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01/07/24
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IRS Announces Final Regulations Regarding Digital Asset Reporting for Brokers
On June 28, the United States Department of the Treasury and the Internal Revenue Service released final regulations regarding the reporting of sales and exchanges of digital assets, which include crypto, by custodial brokers.
According to the final regulations, brokers taking possession of the digital assets being sold by their customers are required to provide reports. Entities operating custodial digital asset trading platforms, providing digital asset hosted wallet services, digital asset kiosks, as well as some digital asset payment processors are categorized as brokers under the regulations.
The IRS is working towards covering 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.”
According to the IRS, these reporting requirements are to ensure taxpayers’ accurate filing of tax returns when it comes to digital asset transactions, which are already subject to tax under current law.
The final regulations will be effective from 2025 and will be reported on the soon-to-be released Form 1099-DA. “These regulations are an important part of the larger effort on high-income individual tax compliance. We need to make sure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets,” said IRS Commissioner Danny Werfel.
It is believed that taxpayers will have access to much-needed information through these regulations, thereby reducing burdens and simplifying the process of reporting their digital asset activity. Taxpayers can determine their basis, gain, and loss from digital asset transactions.
However, advocacy groups across the blockchain and crypto industry have raised concerns regarding these regulations. The Blockchain Association as well as the Chamber of Digital Commerce have expressed significant criticisms against it over the past several months.
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