The Treasury and the Internal Revenue Service issued
The reporting will need to be made on the soon-to-be released Form 1099-DA beginning with transactions on or after Jan. 1, 2025. The IRS
The IRS and the Treasury released more guidance in two notices and a revenue procedure Friday to provide transitional relief and guidance for brokers and taxpayers.
Samuel Corum/Bloomberg
The final regulations apply to brokers that take possession of the digital assets being sold by their customers, including operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks and certain processors of digital asset payments.
The regulations include gain (and loss) computation rules, basis determination rules and backup withholding rules applicable to digital asset sale and exchange transactions.The final regulations aim to ensure taxpayers will receive statements that include information reported to the IRS on Form 1099-DA, Digital Asset Proceeds from Broker Transactions, that will help them file their income tax returns and determine their tax obligations. This information will give taxpayers confidence in reporting income from digital assets while improving compliance efforts.The regulations phase in reporting over time. Under the final regulations:
- Brokers must report gross proceeds for transactions effected on or after Jan. 1, 2025.
- Brokers must report basis on certain transactions effected on or after Jan. 1, 2026.
- Real estate professionals that are treated as brokers must report the fair market value of digital assets paid by buyers and received by sellers in real estate transactions with closing dates on or after Jan. 1, 2026.
- For certain sales of stablecoins and non-fungible tokens, brokers can choose to report the transactions on an aggregate basis to the extent the sales exceed respective de minimis thresholds.
- A separate de minimis threshold also applies for PDAP sales.
The final regs don’t include reporting requirements for brokers commonly known as decentralized or non-custodial brokers that do not take possession of the digital assets being sold or exchanged. The Treasury and the IRS intend to provide rules for these brokers in a different set of final regulations.
The final regulations announced will require brokers to report gross proceeds on the sale of digital assets starting in 2026 for all sales in 2025. Brokers will be required to also report information on the tax basis for certain digital assets beginning in 2027 for sales in 2026.
“Because of the bipartisan Infrastructure Investment and Jobs Act, investors in digital assets and the IRS will have better access to the documentation they need to easily file and review tax returns,” said Treasury acting assistant secretary for tax policy Aviva Aron-Dine in a statement. “By implementing the law’s reporting requirements, these final regulations will help taxpayers more easily pay taxes owed under current law, while reducing tax evasion by wealthy investors.”
While owners of digital assets have always owed tax on the sale or exchange of digital assets, compliant taxpayers have often needed to rely on expensive third-party services to calculate their gains or losses from the sale of digital assets. The final regulations will implement Congress’s bipartisan directive to ensure owners of digital assets receive the information they need from brokers to file their taxes more accurately, more easily, and less expensively, and that the IRS has the information needed to address the tax evasion risks posed by digital assets.
These regulations were developed after the Treasury and IRS held a public hearing and carefully reviewed more than 44,000 comments in response to proposed regulations. The rules issued Friday mainly address reporting requirements for custodial brokers, but the Treasury and the IRS anticipate issuing additional rules later this year establishing reporting requirements for non-custodial brokers, consistent with statutory requirements.
Notice for penalty relief
For transactions occurring in calendar year 2025 (and reported in 2026), the IRS will not impose penalties for failure to file and to furnish Forms 1099-DA if the broker makes a good faith effort to file the Forms 1099-DA and furnish associated payee statements correctly and on time.
Notice on temporary exceptions
-
Notice 2024-57 identifies transactions for which brokers are not required to file Forms 1099-DA or furnish associated payee statements until the Treasury Department and IRS issue further guidance. This reporting exception does not apply to rewards or other compensation earned by participants in these transactions. The identified transactions are:- Wrapping and unwrapping transactions;
- Liquidity provider transactions;
- Staking transactions;
- Transactions described by digital asset market participants as the lending of digital assets;
- Transactions described by digital asset market participants as short sales of digital assets, and
- Notional principal contracts.
- The revenue procedure provides transitional guidance on how taxpayers may transition to the basis identification methodology to allocate unused basis of digital assets to digital assets held within each wallet or account of a taxpayer as of January 1, 2025, as required by the final regulations.
