April 17, 2025 - Regulation has come for the digital asset community. Effective January 1 of this year, brokers who sell digital assets such as cryptocurrencies, tokens, non-fungible tokens, and more must report their sale via a new type of 1099 form for digital assets.

This brings digital asset brokers up to the same obligations traditional financial asset brokers have long been held to — with minimal warning. Whereas the traditional finance industry had decades to grow compliant, this change has been implemented in just three years.

While brokers will not need to report their activity until January 1, 2026, they must start collecting this information this year. This article briefly explains the new regulations and some requirements and obligations. For a fuller understanding, watch this in-depth webinar.

What Do the Regulations State?

The digital asset broker regulations are about identification and compliance. Taxpayers have always had to report gains from sales or exchanges of digital assets on their income. By forcing brokers to report transactions on a 1099, the Treasury hopes to increase tax compliance, and their visibility into digital asset transactions. It expects this to reduce “the number of inadvertent errors” or noncompliance on the taxpayer’s federal income returns.

This 1099 requirement is more difficult than the reporting that traditional financial brokers must observe. The new 1099-DA form requires reporting of a single transaction on a single form. Therefore, an individual with 100 trades might receive 100 copies of form 1099-DA.

• In short, the broker regulations require that digital asset brokers report the gross sale proceeds of all transactions beginning with the tax year 2025. The brokers must then also begin basis reporting and backup withholding beginning with the tax year 2026.

Who Counts as a Digital Asset Broker?

Brokers are defined as any person or entity that, in the ordinary course of a trade or business, "stands ready to effect sales” of digital assets made by others. This applies to persons or entities that are acting both as agents and principles in the sale, as well as the participant in the sale responsible for distributing gross sales proceeds to the seller, and entities meeting a separate definition of a “digital asset middleman”. More than one entity can meet the definition of a “broker” in a single transaction.

Other definitions in the treasury department regulations also expand the scope of the “Broker” definition. For example, the definition of a sale includes forward contracts, which are often used in the digital asset industry in the form of a Simple Agreement for Future Tokens (SAFT). Entities that regularly offer to redeem their own self-created tokens are specifically listed as brokers. Additionally, the term “digital asset middleman” includes facilitative services such as processing payments of digital assets, accepting digital assets for stored value cards, digital asset ATM operators, and real estate reporting persons.

Therefore, these rather expansive definitions include many entities that don’t consider themselves to be brokers in the traditional sense.

Might My Entity or Customers Be Exempt?

The U.S. Treasury Department was created to manage the federal finances for the U.S., and citizens/entities under its jurisdiction. But having an entity merely incorporated outside of the United States is insufficient to fully avoid this reporting obligation. Code section §1.6049-5(c)(5) includes six different categories of entities that are subject to these rules, requiring an entity assess its:

Potential status as a “U.S. Person”:

1. The location of its owners, and potential status as a “Controlled Foreign Corporation"
2. The source of its income, and if that income is “effectively connected” to the United States
3. The place where it was formed or laws under which it was organized
4. The location of its business units and offices

The treasury department ruling allows for many different exemptions for 1099-DA recipients, such as exemptions for:

• Corporations
• Governments
• Trusts
• Retirement plans
• Tax-exempt organizations such as not-for-profits
• Other dealers in securities or commodities
• Real estate investment vehicles
• Financial institutions

If a company’s customers are exempt foreign persons, they do not need to be provided with 1099-DA forms. However, a broker must take active steps to obtain valid documentation to support their customer’s claim of foreign status or another exemption.

Therefore, many companies that may not need to file any 1099-DA forms will nevertheless need to undertake a review process to confirm their status and the status of their customers.

Next Steps for Digital Asset Brokers

If you are a digital asset broker, you must record all relevant transactions for this entire year, file a 1099-DA in January 2026, and issue 1099s to each of your clients summarizing their transactions. This requires a multi-layered assessment process. Reporting requirements generally differ for:

1. Each entity in a corporate structure
2. Each service line or transaction type the entity offers
3. Each customer based on their status as U.S. Persons
4. Each customer relationship
5. Each type of digital asset (Stablecoin and NFTs have modified reporting requirements)

Filing 1099-DA forms in January 2026 requires the above assessment, as well as development of systems and procedures to capture the correct data, export the data to 1099-DA forms, validate the accuracy of the forms, and process and send out the 1099-DA forms to the appropriate parties. Companies need to start this process now in order to meet the filing deadlines.

The U.S. Treasury also requires brokers to maintain records for seven years from the point of a transaction. It is not a running seven years, total, but rather seven years after the gross proceeds are credited. This means a broker that acquires a digital asset for a customer and holds it for 20 years before the customer sells it, must maintain purchase records for 27 years in total.

Have Further Questions?

This article is a brief summary of the new regulations. For a complete understanding of the details, watch Citrin Cooperman Partner Mark DiMichael speak on the topic during this webinar or reach out to Citrin Cooperman's Digital Asset Industry Practice.