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IRS Proposed Regulations: Reporting Requirements for Digital Asset Brokers

Announced August 25, 2023, proposed Reg. 2023-17565 would require brokers (i.e. cryptocurrency exchanges) to report sales and exchanges of digital assets to the IRS. IRS Commissioner Danny Werfel stated, “These proposed regulations are designed to help end confusion involving digital assets and provide clear information and reporting certainty for taxpayers, tax professionals and others.”

Beginning January 1, 2025, sales or exchanges of digital assets would require brokers, including digital asset trading platforms, digital asset payment processors and certain digital asset hosted wallet providers, to report gross proceeds on the newly developed Form 1099-DA. This would provide payee statements to customers. In specific cases, brokers would also be required to include gain or loss and basis information for sales that take place beginning January 1, 2026, on the 1099-DA so that customers have the information needed to prepare their tax returns.

Additionally, the proposed regulations would require real estate reporting persons, such as title companies, closing attorneys, mortgage lenders and real estate brokers, who are treated as brokers for dispositions of digital assets, to report the disposition of digital assets paid as consideration by real estate purchasers to acquire real estate in transactions that close on or after January 1, 2025. These real estate reporting persons would also be required to include on Form 1099-S the fair market value of digital assets paid to sellers of real estate in real estate transactions that close on or after January 1, 2025.

Finally, the proposed regulations outline gain (or loss) computation rules, basis determination rules and backup withholding rules applicable to digital asset sale and exchange transactions and propose many useful definitions.

The Treasury Department is soliciting public comment regarding the IRS proposed regulations until October 30, 2023, with public hearings scheduled for November 7 & 8, 2023.

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