What is the requirement?
Those digital asset brokers who take possession of the digital assets their customers buy or sell will soon be required to file information returns and furnish payee statements on Form 1099-DA for digital asset transactions. These brokers include operators of custodial digital asset trading platforms, certain hosted wallet providers, digital asset kiosks, and certain digital assets payment processors. Gross proceeds and adjusted basis on dispositions of digital assets must be reported in certain sale or exchange transactions by January 31 of the year following the transaction. Reporting will be implemented on a phased approach, as described further below. Transactions using digital assets to purchase real estate will also need to be reported by real estate brokers via information returns.
Sales include the exchange of digital assets for cash or store-value cards, other digital assets, certain services, real property, securities, digital asset payment processing transactions to third parties, and payments for contracts entered into by the customer. The IRS Rule covers even those digital asset transactions that are conducted off-chain, for instance on the internal ledgers of custodial digital asset trading platforms.
Digital assets are broadly defined in the regulations to include any digital representation of value recorded on a cryptographically secured distributed ledger or similar technology, such as stablecoins, cryptocurrency, and non-fungible tokens (“NFTs”). The IRS Rule made clear, however, that this rulemaking does not take a position on whether digital assets are to be treated as “securities” under the tax code, generally. Also, given the pendency of an SEC proposed rule that would expand the definition of “broker dealers” to include also digital asset liquidity providers and those who trade in large quantities of digital assets, the IRS Rule expressly uses the current definition of “Brokers” found in the tax code and excludes those who may provide liquidity on decentralized finance, or DeFi, platforms.
Closed-loop digital assets that are used solely within closed systems are not included, so long as they cannot be exchanged for fiat currency.
Unhosted digital asset wallet providers, who generally do not take possession of their customers’ digital assets, also are not affected by the IRS Rule.
Digital asset brokers must report the cost basis and adjusted basis for each transaction. The adjusted basis calculation must consider the original purchase price, transaction fees, and other relevant factors.
Brokers can use aggregate reporting for certain transactions, especially for low-value transactions involving stablecoins and NFTs, instead of transactional reporting. The regulations establish an annual per taxpayer minimum threshold of $600 for reporting NFTs and $10,000 for stablecoins.
Penalties for non-compliance include fines and other enforcement actions to ensure adherence to reporting requirements.
When do the requirements take effect?
Reporting will phase in beginning in 2026 for transactions that take place in 2025 using IRS Form 1099-DA (release forthcoming).
For transactions on or after January 1, 2025, gross proceeds must be reported in 2026.
For transactions on or after January 1, 2026, basis must be reported in 2027.
For real estate transactions involving digital assets with closing dates on or after January 1, 2026, the fair market value of the assets paid by buyers and received by sellers must be reported by real estate brokers.
Transitional relief will be granted to brokers in 2026 provided that they make a good-faith attempt to appropriately file information returns and furnish payee statements.
Who is affected by the regulations?
The regulations affect the following participants involved in digital asset transactions:
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Brokers: Brokers that facilitate digital asset transactions and take custody of the digital assets are required to report. Brokers include trading platforms, payment processors, certain hosted wallets, digital asset kiosks, and those who redeem assets that they create or issue. Miners are not considered brokers if they do not provide services beyond validating cryptocurrency transactions, nor is a principal of a sale who is not a dealer of an otherwise reportable sale.
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Hosted Wallet Custodians: Hosted wallet custodians providing services to a user to electronically store the private keys to digital assets are required to report.
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Real Estate Brokers: Real estate brokers are required to report transactions where digital assets are used to purchase real estate. Real estate brokers must file information returns detailing the fair market value of the digital assets used in the transaction.
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High-Value NFT Holders or Traders: Individuals and entities holding or trading significant NFTs are subject to the reporting rules.
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Certain Stablecoin Transactions: Taxpayers engaging in transactions involving stablecoins pegged to fiat currency are subject to the reporting rules.
Who or what types of transactions are excluded?
The IRS Rule excludes certain transactions from reporting requirements:
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Unhosted Wallets: Unhosted wallets include digital wallets managed and controlled directly by the user, without the involvement of a third-party custodian.
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Wrapping and Unwrapping Transactions: Conversion of one type of digital asset into another (e.g., ERC-20 tokens).
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Liquidity Provider Transactions: Activities providing liquidity in decentralized finance (DeFi) platforms.
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Staking Transactions: Participating in proof-of-stake blockchain protocols.
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Lending Transactions: Digital assets lent by market participants.
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Short Sales: Transactions described as short selling digital assets.
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Notional Principal Contract Transactions: Certain derivative contracts involving digital assets.
Authored by Elizabeth Boison, Evan M. Koster, Jessica Millett, Elizabeth Adams, Qiaomin Yang, and Kelsey Levin-Epstein.
