Tax Byte

IRS Releases Much-Anticipated Digital Asset Reporting Guidance

The IRS dropped much-anticipated (some may even say late) guidance last Friday on digital asset reporting under Sec. 6045, which implements an expanded definition of brokers required to report sales and exchanges of digital assets to the IRS. The 282-page proposed regulations, REG-122793-19, were posted to the Federal Register on August 25 and cover a range of digital asset issues including further defining brokers and requiring proceeds to be reported to the IRS and taxpayers on a new Form 1099-DA. 

Crypto Industry Weighs In

“The proposed broker regs are subjecting most decentralized exchange platforms to broker reporting in addition to centralized exchanges like the Coinbases of the world,” Shehan Chandrasekera, CPA and the head of tax at CoinTracker, told Western CPE. “The regs seem extremely burdensome for brokers to follow,” he warned.

And Miller Whitehouse-Levine, CEO of the DeFi Education Fund, said in a statement that “the proposal from the IRS is confusing, self-refuting, and misguided.” The regs are attempting to “apply regulatory frameworks predicated on the existence of intermediaries where they don’t exist,” he added.

However, in response to the IRS’s need to ensure digital assets are not used to hide taxable income, the proposed rules “are designed to provide a clearer line of sight into activities by high-income people as well as others using [digital assets],” IRS Commissioner Danny Werfel said in an August 25 statement. “We want to make sure everyone pays what they owe under the tax laws, and our research and experience demonstrate that third-party reporting improves compliance.”

Further, some tax pros are saying the enhanced reporting requirements could prevent certain tax messes and nightmares for their clients. What say you?

What’s the Proposal?

At a glance, the proposed regulations would:

  • Require brokers, including digital asset trading platforms, digital asset payment processors and certain digital asset hosted wallet providers, to report gross proceeds to the IRS on a new Form 1099-DA (not yet released) and to provide payee statements to customers for sales or exchanges that take place on or after January 1, 2025.
  • Require brokers in certain circumstances to include gain or loss and basis information for sales that take place on or after Jan. 1, 2026, on these information returns and statements, to provide customers with the information they need to prepare their tax returns.
  • Require real estate reporting persons, such as title companies, closing attorneys, mortgage lenders and real estate brokers, who are treated as brokers for dispositions of digital assets, to report the digital assets paid as consideration by real estate purchasers to acquire real estate in real estate transactions that close on or after January 1, 2025.

Additionally, the proposed regs set forth gain (or loss) computation rules, basis determination rules and backup withholding rules applicable to digital asset sale and exchange transactions. The IRS currently estimates (and admittedly on the low end) that 13 to 16 million owners and up to 9,500 brokers will be impacted by the regulations.


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