An IRS official shared preliminary information on new digital asset tax reporting rules and related guidance Friday afternoon with an audience of tax practitioners as the regs were publicly announced.
The last panel of the New York University School of Professional Studies 16th Annual Tax Controversy Forum in Times Square, New York, began around 4 pm ET June 28 and delved into compliance issues tax practitioners face when working with digital asset clients. On the panel representing the Treasury Department was Trisha Turner, senior advisor at the IRS Office of the Digital Assets Initiative.
During the presentation, Turner notified attendees that the IRS was about to issue the finalized version of digital asset reporting regs proposed last August that implemented crypto-related provisions of the Infrastructure Investment and Jobs Act (PL 117-58). The provisions were delayed while the IRS worked to solicit input from industry stakeholders.
As promised, the regs (TD 10000) hit the Federal Register minutes later, prompting audience members to scramble to their phones as the IRS circulated a news release (IR 2024-178). The regs span over 360 pages and reflect feedback across 44,000 submitted comments, as well as a public rulemaking hearing held in November.
“The final regulations require gross proceeds reports for transactions taking place on or after January 1, 2025, [and] basis reporting by some brokers for transactions beginning January 1, 2026,” said Turner. “At the same time, Treasury and the IRS are issuing two notices which generally provide relief from failure to file and failure to furnish penalties for 2025 transactions if the broker makes the good-faith effort to file and furnish accurate” Forms 1099-DA, Digital Asset Proceeds from Broker Transactions, “in a timely manner.” The notices “contain backup withholding relief for 2025 and 2026 transactions,” she said.
Other panelists were asked for reactions to the announcement by moderator Michelle Schwerin of Neill Schwerin Boxerman PC, although no one at the time had gotten the chance to digest the regs.
Latham & Watkins Partner Brian McManus, providing his immediate reaction to the applicability date, said this means that “about a year from now, there are going to be a lot of 1099s in the system that are dealing with the extent that people have not been filing over the course of the past several years.” He added that the “flood” of information returns will be riddled with incorrect information. “There’s going to be a lot of challenges” for brokers, said McManus.
In response to McManus, Larry Campagna — managing shareholder at Chamberlain, Hrdlicka, White, Williams & Aughtry PC — said the remainder of 2024 is an opportunity for practitioners to meet with clients “to anticipate what’s going to come in 2025 and 2026,” or “at least get them to make sure the 2023 and 2024 returns were correct.” Taxpayers should “go into the new reporting period with their basis known,” said Campagna.
Barbara Kaplan, a Greenberg Traurig shareholder, agreed now is a good time to “sit down and plan your strategy” for obtaining information before the rules take effect.
Continuing with how the final regs addressed the “broad definition” of a digital asset broker in the proposed rules, Turner said the final regs “only apply to brokers that take possession of the digital assets.” She explained that this includes certain digital asset wallet providers, kiosks, and processors of digital asset payments, or PDAPs.
Regarding non-custodial brokers, meaning those that do not take possession of digital assets, Turner said that Treasury and the IRS “need more time to study these industry participants and the transactions they facilitate” before finalizing those reporting rules. Also reserved are rules for foreign brokers, which will be covered in “future regulations” to coincide with the Organization for Economic Cooperation and Development’s Crypto Asset Reporting Framework, commonly referred to as CARF.
The final regs also omit a finalized Form 1099-DA, the information return that will be used for reporting digital asset transactions. A draft was recently released, and Turner said there will be a 30-day comment period focused on improving the form.
She declined to provide a specific date for when the comment period will begin, but assured it is “going to be coming up shortly.”
Guidance. Along with the final regs were the following pieces of guidance Turner referenced:
- Notice 2024-56, providing transition relief for brokers.
- Notice 2024-57, identifying transactions that, for now at least, fall out of scope of Form 1099-DA.
- Rev Proc 2024-28, allowing taxpayers to allocate units of unused basis to other digital asset units held in wallets or accounts as of January 1, 2025.
- Fact Sheet 2024-23, summarizing the regs, notices, and revenue procedure.
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