This blog was last updated on May 6, 2025
Sovos recently participated in a roundtable discussion facilitated by the IRS regarding digital asset reporting requirements. This session provided valuable insights into the upcoming 2025 reporting landscape and clarified several critical points for digital asset businesses preparing for compliance.
IRS Position on 2025 Digital Asset Reporting Timeline
Based on recent industry roundtable discussions with IRS representatives, it seems as though the IRS is proceeding with the original implementation timeline for the 2025 digital asset reporting requirements. As such, organizations should continue their preparation efforts according to the established schedule.
During these discussions, industry participants primarily focused on their concerns on the backup withholding requirements scheduled for January 1, 2026. Representatives from several exchanges highlighted technical implementation challenges when coordinating these requirements with the new Form 1099-DA reporting procedures.
Technical Specifications Still in Development
The IRS team present at the roundtable, primarily from Counsel and the Digital Asset Initiative Office, was not to discuss technical details. As a result, the status of the IRIS specification for the Form 1099-DA remains unclear.
One definitive point was made, however: the IRS confirmed they will not build the 1099-DA form on the FIRE platform. When directly questioned about this possibility, IRS representatives emphasized that the FIRE system could not handle the anticipated volumes nor the downstream processing requirements for the 1099-DA data. This confirms that the IRS is only planning to support Form 1099-DA on the new IRS filing system, IRIS.
Despite the lack of specific technical updates, attendees were assured that IRS teams are actively working behind the scenes on the form specifications, as well as the various Forms and Publications that will be impacted by the introduction of this new reporting requirement.
Regulatory Clarifications Expected
While the IRS representatives avoided discussing potential changes to regulations or definitions (including the recently overturned DeFi regulations), the conversations suggested that the agency may be considering developing FAQs or updates to the instructions for the Filer based on specific scenarios discussed during the call.
Key Industry Questions Addressed
Several important clarification questions were raised during the roundtable:
Custody Services Reporting Requirements
Representatives from a custody services provider sought to determine whether they are required to report, given that they do not execute payments but rather serve as a wallet service provider. This question highlights the ongoing need for clarity around which entities qualify as “brokers” under the regulations.
Alternative Reporting Options
- Participants inquired about the possibility of using Form 1099-B instead of Form 1099-DA for Limited Access Regulated Network transactions. With limited exceptions, dual classification assets (both securities/commodities and digital assets) are required to be reported on Form 1099-DA.
- Traditional assets tokenized on blockchain. When traditional assets are tokenized on a blockchain, they become dual classification assets reportable on Form 1099-DA, not Form 1099-B. The IRS did give transitional relief for sales of tokenized assets for cash effected in 2025 only.
Digital Asset Middleman Rules
There appeared to be some uncertainty regarding the status of crypto ATM operators under the 1099-DA reporting requirements. While some operators had interpreted that they might be out of scope for reporting due to changes in the DeFi rules, IRS Counsel suggested that operators should examine both the original T.D. 10,000 regulations and the DeFi regulations together, as the middleman provisions appear to be interconnected across these frameworks. This guidance indicates that crypto ATM operators may potentially still have reporting obligations, though the precise scope and application of these requirements could benefit from further clarification.
Digital Asset Token Identifier Challenges
Industry participants highlighted significant issues with the reliability of data from the Digital Asset Identification Foundation (DTIF) Registry, which the IRS requires brokers to use for identifying the asset that gave rise to the sale being reported on Form 1099-DA. For example, USDC is traded on multiple blockchains, resulting in numerous variations of tokens like USDC (e.g., USDCxxxx) in the registry. This will likely result in many assets being reported with the ‘999999999’ identifier code. The IRS seemed surprised by this information, suggesting a potential area for future regulatory adjustment.
TIN Matching System Capacity
A critical operational concern raised was whether the IRS TIN Matching System could handle the anticipated volumes for 2025. One major exchange cited the need to match 34 million records. When asked to comment, Sovos shared that the system has historically faced performance issues, though the company has developed technology to address these limitations. The IRS also confirmed that third parties like Sovos can perform TIN matching on behalf of customers, which may provide a solution for organizations facing high volumes.
Sovos’ Perspective
As the industry moves closer to the 2025 implementation deadline, it’s clear that the IRS is committed to the timeline but still finalizing critical details. Organizations should continue their compliance preparations while staying alert for forthcoming clarifications, particularly regarding technical specifications and reporting edge cases.
Sovos recommends that digital asset businesses:
- Proceed with implementation plans for 1099-DA reporting based on currently available information.
- Develop robust TIN collection and validation processes.
- Evaluate whether their organization’s business model falls clearly within the broker definition.
- Prepare for backup withholding requirements, though be aware there may be advocacy for delays.
As a leader in tax information reporting, Sovos remains at the forefront of these regulatory developments and is committed to helping clients navigate the evolving compliance landscape for digital assets.
Sovos will continue to share updates as more information becomes available from the IRS regarding technical specifications, clarifying guidance, and any potential adjustments to the implementation timeline. To learn more about Form 1099-DA reporting, download our free guide.
