Digital Asset Broker Regulations Released

Today marks a pivotal moment for the digital asset industry with the release of the US Treasury’s Finalized Regulations on information reporting obligations for digital asset brokers. Initially proposed in August 2023 and refined through extensive industry feedback and a public hearing in November, these regulations provide much-needed clarity and guidance.

As your trusted compliance partner, Taxbit is here to help you navigate these changes. Our Tax and Policy, subject matter experts, are diligently reviewing the details and will provide further insights and guidance to help you navigate this new regulatory landscape. However, some initial key points are noted below. 

Important notes for Tax Year 2025:

• Custodial digital asset brokers will need to report proceeds for certain sale and exchange transactions that take place beginning in calendar year 2025 and will be reported on the soon-to-be-released Form 1099-DA.

• Clarity has been provided for the reporting treatment of stablecoins, allowing filers of Forms 1099-DA to aggregate certain sales of stablecoins and NFTs with a de minimis threshold requirement.

• While digital asset brokers will have to collect and retain digital asset wallet addresses and transaction IDs for transactions, they will not be required to report this information to the IRS. The information will need to be retained for 7 years and made available for inspection. 

Important Areas of Deferral and Relief :

• Cost Basis reporting will be required by certain custodial brokers for transactions occurring on or after January 1, 2026

• DeFi appears to be out of scope with Treasury's introduction statement that "The final regulations do not include reporting requirements for brokers that do not take possession of the digital assets being sold or exchanged. These brokers are commonly called decentralized or non-custodial brokers."

• Notice 2024-56 provides transitional relief from reporting penalties and backup withholding for calendar year 2025, provided the filing broker made a good faith effort to comply with reporting obligations. 

• An interesting detail is the relief proposed for backup withholding connected to brokers utilizing the IRS’ TIN-matching system in place of certified TINs, which means that documentation requirements and associated deadlines (i.e., Forms W-9) have also been delayed.

• Notice 2024-57 excludes specific types of transactions from being reported on:

  • Wrapping / Unwrapping

  • Certain liquidity pools

  • Staking pools

  • Lending activity

  • Short sales

  • Notional Principal Contracts

While these changes may pose challenges, they also bring a layer of transparency and legitimacy to the market. Customers will receive clear information relating to their tax reporting, and the IRS will have the same information to verify compliance.

Click here to get in touch with our tax and policy subject matter experts if you have any questions.