How are digital asset sales and reporting handled for Widely Held Fixed Investment Trusts (WHFITs)?

When a WHFIT holds and sells digital assets, there are specific IRS reporting requirements that trustees, brokers, and middlemen must follow. Here’s a clear breakdown:

1. Who must report

• Trustees, brokers, or middlemen responsible for managing WHFIT assets are required to handle the reporting.

• They report sales, dispositions, or partial payments related to the trust’s digital assets.

2. What must be reported

• Non-pro rata partial principal payments (amounts not equally distributed among all investors).

• Trust sale proceeds attributable to each Trust Interest Holder (TIH) for the calendar year.

• Reporting ensures each TIH’s share of gains or losses is accurately reflected.

3. Forms used for reporting

• Form 1099-DA – Used for transactions involving digital assets.

• Form 1099-B – Used for traditional securities or other reportable trust assets.

 

4. Boxes that can be left blank

When reporting WHFIT transactions, you may:

• Check Box 9 if the digital asset is a non-covered security in Form 1099-DA

• Leave Boxes 1d (date acquired), 1g (cost or other basis), 1h (accrued market discount), 1i (wash sale loss disallowed), 2 (Check if basis reported to IRS), and 6 (Gain or loss: Short-term/Long-term/Ordinary) blank in Form 1099-DA

This applies if:

• You are a broker reporting the sale of digital assets to a WHFIT trustee, or

• You are a trustee or middleman reporting non-pro rata payments and sale proceeds for TIHs.

 

5. Tax information statement requirement

• Each TIH must receive a tax information statement that includes:

  • The data reported to the IRS.

  • Other details required under Regulations §1.671-5.

• This helps TIHs accurately report their income or gains on their tax returns.

6. Deadline for furnishing statements

• For 2025 transactions, tax information statements must be provided to TIHs by March 16, 2026.

This process ensures that all digital asset sales and related proceeds within a WHFIT are properly reported, maintaining transparency and compliance with IRS regulations.