IRS Proposes Rules for Digital Asset Tax Reporting

IRS Proposes Rules for Digital Asset Tax Reporting

On August 29, the IRS and Treasury Department published proposed regulations regarding information reporting for digital asset transactions. The proposed regulations would require “brokers” to report gross proceeds, cost basis, and gain or loss on sales and exchanges of digital assets, including cryptocurrency, stablecoins, and non-fungible tokens (NFTs). The IRS is creating a new form for this purpose (Form 1099-DA).

The term “brokers” is defined to include digital asset trading platforms, digital asset payment processors, certain digital asset hosted wallets, as well as any person that regularly redeems digital assets they created or issued. Real estate brokers would also be subject to these reporting rules for transactions where digital assets are used to purchase property.  The IRS also made clear that some of these proposed reporting rules could apply to decentralized exchanges. However, in a decision that is welcome news for the industry, the IRS has excluded certain digital asset participants, such as miners and stakers, that validate blockchain transactions. 

Proceeds from digital asset transactions would need to be reported starting in 2026, for sales on or after January 1, 2025. Cost basis and gain or loss reporting for digital asset transactions would need to be reported starting in 2027, for sales on or after January 1, 2026.

The proposed regulations represent highly anticipated guidance under the Infrastructure Investment and Jobs Act of 2021, which expanded information reporting rules to include digital assets and authorized the IRS and Treasury Department to issue regulations. The IRS has requested comments and will be holding a public hearing on the proposed regulations on November 7, 2023.

BDO will continue to monitor and report on the impact of these regulations and related future developments.