IRS issues new regulations and a new Form 1099-DA.
The IRS just issued final regulations requiring broker reporting of sales and exchanges of digital assets that are subject to tax under current law.
The U.S. Department of the Treasury and the Internal Revenue Service today issued final regulations requiring custodial brokers to report sales and exchanges of digital assets, including cryptocurrency. These reporting requirements are intended to help taxpayers to file accurate tax returns with respect to digital asset transactions, which are already subject to tax under current law. In other words they intend on bringing unreported transactions into detailed monitoring.
According to the IRS, these final regulations reflect consideration of more than 44,000 public comments received last fall on the proposed regulations. They require brokers to report certain sale and exchange transactions that take place beginning in calendar year 2025 and will be reported on the soon-to-be released Form 1099-DA. The regulations implement reporting requirements brought on by the Infrastructure Investment and Jobs Act, enacted in 2021 which was one of the first pieces of legislation issued by the Biden administration.
In addition the IRS states the final regulations will require reporting by brokers who take possession of the digital assets being sold by their customers. These brokers include operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks, and certain processors of digital asset payments (PDAPs). The majority of digital asset transactions today occur using these brokers. By focusing first on this group, the IRS intends these regulations to cover the greatest number of taxpayers while allowing the IRS and U.S. Treasury Department more time to consider the nuances of transactions involving non-custodial and decentralized brokers.
The final regulations do not include reporting requirements for brokers that do not take possession of the digital assets being sold or exchanged. These brokers are commonly called decentralized or non-custodial brokers. The U.S. Treasury Department and the IRS intend to provide rules for these brokers in a different set of final regulations.
The IRS states it is aware of the challenges that implementing new reporting requirements can pose, which is why the agency is also providing transitional and penalty relief from reporting and backup withholding rules on certain transactions to help phase-in implementation.
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