IRS Issues Guidance on Reporting for Digital Assets Transactions

On Friday, June 28, 2024, the U.S. Treasury Department and the Internal Revenue Service (IRS) issued final regulations and related guidance on broker reporting related to the disposition of digital assets. This reporting will be required for transactions that take place on or after January 1, 2025, and will utilize IRS Form 1099-DA, which will be released soon.

The final regulations (T.D. 10000) provide rules relating to gain or loss computation, basis determination, and backup withholding with respect to digital asset sale and exchange transactions. In terms of scope, they apply to both brokers that take possession of digital assets being sold by their customers and real estate reporting persons when purchasers use digital assets to acquire real estate. Rules relating to decentralized or non-custodial brokers will be provided in a future set of regulations.

The regulations phase in over time:

Gross proceeds must be reported for transactions effected on or after January 1, 2025.
Basis must be reported on certain transactions effected on or after January 1, 2026.
Real estate professionals that are treated as brokers must report the fair market value of digital assets paid by buyers and received by sellers in real estate transactions with closing dates on or after January 1, 2026.

For certain sales of stablecoins and non-fungible tokens (NFTs), brokers may choose to report the transactions on an aggregate basis to the extent the sales exceed respective de minimis thresholds.

Additional Guidance

Notice 2024-56 provides transitional relief from penalties for brokers who fail to report sales of digital assets for information returns required to be filed and payee statements required to be furnished in 2026 for sales of digital assets effected in calendar year 2025, provided that the broker makes a good faith effort to file the appropriate information return and furnish the associated payee statement accurately. The notice also provides relief to brokers from certain backup withholding obligations and associated penalties.

Notice 2024-57 provides that brokers are not required to file information returns or furnish payee statements with respect to the following identified transactions:

Wrapping and unwrapping transactions
Liquidity provider transactions
Staking transactions
Transactions described by digital asset market participants as lending of digital assets
Transactions described by digital asset market participants as short sales of digital assets
Notional principal contract transactions

Revenue Procedure 2024-28 provides a safe harbor for allocating units of unused basis to a wallet or account that holds the same number of remaining digital asset units as of January 1, 2025.

If you have any questions about the new guidance and how it might affect your business, please contact the author or any member of Foley’s Digital Assets, Web3 & NFTs team.

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