Key Takeaways
- The rule, effective in 2026, requires crypto exchanges and payment processors to report user sales and trades to the IRS.
- As per the guidelines, decentralized exchanges and self-custody wallets will not be subject to the new reporting rules
The IRS has released its final draft of new cryptocurrency broker reporting requirements, with a clear mandate for industry participants. On June 28, the IRS and the Treasury Department outlined new rules requiring most crypto brokers to disclose the proceeds of users’ transactions to the IRS, aiming to curb tax evasion in the crypto market.
Starting in 2026, crypto brokers, including exchanges, will need to report gross proceeds from crypto sales occurring in 2025. Additionally, they will need to report information about the tax basis of some cryptos starting in 2027 for sales made in 2026. These new regulations align crypto brokers with traditional financial brokers, although they do not affect the amount taxpayers owe. The Treasury stated, “Owners of digital assets have always owed tax on the sale or exchange of digital assets.”
The new rules are part of the Biden-Harris Administration’s implementation of the bipartisan Infrastructure Investment and Jobs Act (IIJA), which did not impose new taxes on crypto but created reporting requirements. The latest requirements mainly concern custodial brokers, with the Treasury planning to issue rules for non-custodial brokers by the end of the year.
Acting Assistant Secretary for Tax Policy Aviva Aron-Dine highlighted that crypto investors would have “better access to the documentation they need to easily file and review tax returns.” Previously, investors had to rely on costly third-party services to calculate gains and losses from crypto sales. These new requirements aim to provide investors with all necessary information, fulfilling a bipartisan directive from Congress. Meanwhile, the IRS will gain crucial data to address tax evasion risks related to crypto, including by wealthy investors.
The Treasury and IRS conducted public hearings and reviewed over 44,000 comments before finalizing the rules. Treasury officials indicated that the final requirements were adjusted to reduce burdens on brokers, phase in requirements, and set a $10,000 threshold for stablecoin transaction reporting.
The IRS had clarified that the new regulation is not a new tax and that crypto investors have always owed taxes when selling their assets. The new rules are similar to those already applied to traditional financial services.
The change is designed to prevent tax evasion on crypto platforms. Crypto traders will receive simple tax reporting forms each year, similar to investors in stocks and other traditional assets. Historically, crypto investors have relied on expensive and sometimes inaccurate service providers to estimate taxes owed.
The new rule includes exceptions, such as excluding decentralized exchanges from reporting user transactions. However, the Treasury Department may introduce more reporting requirements for decentralized exchanges later this year.
According to the IRS’s new guidelines, decentralized exchanges and self-custody wallets will not be subject to the new reporting rules. The IRS decided it needed “more time to consider the nuances” of completely decentralized networks. Stablecoins and tokenized real-world assets will be treated the same as other digital assets under the new requirements.
IRS Commissioner Danny Werfel emphasized the need to close the tax gap posed by digital assets: “We need to make sure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets. Our research and experience demonstrate that third-party reporting improves compliance.” This sentiment was echoed by IRS criminal investigation chief Guy Ficco, who predicted an uptick in crypto tax evasion during the 2024 tax season.
IRS’ new rules on crypto have been met with strong criticism from crypto enthusiiasts around the world. Earlier this month, crypto advocacy group the Blockchain Association argued that the IRS’s new “broker-dealer” rules are expensive and complex to implement.
Leading crypto exchange Coinbase have also expressed opposition to the regulations in the past, arguing that the rules would impose “unprecedented, unchecked, and unlimited tracking” on users and create burdensome reporting requirements.
The Digital Chamber of Commerce had also come out strongly against the IRS’s proposed Form 1099-DA, claiming that it requests unnecessary information. It also raised concerns about the form’s request for private sensitive information including transaction IDs and digital asset addresses.
