In my 44 years of tax practice, I have witnessed numerous shifts in information reporting—from the early days of paper ledgers to the complex composite statements we see today. However, the introduction of digital asset reporting under IRC Section 6045 brings an entirely new challenge due to the staggering volume of transactions. To address this, the IRS and Treasury have issued proposed regulations (REG-105064-25) and Notice 2026-4, reshaping the rules for electronic furnishing of digital asset payee statements (Form 1099-DA).

Here is a breakdown of the key issues, why the IRS is taking this approach, and what it means for our clients and the brokerage industry.

Why the IRS Issued the Proposed Regulations and Notice

The core reason for the proposed regulations is practical necessity: digital asset transactions are almost exclusively conducted electronically by customers using computers and mobile applications. Under existing rules, if a customer does not affirmatively consent to electronic delivery, brokers are forced to send paper statements. Because many digital asset investors engage in hundreds or thousands of trades annually, mailing paper Form 1099-DA statements would force brokers to print and mail thousands of pages per customer, imposing an unmanageable and unnecessarily burdensome compliance cost.

At the same time, the IRS issued Notice 2026-4 because they are aware that the existing paper-default rules impose similar burdens on traditional securities brokers. Given that an overwhelming majority of U.S. adults now use the internet and smartphones, the IRS is using this Notice to request comments on whether these simplified, modern electronic consent rules should be expanded to traditional Form 1099-B statements and other payee statements.

Major Changes in the Proposed Regulations

The proposed regulations introduce a streamlined, alternative process for brokers to obtain customer consent to deliver 1099-DA statements electronically. The major departures from existing section 6051 rules include:

No Paper Alternative Required: Unlike traditional rules, digital asset brokers are not required to offer customers the option to receive Form 1099-DA on paper.
Termination of the Customer Relationship: If a customer refuses to consent to receiving the 1099-DA statement in an electronic format, the proposed regulations explicitly permit the broker to terminate their business relationship with that customer or limit services, such as refusing to effectuate future sales. Brokers must disclose this consequence prior to obtaining consent.
No Right to Withdraw Consent: Brokers are no longer required to give customers the ability to withdraw a previously provided electronic delivery consent. If a broker chooses not to allow consent withdrawal, they simply must inform the customer of this policy upfront. Customers who want paper statements will have to move their investments to a broker willing to provide them.
Elimination of the "Demonstration" Requirement: Historically, customers had to "demonstrate" their technological ability to access the electronic statement to provide valid consent. The IRS removed this requirement for digital assets, reasoning that a customer who buys and sells crypto on a broker’s website or app has already proven their technical capability.
Qualified Delivery Methods: Brokers must use a "qualified electronic delivery method," which generally means either posting the statement to a secure website/app or directly transmitting it as an email attachment. For website posting, brokers must send an email notice and offer the customer the ability to request a secondary notification method (like a text message or push notification).
Seven-Year Retention: Brokers will be required to retain previously furnished 1099-DA statements and make them available to customers upon request for seven years.

Effective Date and Reliance

The proposed changes will take effect and apply to 1099-DA statements required to be furnished on or after January 1 of the calendar year immediately following the date the final regulations are published in the Federal Register.

Requests for Comments on Changing Rules for Other Brokers (Notice 2026-4)

Because the IRS restricted these new relaxed rules specifically to Form 1099-DA, Notice 2026-4 asks the public and tax professionals for input on extending these flexibilities to other areas. Specifically, the IRS is seeking comments on:

Traditional Broker Statements: How the rules for electronically furnishing traditional Form 1099-B composite statements can be modified to reduce burdens while ensuring all recipients have access.
Vulnerable Taxpayers: How non-tech-savvy clients, the elderly, or persons with disabilities would access electronic statements if traditional securities brokers adopt the digital asset model.
Staking Rewards: Whether the list of forms permitted to be consolidated on a 1099-B composite statement should be updated to include Form 1099-MISC for reporting digital asset staking rewards.
Other Information Returns: Whether rules governing the electronic furnishing of other payee statements required under sections 6041 through 6050AA should be revised, considering recipient preferences and the E-SIGN Act.

As tax practitioners, we need to advise our digital asset clients that they must embrace electronic tax documents or risk losing access to their preferred exchanges. I also highly encourage CPAs and EAs to submit comments to the IRS regarding Notice 2026-4, as such future regulations would dictate how all of our clients receive their critical year-end tax data.

Prepared with assistance from NotebookLM.