Baker McKenzie partner David Zaslowsky and associate Max Holleman published an article in Tax Notes examining the IRS’s new Form 1099‑DA and its potential consequences for cryptocurrency owners, particularly those engaged in decentralized finance (DeFi).
IRS Form 1099-DA, “Digital Asset Proceeds,” is being rolled out starting with the 2025 tax year. With this new form, the federal government is moving crypto reporting toward the familiar broker-based regime long used for stocks and bonds. However, for those who actively engage with DeFi, Form 1099-DA may cause increased confusion, inaccurate reporting, and other problems stemming from the mismatch between how crypto transactions actually function and how they will be reported on the form.
David and Max explore challenges arising from the new reporting framework, including the definition of “digital asset brokers,” the risk of phantom income caused by gross‑proceeds reporting, and the significant difficulties DeFi users may face in tracking cost basis. As they note, mismatches between third‑party reporting and taxpayers’ economic reality could increase audit risk, even for sophisticated and compliance‑minded crypto users.
The article provides practical considerations for crypto owners, including the importance of maintaining independent records, understanding transaction character, and working with tax professionals who understand DeFi protocol mechanics.
Read the full article in Tax Notes here.