As digital assets continue to gain traction in mainstream finance, brokers and financial institutions are facing a new and urgent challenge: tax compliance. What was once considered a niche concern is now a business-critical priority, driven by evolving regulations and heightened scrutiny from global tax authorities.
The regulatory landscape is shifting
The IRS has introduced Form 1099-DA, a new requirement for digital asset brokers to report gross proceeds and cost basis for digital asset transactions. This marks a significant shift in how digital assets are treated from a tax perspective. Non-compliance can result in penalties of up to $680 per incorrect return, with no cap for intentional disregard. And this is just the beginning.
Globally, frameworks like the OECD’s Crypto-Asset Reporting Framework (CARF) and the EU’s DAC8 directive are expanding the scope of digital asset reporting. These regulations are designed to close tax gaps and increase transparency, and they apply to a wide range of digital asset activities—from trading and staking to tokenized securities.
Complexity is the new normal
Digital assets are inherently complex. Unlike traditional securities, they often involve high-frequency trading, decentralized platforms, and novel instruments like tokenized securities. These introduce traditional tax challenges—such as wash sales, basis adjustments, and corporate actions—into a digital environment.
For brokers, especially those operating in high-volume or crypto-native environments, managing these complexities manually is no longer feasible. The risk of errors, omissions, and audit exposure is simply too high.
The cost of complacency
Failing to prioritize tax compliance can have serious consequences:
- Backup withholding at 24% on non-compliant accounts
- Multi-million dollar penalties for inaccurate or missing filings
- Reputational damage and increased regulatory scrutiny
In a competitive market, these risks can erode client trust and impact long-term growth. Firms that treat tax reporting as an afterthought may find themselves playing catch-up—at a high cost.
A strategic opportunity
While the compliance burden is real, so is the opportunity. Firms that invest in scalable, automated tax reporting solutions now will be better positioned to:
- Avoid penalties and audits
- Build trust with regulators and clients
- Integrate digital assets alongside traditional investments
- Adapt quickly to future regulatory changes
The right infrastructure can support tokenized securities, enable advanced tax lot selection, and process millions of accounts with precision. These capabilities are no longer optional—they’re essential for staying competitive and compliant in a rapidly evolving market.
The bottom line
Digital assets are no longer a fringe asset class—they’re a core part of the modern investment landscape. As regulations evolve, tax compliance is becoming a defining factor in operational success. Firms that act now will not only reduce risk but also gain a competitive edge in a rapidly maturing market.
