Regulation
IRS Aims for Tax Compliance with New Crypto Rules
The U.S. Treasury has unveiled new regulations requiring cryptocurrency custodial brokers to report their users’ transactions to the Internal Revenue Service (IRS).
Starting in 2026, these brokers will be required to report gross proceeds on sales of digital assets starting in 2025. They must also report tax information on certain digital assets in 2027 for the prior year.
IRS presents final draft crypto rules
The new regulations are aimed at operators of hosted, held digital asset trading platforms wallet providers, digital asset kiosks, and specific digital asset payment processors (PDAPs). The IRS said these brokers cover the majority of digital asset transactions and acquire a large number of taxpayers.
Brokers must disclose the movements and earnings of clients’ assets, including stablecoins such as U.S. dollar and high-value NFTs. They must also report the fair market value of tokenized real-world assets in real estate transactions. This regulation provides cryptocurrency investors with a simple 1099 form, similar to that of banks and brokers.
To know more: How to reduce your cryptocurrency tax liability: a complete guide
This move represents a significant step forward cryptocurrency taxation to curb tax evasion. IRS Commissioner Danny Werfel emphasized that these regulations are critical for improvement tax obligations among high-income individuals. He also stated that the rules will provide taxpayers with the information needed to simplify their tax reporting process.
“We need to ensure that digital assets are not used to hide taxable income, and these regulations will improve the detection of non-conformities in the high-risk digital asset space. Our research and experience shows that third-party reporting improves compliance. Additionally, these regulations will provide taxpayers with much-needed information, which will reduce the burden and simplify the process of reporting their digital asset activities,” Werfel declared.
In the meantime, decentralized exchanges and self-custody wallets are not subject to the new reporting rules. Instead, the IRS said it was still reviewing industry comments and needed more time to study decentralized networks.
“The final rule does not include reporting requirements for brokers that do not take possession of the digital assets being sold or traded. These brokers are commonly referred to as decentralized or non-custodial brokers. The U.S. Department of the Treasury and the IRS intend to provide rules for these brokers in a separate set of final regulations,” the IRS explained.
To know more: The definitive guide to cryptocurrency taxation in the United States for 2024
Industry advocacy groups like The Blockchain Association have done so welcomed the IRS’s decision to study DeFi further. The group’s chief legal officer, Marisa Tashman Coppell, said the regulator’s move shows that the industry’s collective voice continues to have a positive impact on Washington.
Likewise, Jake Chervinsky, a well-known cryptocurrency lawyer, described this move as “an unexpected but huge political win for DeFi.”
“The proposed rule implementing tax provisions of the infrastructure bill would have required non-custodial DeFi front ends for KYC users. Treasury just finalized the rule, but only for custodians, leaving DeFi for another day “, has he noted.
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