The U.S. Treasury Department has released its long-awaited tax regime for cryptocurrency transactions, setting filing rules for digital asset brokers that will begin with transactions that take place next year, but it has delayed some of its most controversial decisions regarding brokers who never take possession of customers’ crypto.
New Internal Revenue Service (IRS) rules for crypto broker-dealers released Friday call on trading platforms, hosted wallet services and digital asset kiosks to submit information on the movements and earnings of crypto assets. clients. These assets will also include – in very limited circumstances – stablecoins such as Tether (USDT) and Circle Internet Financial (USDC) and high-value non-fungible tokens (NFTs), although the IRS explicitly refuses to settle the long-running battle over whether tokens should be considered securities or commodities.
While the rule focuses on the most obvious platforms like Coinbase Inc. (COIN) and Kraken, noncustodial crypto businesses — such as decentralized exchanges and unhosted wallet providers — are only getting a temporary reprieve from new filing requirements. Popular crypto platforms that handle a “substantial majority” of transactions can no longer wait for rules, the agency argued, but the other issues require further study and will get their own rule “later this year.”
“The Treasury Department and the IRS disagree that non-depository industry participants should not be treated as brokers,” according to the explanation included in Friday’s rule. “However, the Treasury Department and the IRS would benefit from further review of issues involving non-depository industry participants.”
The final rule for the most commonly used brokers begins with transactions on January 1, 2025, leaving crypto taxpayers with another reporting year in which they are on their own to figure out their 2024 returns in the meantime, though crypto companies have already been moving to accommodate. The IRS has given brokers an extra year until 2026 to start having to track the “cost basis” of assets — the amount each was originally purchased for.
Real estate transactions paid for with cryptocurrencies after January 1, 2026, will also need to be reported, the regulation states. “Real estate filers” will need to report the fair market value of the digital assets used in any such transaction.
An infrastructure bill introduced in Congress in 2021 paved the way for the IRS, the Treasury Department, to establish this formal approach to cryptography. Since then, the sector has been frustrated by a constantly delayed process. The final proposal attracted 44,000 public comments.
“Thanks to the bipartisan Infrastructure Investment and Jobs Act, digital asset investors and the IRS will have better access to the documentation they need to easily file and review their tax returns.
returns,” Acting Assistant Secretary for Tax Policy Aviva Aron-Dine said in a statement. “By implementing the law’s reporting requirements, these final regulations will help taxpayers more easily pay taxes due under current law, while reducing tax evasion by high-net-worth investors.”
IRS Commissioner Danny Werfel said the final rule took public comments into account.
“These regulations are an important part of broader efforts to support tax compliance for high-income individuals. We must ensure that digital assets are not used to hide taxable income, and these final regulations will improve detection of tax liability. non-compliance in the high-risk digital asset space,” he said. “Our research and experience demonstrate that third-party reporting improves compliance. Additionally, these regulations will provide taxpayers with much-needed information, reducing the burden and simplifying the process of reporting their digital asset activities.
The process of drafting the controversial tax rule has sparked widespread concern within the industry that the U.S. government will go too far by imposing impossible requirements on miners, online forums, software developers and other entities that help investors but are not traditionally considered brokers and lack the customer information or disclosure infrastructure that would allow them to comply.
The IRS said it recognizes that cryptocurrency brokers should not include those “providing validation services without providing other functions or services, or persons engaged solely in the business of selling certain hardware or licensing certain software, the sole function of which is to allow persons to control the private keys used to access digital assets on a distributed ledger.”
U.S. tax regulators estimate that about 15 million people will be affected by the new rule and that about 5,000 businesses will have to comply.
The IRS said it is trying to avoid certain burdens for stablecoin users, particularly when they are used to buy other tokens and in payments. Basically, a regular crypto investor and user who makes no more than $10,000 in stablecoins in a year is exempt from reporting. Stablecoin sales — the most common in crypto markets — will be counted collectively in an “aggregate” report rather than as individual transactions, the agency said, though more sophisticated and high-volume stablecoin investors will not be eligible.
The agency said these tokens “unambiguously fall within the legal definition of digital assets because they are digital representations of the value of fiat currency that are recorded on cryptographically secure distributed ledgers,” so they do not cannot be exempted despite their objective of respecting a constant value. The IRS also said that ignoring these transactions entirely would “eliminate a source of information about digital asset transactions that the IRS can use to ensure compliance with taxpayers’ reporting obligations.”
But the IRS added that if Congress passes one of its bills that would regulate stablecoin issuers, the tax rules may need to be revised.
The tax agency has also faced complex legal arguments over how to handle NFTs, according to its detailed memos on the subject, and the agency has ruled that only taxpayers who earn more than $600 per year from their NFT sales must report their aggregate income to the government. The resulting documents will include taxpayer identification information, the number of NFTs sold, and profits.
“The IRS intends to monitor NFTs reported under this optional aggregate reporting method to determine whether such reporting is impeding its tax enforcement efforts,” according to the rule text. “If abuse is detected, the IRS will reconsider these special reporting rules for NFTs.”
As part of its efforts, the IRS released its definition of digital assets and the various activities covered by the regulations on Friday.
The IRS also established a safe harbor for certain reporting requirements “on which taxpayers may rely to attribute an unused digital asset basis to digital assets held in each of the taxpayer’s wallets or accounts on or after January 1, 2025,” it said.
Earlier this year, the US tax agency released a draft 1099-DA form to track crypto transactions – the form that millions of crypto investors would receive from their brokers.
The IRS clarified Friday that any attempt in the rule to assign buckets to crypto assets is not meant to strengthen one side in the industry’s ongoing battle with regulators — particularly the U.S. Securities and Exchange Commission (SEC) — over whether tokens are securities or commodities. That debate is currently raging in multiple cases before federal judges, and while the SEC is only willing to admit that bitcoin (BTC) is definitively out of the agency’s reach, Commodity Futures Trading Commission Chairman Rostin Behnam said that Ethereum’s ether (ETH) is also a commodity.
Such a position “is outside the scope of these final regulations,” the IRS explained.
Nikhilesh De contributed reporting.