Regulation
US Treasury Department Finalizes Cryptocurrency Tax Regulations with Form 1099-DA
The three key points of the TDR regarding the U.S. Treasury’s finalization of cryptocurrency tax regulations with the new 1099-DA form:
- The US Treasury’s new cryptocurrency rules aim to combat tax evasion.
- The U.S. Department of the Treasury requires cryptocurrency brokers to use Form 1099-DA.
- The new rules exclude DeFi platforms, reflecting their decentralized nature.
The U.S. Treasury has finalized new cryptocurrency tax reporting rules, requiring cryptocurrency brokers to use the newly created Form 1099-DA to report digital asset transactions to the IRS. This rule aims to close the tax gap by ensuring that cryptocurrency transactions are reported similarly to traditional financial transactions.
The U.S. Treasury has announced final rules requiring cryptocurrency brokers, including exchanges and payment processors, to report detailed information about digital asset transactions to the IRS using a newly created form, the 1099-DA. This development aims to close the tax gap by ensuring that cryptocurrency transactions are reported similarly to traditional financial transactions.
The new rules are primarily aimed at centralized exchanges, hosted wallet providers, and payment processors, exempting decentralized finance (DeFi) platforms and digital asset miners. This exemption reflects Treasury’s recognition of the complexities and decentralized nature of these entities. As a result, the implementation of reporting requirements for DeFi platforms and non-custodial entities has been delayed.
The new cryptocurrency tax regulation rules will go into effect in 2025, giving entities time to adjust their systems and processes for compliance. The cryptocurrency industry has expressed significant concerns about the privacy implications and the potential burden of collecting and reporting extensive data. There are concerns about the feasibility of these requirements for some platforms, particularly those that are not currently set up to handle the collection of personal data. Many comments submitted during the public feedback period highlighted concerns about the reporting burden and privacy risks associated with collecting personal information on small transactions.
“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 tax returns,” he said. Acting Assistant Secretary for Fiscal Policy Aviva Aron-Dine“By implementing the reporting requirements of the law, these final cryptocurrency regulations will help taxpayers more easily pay the taxes they owe under existing law, while also reducing tax evasion by wealthy investors.”
IRS Commissioner Danny Werfel has publicly emphasized the importance of these regulations in the fight tax evasion last week. “We have reviewed thousands of public comments and believe this new guidance addresses those concerns while balancing industry implementation challenges with closing the digital asset tax gap. These regulations are an important part of the broader high-income individual tax compliance effort. We need to ensure that digital assets are not used to hide taxable income, and these final regulations will improve compliance detection in the high-risk digital asset space. Our research and experience demonstrate that third-party reporting improves compliance. Additionally, these cryptocurrency tax regulations will provide taxpayers with much-needed information that will reduce the burden and simplify the process of reporting their digital asset activity.
The Treasury is seeking feedback on the proposed rules, including whether stablecoin transactions should be exempt if they do not result in a gain or loss. The final cryptocurrency regulation rules aim to ensure compliance and reduce tax evasion, but the industry’s operational and privacy concerns likely have not been met.