US Treasury issues crypto tax regime for 2025, delays rules for non-custodians

The US Treasury Department has issued its long-awaited tax regime for cryptocurrency transactions, which sets out the filing rules for digital asset brokers that will begin trading next year, but it has some of its most controversial decisions about brokers who never take ownership of clients. not postponed. ‘ crypto.

The new Internal Revenue Service (IRS) rules for crypto brokers released on Friday call for trading platforms, hosted wallet services and digital asset kiosks to file disclosures about the movements and profits of clients’ assets. Those assets will also include – in very limited circumstances – the stablecoins such as Tether (USDT) and Circle Internet Financial (USDC) and high-value non-fungible tokens (NFTs), although the IRS expressly refuses to address the long-running battle over whether tokens should be considered securities or commodities.

While this rule focuses on the most obvious platforms like Coinbase Inc. (COIN) and Kraken, non-custodial crypto businesses — such as decentralized exchanges and non-hosted wallet providers — are only getting a temporary reprieve from the new filing requirements. The popular crypto platforms that handle a “significant majority” of transactions can no longer wait for rules, the agency argued, but the other issues need to be studied more and they will get their own rule “later this year.”

“The Treasury Department and the IRS do not agree that noncustodial industry participants should not be treated as brokers,” according to the clarifications included in the Friday rule. “However, the Treasury Department and the IRS would benefit from additional consideration of issues involving non-supervisory industry participants.”

The final rule for the more commonly used brokers begins transactions on January 1, 2025, leaving crypto taxpayers with another filing year in which they are on their own to figure out their 2024 returns in the interim, though crypto firms are already moving to To adapt. The IRS gave an additional year until 2026 for brokers to begin keeping track of the “cost basis” for the assets – the amount each was originally purchased for.

Real estate transactions paid for with cryptocurrencies after January 1, 2026 will also have to report, the regulation says. “Property reporting persons” shall submit the fair market value of the digital assets used in any such transaction.

A 2021 infrastructure bill in Congress paved the way for the Treasury’s IRS to establish this formal approach to crypto, and since then the industry has been frustrated with a continually delayed process. The final proposal received 44,000 public comments.

“As a result of the bipartisan Infrastructure Investment and Jobs Act, investors in digital assets and the IRS will have better access to the documentation they need to easily file and review taxes.

returns,” Acting Assistant Secretary for Tax Policy Aviva Aron-Dine said in a statement. “By implementing the Act’s reporting requirements, these final regulations will help taxpayers more easily pay taxes owed under current law, while reducing tax evasion by wealthy investors.”

IRS Commissioner Danny Werfel said the final regulations took public comment.

“These regulations are an important part of the larger effort on high-income individual tax compliance. We need to make sure that digital assets are not used to hide taxable income, and these final regulations will improve the detection of non-compliance in the high-risk space of digital assets,” he said. “Our research and experience show that third-party reporting improves compliance. Additionally, these regulations will provide taxpayers with much-needed information, which will reduce burden and simplify the process of reporting their digital asset activity.”

The process of writing this controversial tax rule has sparked widespread industry concern that the US government is overreaching by imposing impossible requirements on miners, online forums, software developers and other entities that help investors but would not traditionally be considered brokers. and does not have the information about customers or the disclosure infrastructure that will make them compliant.

The IRS said it recognizes that crypto brokers should not include those who “provide validation services without providing other functions or services, or persons who are solely engaged in the business of selling certain hardware, or licensing certain software, the sole function of which is to allow persons to control private keys used to access digital assets on a distributed ledger.”

The US tax regulators estimated that about 15 million people would be affected by the new rule, and about 5,000 firms would have to comply.

The IRS said it was trying to avoid some burdens on users of stablecoins, especially when they are used to buy other tokens and in payments. Basically, a normal crypto investor and user who earns no more than $10,000 on stablecoins in a year is exempt from the reporting. Stablecoin sales – the most common in the cryptomarkets – will be tallied collectively in an “aggregate” report rather than as individual transactions, the agency said, although more sophisticated and high-volume stablecoin investors will not qualify. The agency said these tokens “unequivocally fall within the statutory definition of digital assets, as they are digital representations of the value of fiat currency recorded on cryptographically secured distributed ledgers,” so they cannot be released despite of their purpose to hack. a fixed value. The IRS also said that ignoring those transactions altogether would “eliminate a source of information about digital asset transactions that the IRS could use to ensure compliance with taxpayer reporting obligations.”

But the IRS added that if Congress passes one of its bills that would regulate stablecoin issuers, the tax rules may need to be revised.

The tax agency also faced complicated legal arguments in determining how to treat NFTs, according to its extensive notes on that topic, and the agency decided that only taxpayers who earn more than $600 in a year from their NFT sales must report their total proceeds to the government. The resulting filings will include the taxpayers’ identifying information, the number of NFTs sold and what the profits were. “The IRS intends to monitor NFTs reported under this optional aggregate reporting method to determine whether this reporting impedes its tax enforcement efforts,” according to the rule text. “If abuse is detected, the IRS will reconsider these special reporting rules for NFTs.”

As part of its efforts, the IRS published its definition for digital assets and the various activities covered by Friday’s regulations.

The IRS also defined a safe harbor for certain reporting requirements “that taxpayers may rely on to allocate unused basis of digital assets to digital assets held within each wallet or account of the taxpayer beginning January 1, 2025,” it said.

Earlier this year, the US tax agency released a proposed 1099-DA form to track crypto transactions – the form millions of crypto investors would receive from their brokers.

The IRS made clear on Friday that any attempt in this rule to allocate buckets to crypto-assets is not intended to bolster a side in the industry’s ongoing battle with regulators – specifically the US Securities and Exchange Commission (SEC) – to define whether tokens are securities or commodities. That debate is now raging in several cases before federal judges, and while the SEC is only willing to admit that bitcoin (BTC) is definitely outside the agency’s reach, Commodity Futures Trading Commission Chairman Rostin Behnam said that Ethereum’s ether ( ETH) is also. a commodity. Such a position “is beyond the scope of these final regulations,” the IRS explained.

Nikhilesh De reported.