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The U.S. Treasury Department and the Internal Revenue Service (IRS) have finalized reporting regulations for intermediaries involved in digital asset transactions. These revised rules provide temporary relief for specific categories of crypto transactions and are set to be implemented in 2025.
The U.S. Treasury Department and the IRS have sanctioned an updated regulation under the U.S. Infrastructure Investment and Jobs Act of 2021, which includes reporting obligations for crypto brokers. The revised requirements clarify tax reporting for firms and legal entities serving as intermediaries in the buying, selling, and exchanging of digital assets.
IRS Commissioner Danny Werfel stated that the new regulations are designed to address gaps in tax return filings for digital asset transactions. He mentioned that the regulation was formulated with public feedback in mind and acknowledged the challenges of applying tax rules within the digital asset sector. The IRS took into account over 44,000 comments received during public consultations in the fall of 2023 while drafting the regulations.
Beginning in 2025, brokers who manage their clients’ assets will be obligated to report specific digital asset transactions using the new Form 1099-DA. These brokers account for the majority of digital asset transactions in the U.S. and include:
- operators of digital asset trading platforms;
- custodial crypto wallet providers;
- crypto ATM operators;
- certain crypto processing services.
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The new regulation establishes guidelines for calculating gains and losses from digital asset transactions and introduces backup withholding tax provisions. Furthermore, it requires that starting January 1, 2026, realtors, brokers, and other real estate professionals report the market value of digital assets paid by buyers and received by sellers in transactions. Additionally, optional aggregated reporting methods for stablecoin and certain NFT sales will be introduced once minimum thresholds are surpassed.
Werfel indicated that taxpayers will receive a grace period to adapt to the new reporting standards due to the intricacies of the new requirements. The IRS will exempt and provide temporary relief for six categories of digital asset transactions, which include:
- wrapped tokens;
- staking;
- liquidity providers;
- lending;
- closing short positions;
- derivatives contracts.
It is essential to highlight that the new regulations do not impose requirements on brokers who do not hold digital assets. Consequently, decentralized exchanges (DEX) and non-custodial wallet providers are not subject to the new reporting obligations.
In the future, the IRS intends to create separate tax regulations for such crypto brokers.
G20 member nations are planning to implement the Crypto-Asset Reporting Framework (CARF) by 2027, establishing a global tax transparency framework for digital assets.
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