The IRS published a draft version of its 1099-DA reporting form and controversially included unhosted crypto wallets among its targets on April 19.
Ji Kim, Chief Legal and Policy officer at the Crypto Council for Innovation, wrote that the IRS’ approach is “unfortunate” as it does not recognize that unhosted wallet providers lack knowledge about crypto transactions and the parties involved in each transaction.
Shehan Chandrasekera, Head of Tax at CoinTracker, similarly criticized the form. He argued the effects could spill over to end users, who may need to engage in KYC verification when they create unhosted wallets or use unhosted wallets with services such as DeFi platforms.
However, Chandrasekera said that authorities will likely aim their enforcement efforts at unhosted wallet providers instead of end users.
Unhosted or non-custodial wallets do not store crypto balances with a third-party service. They are distinct from custodial wallets, a category that includes most exchan
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