The U.S. Treasury Department and the Internal Revenue Service (IRS) finalized reporting rules for intermediaries in digital asset transactions. The updated rules include temporary relief for certain types of crypto transactions and will take effect in 2025.
The U.S. Treasury Department and the IRS approved an updated regulation under the U.S. Infrastructure Investment and Jobs Act of 2021, incorporating reporting requirements for crypto brokers. The new requirements clarify tax reporting for companies and legal entities acting as intermediaries in the purchase, sale, and exchange of digital assets.
According to Danny Werfel, IRS Commissioner, the new rules aim to close gaps related to filing tax returns for digital asset transactions. He added that the regulation was developed considering public input and the complexity of implementing tax rules for the digital asset industry. The IRS considered more than 44,000 comments received during public consultations in the fall of 2023 when drafting the rules.
Starting in 2025, brokers who hold their clients’ assets will be required to report certain digital asset transactions using the new Form 1099-DA. These brokers handle 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.
The new regulation defines rules for calculating gains and losses from digital asset transactions and introduces backup withholding tax rules. The rules also mandate that after 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 after exceeding minimum thresholds are introduced.
Werfel noted that taxpayers will be granted a grace period to transition to the new reporting standards due to the complexity of the new requirements. The IRS will exempt and provide temporary relief for six types of digital asset transactions, including:
- wrapped tokens;
- staking;
- liquidity providers;
- lending;
- closing short positions;
- derivatives contracts.
It’s important to note that the new rules don’t include requirements for brokers who don’t hold digital assets. Thus, decentralized exchanges (DEX) and non-custodial wallet providers aren’t subject to the new reporting requirements.
In the future, the IRS plans to develop separate tax rules for such crypto brokers.
G20 member countries plan to implement the Crypto-Asset Reporting Framework (CARF) by 2027, a global tax transparency infrastructure for digital assets.
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