The U.S. Treasury Department has finalized a rule requiring cryptocurrency brokers, including exchanges and payment processors, to report user sales and exchanges of digital assets to the Internal Revenue Service (IRS). This move aims to address potential tax evasion within the rapidly growing cryptocurrency market.
Announced on Friday, the new reporting requirements stem from the $1 trillion bipartisan Infrastructure Investment and Jobs Act of 2021. The legislation, when passed, estimated that these measures could generate nearly $28 billion in revenue over a decade by ensuring that crypto users pay their taxes.
The rule will be phased in starting next year, with full implementation expected for the 2026 tax filing season. It seeks to align cryptocurrency tax requirements with existing reporting standards for other financial instruments, such as bonds and stocks. According to the Treasury, the final rule has been modified from its original proposal to reduce some of the burdens on brokers and to introduce the new requirements in stages.
Notably, the rule includes a $10,000 threshold for reporting transactions involving stablecoins, which are cryptocurrencies typically pegged to assets like the U.S. dollar. The cryptocurrency industry had actively opposed the initial proposal, arguing that it defined “broker” too broadly and infringed on the privacy of crypto owners. The Treasury reviewed over 44,000 comments from the public and industry stakeholders, resulting in several adjustments to the final rule.
Treasury officials emphasized that crypto owners have always been required to pay taxes on the sale or exchange of digital assets. The new rule introduces a reporting requirement aimed at helping taxpayers file accurate returns and pay any taxes owed under current law. This rule includes the introduction of a new tax reporting form, Form 1099-DA, designed to simplify the tax reporting process for crypto users by providing necessary information to determine tax liabilities.
Brokers will be required to send Form 1099-DA to both the IRS and digital asset holders, facilitating their tax preparation. Currently, the IRS requires crypto users to report many digital asset activities on their tax returns, irrespective of whether the transactions result in a gain. The lack of direct reporting from trading platforms to the IRS has placed the burden of calculating gains on the users themselves.
In a release, the Treasury stated, “Crypto owners have always owed tax on the sale or exchange of digital assets. The new rule simply creates reporting requirements to help taxpayers file accurate returns and pay taxes owed under current law.”
Further rules are anticipated later this year to establish tax reporting requirements for non-custodial brokers, including decentralized crypto exchanges. The Treasury’s actions represent a significant step towards greater regulation and transparency in the cryptocurrency market, aiming to ensure that all participants meet their tax obligations.