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New IRS Regulations for Digital Asset Reporting: What You Need to Know

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have issued final regulations requiring custodial brokers to report sales and exchanges of digital assets, including cryptocurrency. These new regulations aim to help taxpayers file accurate tax returns for digital asset transactions, which are already subject to tax under current law.


Key Highlights:


  1. Implementation Date: The regulations will take effect for transactions starting in the calendar year 2025. Brokers will report these transactions using the new Form 1099-DA.

  2. Public Feedback: Over 44,000 public comments were considered before finalizing these regulations. The IRS has tried to balance industry concerns with the need to close the tax gap related to digital assets.

  3. Scope of Reporting: The regulations require brokers who take possession of digital assets to report sales and exchanges. This includes operators of custodial digital asset trading platforms, certain hosted wallet providers, digital asset kiosks, and processors of digital asset payments (PDAPs).

  4. Exclusions: Decentralized or non-custodial brokers, who do not take possession of the digital assets being sold, are not included in these reporting requirements. Separate rules for these brokers will be provided in the future.

  5. Basis, Gain, and Loss Determination: The regulations provide rules for taxpayers to determine the basis, gain, and loss from digital asset transactions. They also include backup withholding rules.

  6. Transitional and Penalty Relief: The IRS is providing transitional relief and penalty relief from reporting and backup withholding rules on certain transactions to help phase in the new requirements.

  7. Real Estate Transactions: Starting January 1, 2026, real estate professionals must report the fair market value of digital assets paid by buyers and received by sellers in real estate transactions.

  8. Aggregate Reporting for Stablecoins and NFTs: The regulations allow for an optional, aggregate reporting method for certain sales of stablecoins and non-fungible tokens (NFTs), applicable only after sales exceed de minimis thresholds.

  9. Notice 2024-56: This provides general transitional relief from reporting penalties and backup withholding for brokers making a good faith effort to comply with the new rules during 2025.

  10. Notice 2024-57: This informs brokers that they will not need to file information returns or furnish payee statements for specific transactions until further guidance is issued. These transactions include wrapping and unwrapping, liquidity provider, staking, digital asset lending, short sales, and notional principal contract transactions.

  11. Revenue Procedure 2024-28: This allows taxpayers to rely on any reasonable allocation of units of unused basis to wallets or accounts that hold the same number of remaining digital asset units.


Conclusion

These new IRS regulations mark a significant step in regulating the digital asset space. They are designed to improve compliance and provide taxpayers with the information needed to accurately report digital asset transactions. As the landscape of digital assets continues to evolve, staying informed and compliant with these regulations will be crucial for both individuals and businesses involved in this space.


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