The IRS has issued 282 pages of proposed digital asset reporting regulations, along with official IRS explanation of the provisions, which cover a range of digital asset issues where there have been questions. Issues addressed include expansive definitions of brokers and a requirement that proceeds from the sale of digital assets be reported to the IRS starting in 2026, on new Form 1099-DA for transactions on, or after January 1, 2025.
- What is a Digital Assts?
With the rise of blockchain technology, the term "digital assets" refers to digital tokens or cryptocurrencies, like Bitcoin, Ethereum, and many others, which represent various forms of value or access rights on a blockchain.
Noteworthy aspects of the proposed regula ons include:
- The IRS has proposed numerous ques ons on various digital asset topics and is requesting public comment for a public hearing scheduled for November 7;
- Tiebreaker rules for brokers help to determine how to report a digital asset transaction that can also be classified as a non-digital asset transaction:
- If a transaction could be classified as either a securities transaction or a digital asset transaction, then starting January 1, 2025, the broker must report the transac on as a
digital asset transaction (on Form 1099-DA); - If the transaction could be classified as either a real estate transaction or a digital asset transaction, then the transacion must be reported as a real estate transaction (under
existing rules);
- If a transaction could be classified as either a securities transaction or a digital asset transaction, then starting January 1, 2025, the broker must report the transac on as a
- The definition of “digital asset” is expansive and includes non-fungible tokens (NFTs) and stablecoins;
- Digital assets requiring broker reporting do not include:
- Digital assets used in “closed systems” (such as video game tokens that can be purchased with real currency but can be used only in-game and that cannot be sold or exchanged outside the game for real currency); or
- Distributed ledger technology or similar technology for ordinary commercial purposes that do not create a new transferrable asset, such as inventory tracking or processing orders for purchase and sale transactions;
- There is no de minimis excep on for broker repor ng on new IRS Form 1099-DA.
We will keep you updated as these new rules develop!
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