2024-28 and IRC §6045(g)(3)(D) as an NFT that meets specific IRS criteria, including being issued on a recognized blockchain and part of a broader market where transactions are publicly accessible and tracked. These criteria ensure that the NFT is part of a legitimate and transparent market.

Brokers are also permitted to include the Form 1099-DA information on substitute statements. We expect many brokers to integrate the required digital asset details into their year-end substitute statements, which already cover Form 1099-B, Form 1099-Div, Form 1099-Int, and Form 1099-OID information.

Brokers are not required to file Form 1099-DA for exempt entities, such as tax-exempt organizations, IRAs, and corporations, or for transactions involving the staking or short sale of digital assets.

Tax Year 2026: Full Implementation of FIFO Methodology

Per Notice 2025-07, starting January 1, 2026, all brokers will be required to report the basis of securities sold using a wallet-by-wallet FIFO methodology, unless the taxpayer opts for specific identification.

New Reporting Requirements & Compliance Risks

Beginning with all sales made after January 1, 2026, brokers will be required to report both proceeds and basis for all covered securities, with voluntary basis reporting for noncovered securities. A covered security refers to any digital asset purchased after January 1, 2026, that is held in the custody of a broker. A noncovered security includes digital assets purchased before January 1, 2026, or those not held in the broker’s custody since their purchase.

Brokers will likely default to the FIFO cost basis allocation methodology for all covered securities unless taxpayers work with their brokers to implement specific identification. For all noncovered securities, taxpayers will generally need to determine the basis of assets sold, following the same reasonable methodology used for any sales of digital asset sales in 2025.

Taxpayers who fail to comply with the FIFO or specific identification methodologies for basis allocation on covered securities, or who do not meet the reasonableness threshold for noncovered securities, may face additional taxes, penalties, and interest from the IRS.

Navigating the Evolving Crypto Tax Landscape

As the IRS updates its digital asset reporting requirements, the process of compliance is becoming more complex. With the introduction of FIFO methodology and Form 1099-DA, crypto investors and brokers will face new challenges in managing their tax obligations.

Wolf’s Tax team is here to help you navigate these changes. We can assist with updated reporting requirements, manage basis allocation, and ensure your digital asset transactions comply with IRS guidelines. Our team is ready to guide you through the complexities of crypto tax compliance and help you avoid potential pitfalls. Contact us today to learn more.