The U.S. Department of the Treasury and the IRS released proposed regulations implementing the Infrastructure Investment and Jobs Act (Infrastructure Act) expansion of IRC Section 6045 gross proceeds and basis broker reporting rules to cover digital assets. Reporting originally was set to begin in 2024 but was delayed until final regulations are issued. Under the proposed regulations, reporting would be required for digital asset sales effected on or after Jan. 1, 2025.
Proposed rules under IRC Sections 1001 and 1012 for determining digital asset gain and loss and basis will be effective on Jan. 1 of the calendar year immediately following the date that the final regulations are published. However, taxpayers can rely on the proposed rules for dispositions in taxable years ending on or after Aug. 29, 2023, provided that the rules are consistently followed in their entirety and in a consistent manner for all taxable years through the applicability date of the final regulations.
Reporting by transferors of digital assets under IRC Section 6045A and for organizational changes under IRC Section 6045B is delayed until final regulations under those provisions are published.
The Infrastructure Act also expanded IRC Section 6050I to require a trade or business to report receipt of more than $10,000 in digital assets. Although that provision is effective for information returns required to be filed and statements required to be furnished after Dec. 31, 2023, no guidance has been issued yet.
IRC Section 6045(g)(3)(D) generally defines a digital asset as any digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology. The definition of digital assets under the proposed regulations is the same as in the statute. However, as explained in the preamble, the proposed regulations interpret the definition of digital asset broadly to include not only virtual currency as defined in Notice 2014-21, but also other types of digital assets, including stablecoins and non-fungible tokens.
The proposed regulations generally define a digital asset broker as any person that in the ordinary course of a trade or business stands ready to effect sales for others of digital assets. Examples of brokers could include:
Merchants that sell goods and services (other than digital assets or cash) in exchange for digital assets are not brokers, though payment processors used by merchants are brokers. Solely validating distributed ledger transactions (for example, proof-of-work or proof-of-stake transactions) does not make someone a broker.
In addition to customer name, address, taxpayer identification number, name or type of digital asset and number of units sold, sale time and date, and gross proceeds, an information broker report includes the following:
Although basis reporting is proposed to begin for sales effected on or after Jan. 1, 2026, the following brokers will be required to track basis information for digital assets acquired on or after Jan. 1, 2023:
The proposed regulations are extremely broad and require reporting for a wide range of digital asset transactions carried out through centralized and decentralized platforms. A significant number of comments requesting changes to many of the proposed rules are expected. While the comment period is short (comments are due Oct. 30), it could take a long time for Treasury and the IRS to publish final regulations.
In the meantime, participants in the crypto ecosystem should consider how the proposed rules might affect them. For instance, platforms, wallets, and software providers should consider whether they will have reporting, information collection, and basis tracking obligations if the proposed rules are finalized. Taxpayers that engage in sales or exchanges of digital assets should be aware that they could receive Form 1099-Bs from digital asset brokers that voluntarily choose to apply the proposed rules early and should consider whether to adopt the proposed rules under IRC Section 1001 and 1012 for 2023 transactions.
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