24 September 2023

Digital Technology Guru

Digital Technology Guru Reviews

IRS Proposes Regulations to Require Reporting of Digital Asset Sales and Exchanges

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IRS Proposes Regulations to Require Reporting of Digital Asset Sales and Exchanges

The IRS has released proposed regulations that would require brokers to report sales and exchanges of digital assets to the IRS and customers. This is part of the Treasury’s broader effort to close the tax gap and crack down on tax evasion. The proposed regulations also aim to standardize the reporting of digital assets with that of other assets.

Under the proposed regulations, brokers who act as agents, principals, or digital asset middlemen would be required to report sales or exchanges of digital assets for cash, broker services, and property subject to reporting. This includes digital asset trading platforms, digital asset payment processors, and certain digital hosted wallet providers.

Brokers would need to report gross proceeds on a new form called Form 1099-DA for sales or exchanges of digital assets that occur on or after January 1, 2025. They would also be required to provide payee statements to customers. In certain circumstances, brokers would need to include gain or loss and basis information for sales that occur on or after January 1, 2026.

The proposed regulations also extend reporting requirements to real estate purchasers who use digital assets to acquire real estate. Sellers of real estate would need to report the fair market value of digital assets received in exchange for real estate.

Furthermore, the proposed regulations clarify that transactions involving the exchange of digital assets for goods or services would be treated as reportable under specific sections of the tax code, rather than under existing rules for barter exchange transactions.

The IRS estimated that the regulations would impact 13 to 16 million owners of digital assets and up to 9,500 brokers. Comments on the proposed regulations can be submitted until October 30, and public hearings are scheduled for November 7.

Overall, these proposed regulations aim to improve enforcement, consumer protection, equity, and standardization of reporting rules for digital assets. IRS Commissioner Danny Werfel stated that the regulations are designed to prevent the use of digital assets to hide taxable income and improve compliance with tax laws.

– REG-122793-19 (IRS)
– Martha Waggoner (AICPA-CIMA)