Regulation
US Treasury Issues 2025 Cryptocurrency Tax Regime, Delay Rules for Non-File Holders
The U.S. Treasury Department has issued a long-awaited tax regime for cryptocurrency transactions, setting filing rules for digital asset brokers that will begin with transactions made next year, but it has delayed some of its most controversial decisions on brokers who never take possession of clients’ crypto.
New Internal Revenue Service (IRS) rules for cryptocurrency brokers released Friday require trading platforms, hosted wallet services and digital asset kiosks to provide information about the movements and earnings of customers’ assets. These assets will also include, in very limited circumstances, stablecoins such as Tether (USDT) and Circle Internet Financial (USD Current Account) and high-value non-fungible tokens (NFTs), though the IRS explicitly refuses to settle the long-running battle over whether the tokens should be considered securities or commodities.
While the rule focuses on the more obvious platforms like Coinbase Inc. (COIN) and Kraken, non-custodial crypto businesses like decentralized exchanges and unhosted wallet providers are only getting temporary respite from new storage requirements. Popular crypto platforms that handle a “substantial majority” of transactions can no longer wait for the rules, the agency argued, but the other issues require further study and will have their own rule “by the end of the year.”
“The Treasury Department and the IRS do not agree that non-custodial participants should not be treated as brokers,” according to explanations included in Friday’s rule. “However, the Treasury Department and the IRS would benefit from further consideration of issues involving non-custodial sector participants.”
The final rule for most commonly used brokers begins with transactions on January 1, 2025, leaving crypto taxpayers with another year of filing to calculate their 2024 returns themselves in the meantime, though cryptocurrency firms have already moved to adapt. The IRS has given brokers an additional year until 2026 to begin tracking the “cost basis” for assets, or the amount each was originally purchased for.
Real estate transactions paid for with cryptocurrency after January 1, 2026, will also have to be reported, the regulation says. “Real estate reporting persons” will have to report the fair market value of the digital assets used in any such transactions.
A 2021 infrastructure bill introduced in Congress set the stage for the Treasury IRS to establish this formal approach to cryptocurrencies, and the industry has been frustrated by a continually delayed process ever since. Any 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 taxes
“returns,” Aviva Aron-Dine, acting assistant secretary for fiscal policy, said in a statement. “By implementing the law’s reporting requirements, these final regulations will help taxpayers more easily pay taxes owed under current law, while reducing tax evasion by wealthy investors.”
IRS Commissioner Danny Werfel said the final rule took into account public comments.
“These regulations are an important part of a broader effort to address high-income individual tax compliance. We need to ensure that digital assets are not used to hide taxable income, and these final regulations will improve the detection of noncompliance in the high-risk space of digital assets,” he said. “Our research and experience demonstrate that third-party reporting improves compliance. Additionally, these regulations will provide taxpayers with much-needed information that will reduce burden and simplify the process of reporting their digital asset activity.”
The process of writing this controversial tax law has caused widespread concern from the industry where the U.S. government would go overboard by imposing impossible requirements on miners, online forums, software developers, and other entities that help investors but that would not traditionally be considered brokers and do not have the customer information or disclosure infrastructure that would allow them to comply.
The IRS said it recognizes that cryptocurrency brokers should not include those who “provide validation services without providing any other functions or services, or persons who are engaged solely in the business of selling certain hardware or licensing certain software, for which the sole function is to enable individuals to control the private keys used to access digital assets on a distributed ledger.”
US tax regulators estimate that about 15 million people will be affected by the new rule and about 5,000 companies will have to comply.
The IRS said it sought to avoid some burdens on stablecoin users, especially when they are used to buy other tokens and in payments. Essentially, a typical cryptocurrency investor and user who doesn’t earn more than $10,000 in stablecoins in a year is exempt from reporting. Stablecoin sales, the most common in cryptocurrency markets, will be counted collectively in an “aggregate” report rather than as individual transactions, the agency said, though sophisticated, high-volume stablecoin investors won’t be eligible.
The agency said that these tokens “unambiguously fall within the statutory definition of digital assets because they are digital representations of the value of fiat currency that are recorded on cryptographically protected distributed ledgers,” so they could not be exempted despite their goal of holding a constant value. The IRS also said that ignoring such transactions entirely “would eliminate a source of digital asset transaction information that the IRS can use to ensure compliance with taxpayer reporting requirements.”
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 IRS also faced complex legal arguments in determining how to handle NFTs, according to its extensive briefing on the subject, and the agency decided that only taxpayers who earn more than $600 in a year from their NFT sales need to have their aggregate proceeds reported to the government. The resulting returns will include the taxpayers’ identifying information, how many NFTs were sold, and what the profits were.
“The IRS intends to monitor NFTs reported under this optional aggregate reporting method to determine whether this reporting hinders its tax enforcement efforts,” according to the text of the rule. “If abuse is found, the IRS will reconsider these special reporting rules for NFTs.”
As part of these 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 “that taxpayers may rely on to allocate the unused basis of digital assets to the digital assets held in each of the taxpayer’s wallets or accounts beginning on or after January 1, 2025,” it said.
Earlier this year, the US tax agency had released a proposed Form 1099-DA to track crypto transactions – the format that millions of crypto investors would receive from their brokers.
The IRS made clear Friday that any attempt in this rule to assign buckets to cryptocurrencies is not intended to strengthen a 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 now raging in several cases before federal judges, and while the SEC is willing to admit only bitcoin (BTC) is definitely out of the agency’s reach, Commodity Futures Trading Commission Chairman Rostin Behnam said that Ethereum’s ether (ETH) it’s also a commodity.
This position “is outside the scope of these final regulations,” the IRS explained.
Nikhilesh De contributed reporting.