As the 2025 tax season begins, tax practitioners are at a critical juncture. Uncertainty in information reporting requirements, evolving digital payment thresholds, and new cryptocurrency frameworks are converging just as the IRS races to modernize decades-old systems. In a recent Federal Tax Updates podcast episode, hosts Roger Harris, EA, and Annie Schwab, CPA, interviewed Wendy Walker, VP of Regulatory Affairs at Sovos and Chair of the IRS Advisory Council, to offer insights to help practitioners prepare for these sweeping changes.
“We’re kind of expecting an eleventh-hour communication drop that might change the reporting threshold,” explains Wendy, referencing speculation about a $5,000 threshold for 1099-K reporting on 2024 transactions. Practitioners must contend with statutory requirements, administrative guidance, and practical implementation challenges—all while balancing existing client service demands.
Uncertainty in the 1099-K Reporting Threshold
The complexity surrounding 1099-K reporting goes far beyond waiting for an official threshold announcement. When Congress reduced the threshold from $20,000 to $600 under the American Rescue Plan Act, it set off a chain reaction of reporting issues that still reverberate today as payment platforms struggle to distinguish personal from business transactions.
“Platforms don’t distinguish between commercial transactions and consumer transactions,” Wendy notes. “Wendy can be a sole proprietor running business payments through her online Venmo account, and Wendy can be an individual taxpayer running personal payments through that same account.” As a result, practitioners need to help clients identify incorrectly reported transactions and educate them about the significance of their new 1099-K forms.
Adding to the complexity, different platforms handle these transactions inconsistently. Some rely on users to self-identify transaction types—an approach that often backfires. “In the average conversation I have with my own family of non-tax people, they would answer ‘yes’ to that goods and services question if they were simply reimbursing me for lunch,” Wendy explains. Meanwhile, platforms like Zelle assert their transactions are not reportable at all, only fueling confusion.
Action Steps for Practitioners:
- Identify clients likely to receive new 1099-K forms
- Develop procedures to validate reported transactions
- Create client education materials explaining digital payment reporting
- Implement systems to track and document transaction purposes
The Next Frontier: Cryptocurrency Reporting
As practitioners grapple with digital payment complexities, new cryptocurrency reporting requirements are poised to heighten the challenge. Starting with 2025 transactions, the new Form 1099-DA will begin capturing digital asset activity—but only from centralized exchanges like Coinbase and Kraken in its initial phase.
“If somebody is using a decentralized platform, they’re pretty savvy in crypto,” Wendy notes. “And if they’re buying and selling NFTs on a marketplace—or lending out their crypto and receiving incentives—these are just some of the transactions that will not land on a 1099.”
The complexity of crypto reporting has become so daunting that some practitioners have chosen to turn away crypto clients altogether—a trend the IRS has noticed. As reporting extends beyond simple trades into the realm of NFTs, lending, and decentralized finance, practitioners may need specialized training or strategic partnerships to accurately document and report this activity.
Action Steps for Practitioners:
- Develop targeted questions to identify crypto activities
- Create documentation systems for various crypto transaction types
- Consider specialized training or partnerships for complex crypto cases
- Establish procedures for handling both centralized and decentralized exchange activity
A New Era of IRS Infrastructure
Amid these evolving requirements, the IRS itself is undergoing a transformation. The shift from the 1980s-era FIRE system to the new IRIS platform fundamentally changes how practitioners interact with tax administration.
The IRIS system uses APIs and XML formatting, potentially making data intake more efficient. Yet the scale of this modernization is enormous. The FIRE system processes approximately 5 billion information returns annually, but only about 10 million have migrated to IRIS so far.
“Not all of the returns that we need to file are actually supported yet in the system,” Wendy says. “So many taxpayers are still using FIRE for that reason.”
Practitioners must update their procedures to adapt to new authentication measures in the IRIS system, as well.
“In the past, you would submit a form and the IRS would mail you your code, and that’s what you would use when you filed your returns,” Wendy says. “Now you have to go through a system that’s called the Information Returns (IR) Application for Transmitted Control Code (TCC), and you have to provide personal information and go through a background check or other authorizations just to get access to file your returns.”
Action Steps for Practitioners:
- Review and update electronic filing procedures
- Prepare for evolving authentication requirements
- Plan for necessary technology infrastructure updates
- Develop procedures to manage electronic forms and documents
Preparing Your Practice for the Digital Evolution
The convergence of stricter digital payment reporting, emerging cryptocurrency obligations, and a modernized IRS infrastructure presents both challenges and opportunities. Success hinges on proactive planning, effective client communication, and a willingness to adapt to new technologies and requirements.
By embracing these strategies, forward-thinking practitioners will be better positioned to serve clients effectively in this rapidly evolving environment.
For a deeper dive into these changes and expert insights on preparing your practice, listen to the full Federal Tax Updates podcast episode.