On June 28, 2024, the Treasury and the IRS released final regulations on reporting requirements for brokers of digital assets (the "Final Regulations") and provided transitional relief, including Notice 2024-56, Notice 2024-57 and Revenue Procedure 2024-28. The Final Regulations update the proposed regulations published on August 29, 2023 (the "Proposed Regulations"), which we discussed in detail here. These updates come after "strong public interest" in the Proposed Regulations resulted in the submission of more than 44,000 comments, some of which we discussed here. Seven key features of the Final Regulations and transitional relief are discussed below.
- Beginning in 2026, the Final Regulations require certain
brokers to report specific transactions occurring on or after
January 1, 2025. They establish rules to determine basis, gain and
loss from and backup withholding for these transactions. Basis
reporting will be required starting in 2027 for transactions
occurring on or after January 1, 2026.
- The Final Regulations apply to brokers who take possession of
the digital assets being sold by their customers, a category of
brokers which includes operators of custodial digital asset trading
platforms, certain digital asset hosted wallet providers, certain
processors of digital asset payments and digital asset kiosks. They
do not include reporting requirements for non-custodial brokers,
such as decentralized finance ("DeFi") platforms and
unhosted digital asset wallet providers. The Treasury and the IRS
plan to issue additional rules later this year establishing
reporting requirements for these brokers.
- The Final Regulations clarify that stablecoins and nonfungible
tokens qualify as digital assets. They adopt annual de
minimis reporting thresholds of $10,000 and $600 for
qualifying stablecoins and certain nonfungible tokens,
respectively, below which no reporting is required. The Final
Regulations permit sales above these thresholds to be reported on
an aggregate basis (rather than a transactional basis).
- Unlike the Proposed Regulations, the Final Regulations do not
require brokers to report the time of transactions, transaction IDs
or digital asset addresses.
- Notice 2024-56 provides transitional relief from penalties and
backup withholding.
- Notice 2024-57 provides that, until the Treasury and the IRS
issue further guidance, brokers are not required to report wrapping
and unwrapping transactions, liquidity provider transactions,
staking transactions, lending of digital assets, short sales of
digital assets and notional principal contract transactions.
- Revenue Procedure 2024-28 provides a safe harbor to allocate unused basis of digital assets to other digital assets held within each wallet or account as of January 1, 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.