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Investors in digital assets like cryptocurrencies have struggled to accurately calculate gains or losses due to the lack of standardized reporting, often relying on costly third-party services. Recognizing this gap, the Treasury and the Internal Revenue Service (IRS) issued final regulations to streamline the reporting process, ensuring investors and the IRS have the necessary information to meet tax obligations accurately and efficiently. The introduction of Form 1099-DA and the phased implementation plan reflect the government’s efforts to bring clarity and consistency to the reporting of digital asset transactions, ultimately benefiting taxpayers and the IRS.

The new regulations apply to brokers involved in the sale or exchange of digital assets for their customers. Specifically, these include:

• Custodial digital asset trading platforms
• Certain digital asset-hosted wallet providers
• Digital asset kiosks
• Certain processors of digital asset payments

The regulations notably exclude decentralized or non-custodial brokers who do not take possession of the digital assets being sold or exchanged. The Treasury and the IRS plan to issue separate regulations to address the reporting requirements for these brokers.

Under the final regulations, brokers are required to adhere to a phased reporting schedule:

Additionally, the regulations include rules for gain and loss computation, basis determination, and backup withholding applicable to digital asset transactions.

Conclusion

The new regulations will impact brokers by necessitating system upgrades and staff training for compliance. The IRS offers transitional relief through Notice 2024-56 and penalty waivers for brokers making good faith efforts in 2025, and Revenue Procedure 2024-28 provides guidance on basis identification for digital assets as of January 1, 2025.