New regulations require reporting by digital asset brokers By: National Association of Tax Professionals
September 19, 2023

Proposed regulations would extend current broker information reporting requirements to digital asset brokers beginning in 2025. Notably, they do not extend the reporting requirements to crypto miners or stakers. The proposed regulations were issued in response to the digital asset reporting requirements included in the 2021 Infrastructure Investment and Jobs Act.

The proposed regulations also contain detailed rules regarding how digital asset brokers are to determine amounts realized and basis, as well as backup withholding, for specified digital asset sales and exchanges. Finally, they would require reporting of digital assets used in the sale or purchase of real estate.

According to the proposed regulations, a broker for the purposes of the reporting rules in §6045 would include digital asset trading platforms, digital asset payment processors, certain digital asset hosted wallet providers and persons who regularly offer to redeem digital assets that they had created.

The proposed regulation would define a digital asset as: “any digital representation of value that is recorded on a cryptographically secured distributed ledger (or similar technology).”

The IRS specified that it would require broker reporting for all types of digital assets that fall within that definition.

Exclusions from the proposed reporting requirements would include:

  • Broker reporting of the sale of securities and commodities that are excluded under current law, such as sales on behalf of certain exempt organizations or governments
  • Persons who only provide distributed ledger validation services, including mining, staking, or selling hardware or licensing software that does not provide direct access to trading platforms
  • Transactions where a customer receives new digital assets without disposing of something else in exchange

Brokers would be required to report gross proceeds from each sale of digital assets paid to a customer or credited to a customer account on Form 1099-DA, which is currently being developed by the IRS, and provide payee statements to customers.

The IRS is accepting public feedback on the proposed regulations. Written or electronic comments must be submitted by Oct. 30. A public hearing has been scheduled for 10 a.m. EDT on Nov. 7.

New digital asset reporting requirements for real estate sales

Real estate reporting persons would be required to report on dispositions of digital assets by buyers in exchange for real estate as well as the fair market value of digital assets received by sellers under the proposed regulations.

A real estate reporting person is the person responsible for closing the transaction or, if no such person exists, the mortgage lender, the transferor’s broker, the transferee’s broker or the person designated under treasury regulations. Real estate reporting persons are treated as brokers for the purposes or the reporting obligations included in §6045.

The proposed regulations also expand the information real estate reporting persons must report with respect to real estate transactions to include:

  • Name and number of units the digital asset used to make payment
  • Date and time the payment was made
  • Transaction identification of the digital asset transfer
  • Digital asset address into which the digital assets are transferred

Additionally, the proposed regulations expand the definition of gross proceeds that must be reported to include payments made using digital assets received by the real estate seller.

Digital assets
Infrastructure Investment and Jobs Act
Form 1099-DA
IRS updates
Real estate
Tax preparation
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penAbout National Association of Tax Professionals

The National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.

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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.

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