In line with the 2021 Infrastructure Investment and Jobs Act, the Department of the Treasury and the IRS have presented proposed rules to introduce new tax reporting stipulations for digital asset brokers. These would start from the 2026 tax season, focusing on digital asset transactions from Jan. 1, 2025 onwards.
Essentially, anyone regularly involved in facilitating digital asset sales for others would be categorized as a “broker.” These brokers would then be obligated to give tax forms detailing specifics such as names, addresses, the digital asset type sold, gross income, and in some cases, basis information. This would be required for transactions where digital assets are traded for cash, other digital assets, and other eligible properties. This definition encompasses both centralized and decentralized trading platforms, cryptocurrency payment processors, and certain digital wallet services.
For these rules, a “digital asset” refers to any digital value recorded on a cryptographically protected distributed ledger or similar tech. The IRS aims for this definition to cover all digital asset forms, from cryptocurrencies like Bitcoin and Ethereum to NFTs and stablecoins. Nonetheless, the rules wouldn’t cover assets limited to a closed system, like certain in-game tokens, or mere uses of the distributed ledger tech for regular business operations that don’t produce transferable assets.
There are several exceptions to these rules:
- Present exceptions for securities and commodities sales, such as sales for particular exempt entities like certain corporations or tax-exempt organizations, would extend to digital assets.
- Those only offering distributed ledger validation services, including mining or staking, or those selling hardware or software not offering direct trading platform access wouldn’t be considered brokers.
- Transactions where customers receive digital assets without giving something in return, like during a hard fork or airdrop, wouldn’t need reporting.
The rules also have guidelines for reporting sales involving digital assets in financial contracts or real estate transactions.
Additionally, they provide instructions for calculating the gains or losses when selling digital assets and the original cost basis when buying them. Notably, if a taxpayer doesn’t clearly indicate which digital assets are being sold, they’d be considered sold in the order they were bought. Rules are also in place for dividing transaction costs in digital asset exchanges.
To help brokers with these requirements, a new form, Form 1099-DA, is proposed. Brokers would share this with both the IRS and digital asset owners to support their tax filings.
Feedback on these proposed regulations is open until Oct. 30, 2023, with a public discussion planned for Nov. 7, 2023.