What Crypto Accountants Must Know on IRS 1099DA & Rev Proc 2024-28.

What are the biggest concerns with the new IRS broker regulations?

Nik Fahrer: A lot of concerns stem from the IRS’s new 1099-DA regulations. The final broker rules were released in June 2024 after the proposed regulations came out in 2023. With over 400 pages of new guidance, brokers are overwhelmed. The good news is that the definition of "broker" has been narrowed, currently only applying to custodial brokers. That said, the IRS has hinted that non-custodial brokers will also face regulations soon, so there’s more to come.

How are brokers preparing for the IRS 1099-DA form?

Nik Fahrer: Custodial brokers are now working on processes to comply with these new regulations. The 1099-DA form divides digital assets into two groups: covered securities and non-covered securities. Covered securities are digital assets purchased and held in custodial accounts on or after January 1, 2026. These require more detailed reporting, such as cost basis. Non-covered assets are still reported, but without the cost basis, and that’s going to impact how crypto accountants track and report transactions.

What happens with non-custodial or on-chain digital assets?

Nik Fahrer: If digital assets aren’t in a custodial account, they’re considered non-covered under the 1099-DA form. Even though the form won’t track cost basis for non-covered assets, taxpayers still need to report these transactions. This makes record-keeping more critical than ever. Without proper records, taxpayers risk underreporting or overreporting their transactions.

How does Rev Proc 2024-28 change tracking cost basis?

Nik Fahrer: The universal method of accounting is now being eliminated by Rev Proc 2024-28. Instead of aggregating cost basis across all wallets and accounts, taxpayers must switch to a wallet-by-wallet or account-by-account method. This change is effective January 1, 2025, which means crypto accountants have to adjust their record-keeping fast. There’s a safe harbor period, which allows taxpayers to transition until December 31, 2024. After that, if you haven’t switched, you’re at risk of being out of compliance.

What do crypto accountants need to do before the deadline?

Nik Fahrer: The safe harbor is a one-time opportunity for crypto professionals to transition their cost basis tracking by December 31, 2024. The IRS allows taxpayers to make necessary adjustments during this period without facing penalties. The key step is to document and allocate cost basis across accounts by the end of 2024. If they don’t, it could result in audits or paying more in taxes than necessary, especially if cost basis isn’t tracked correctly.

What are the penalties for not complying by January 1, 2025?

Nik Fahrer: After January 1, 2025, if crypto accountants haven’t adjusted to the new rules, the IRS could initiate audits. The biggest risk comes from incorrect cost basis reporting, which could lead to overpaying taxes or worse—fines for underreporting. Taxpayers who don’t comply with Rev Proc 2024-28 by that date will face more scrutiny from the IRS.

What challenges are crypto accountants facing?

Nik Fahrer: Awareness is the biggest challenge right now. Not enough accountants are talking about the changes coming with Rev Proc 2024-28. Crypto accountants need to act now, as there are only a few months left before the December 2024 safe harbor deadline. Failing to meet the requirements will lead to serious compliance issues.