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US Treasury Issues Crypto Tax Regime for 2025, Delays Rules for Non-Custodians — TradingView News
The US Treasury Department has issued the long-awaited tax regime for cryptocurrency transactions, establishing filing rules for digital asset brokers that will begin with transactions made next year, but has postponed some of its most controversial decisions about brokers who never take hold of crypto clients.
New Internal Revenue Service (IRS) rules for cryptocurrency brokers released Friday require trading platforms, hosted wallet services and digital asset kiosks to present information about the movements and earnings of customers’ assets. Such assets will also include, in very limited circumstances, stablecoins such as Tether’s {{USDT}} and Circle Internet Financial’s {{USDC}} and high-value non-fungible tokens (NFTs), although the IRS explicitly declines to address the long-standing battle over whether tokens should be considered securities or commodities.
While this rule focuses on the more obvious platforms like Coinbase Inc. Current currency and Kraken, non-custodial cryptocurrency firms, such as decentralized exchanges and unhosted wallet providers, are getting only temporary respite from the new storage requirements. Popular crypto platforms that handle a “substantial majority” of transactions can no longer wait for rules, the agency argued, but the other issues require further study and will have their own rules “by the end of the year.”
“The Treasury Department and the IRS do not agree that non-custodial participants should not be treated as brokers,” according to explanations included in Friday’s rule. “However, the Treasury Department and the IRS would benefit from further consideration of issues involving non-custodial sector participants.”
The final rule for most commonly used brokers begins with transactions on January 1, 2025, leaving crypto taxpayers with another year of filing to calculate their 2024 returns themselves in the meantime, though cryptocurrency firms have already moved to adapt. The IRS has given brokers an additional year until 2026 to begin tracking the “cost basis” for assets, or the amount each was originally purchased for.
Real estate transactions paid for with cryptocurrencies after January 1, 2026 will also need to be reported, the regulation said. “Real estate reporting persons” will be required to submit the fair market value of the digital assets used in such transactions.
A 2021 congressional infrastructure bill set the stage for the Treasury IRS to establish this formal approach to cryptocurrencies, and the industry has since been frustrated by a continually delayed process. The eventual proposal attracted 44,000 public comments.
“Thanks to the bipartisan Infrastructure Investment and Jobs Act, digital asset investors and the IRS will have better access to the documentation they need to easily file and review taxes
“returns,” Aviva Aron-Dine, acting assistant secretary for fiscal policy, said in a statement. “By implementing the law’s reporting requirements, these final regulations will help taxpayers more easily pay taxes owed under current law, while reducing tax evasion by wealthy investors.”
IRS Commissioner Danny Werfel said the final regulations welcomed public comments.
“These regulations are an important part of a broader effort to address high-income individual tax compliance. We need to ensure that digital assets are not used to hide taxable income, and these final regulations will improve the detection of noncompliance in the high-risk space of digital assets,” he said. “Our research and experience demonstrate that third-party reporting improves compliance. Additionally, these regulations will provide taxpayers with much-needed information that will reduce burden and simplify the process of reporting their digital asset activity.”
Controversial rule
The process of drafting this controversial tax rule has sparked widespread concern in the industry that the U.S. government has gone too far in imposing impossible requirements on miners, online forums, software developers, and other entities that help investors but that traditionally would not be considered brokers and do not have the customer information or disclosure infrastructure that would allow them to comply.
The IRS said it recognizes that cryptocurrency brokers should not include those “who provide validation services without providing any other functions or services, or persons who are engaged solely in the business of selling certain hardware or licensing certain software, the sole function of which is to allow individuals to control the private keys used to access digital assets on a distributed ledger.”
US tax authorities estimate that around 15 million people will be affected by the new rule and that around 5,000 companies will have to comply.
The IRS said it sought to avoid some burdens on users of stablecoins, especially when used to purchase other tokens and in payments. Basically, an ordinary cryptocurrency investor and user who does not earn more than $10,000 in stablecoins in a year is exempt from reporting. Sales of stablecoins, the most frequent in cryptocurrency markets, will be counted collectively in an “aggregate” report rather than as individual transactions, the agency said, although more sophisticated, high-volume stablecoin investors will not be eligible.
The agency said that these tokens “unequivocally fall within the statutory definition of digital assets as they are digital representations of the value of fiat currency that are recorded on cryptographically protected distributed ledgers,” so they could not be exempt despite their goal of adhering to a constant value. The IRS also said that completely ignoring such transactions would “eliminate a source of information about digital asset transactions that the IRS can use to ensure compliance with taxpayer reporting obligations.”
But the IRS added that if Congress passes one of its bills that would regulate stablecoin issuers, the tax rules may need to be revised.
The tax agency also faced complex legal arguments in determining how to handle NFTs, according to its extensive notes on that topic, and the agency decided that only taxpayers who earn more than $600 in a year from their sales NFTs require their aggregate proceeds to be reported to the agency. government. The resulting documentation will include taxpayers’ identifying information, how many NFTs were sold, and what the profits were.
“The IRS intends to monitor NFTs reported under this optional aggregate reporting method to determine whether this reporting impedes its tax enforcement efforts,” according to the rule text. “If abuse is detected, the IRS will reconsider these special reporting rules for NFTs.”
As part of its efforts, the IRS released its definition of digital assets and the various activities covered by the legislation on Friday.
The IRS also established a safeguard for certain reporting requirements “that taxpayers may rely on to allocate the unused digital asset base to the digital assets held in each of the taxpayer’s wallets or accounts beginning on January 1, 2025.”
Earlier this year, the IRS released a proposed 1099-DA form to track cryptocurrency transactions — the form that millions of cryptocurrency investors would receive from their brokers.
The IRS made clear on Friday that any attempt in this rule to assign buckets to cryptocurrencies is not intended to strengthen a side in the industry’s ongoing battle with regulators — particularly the U.S. Securities and Exchange Commission (SEC) — over whether tokens are securities or commodities. That debate is now raging in several cases before federal judges, and while the SEC is only willing to admit that bitcoin {{BTC}} is well out of the agency’s reach, Commodity Futures Trading Commission Chairman Rostin Behnam has said that Ethereum’s ether {{ETH}} is also a commodity.
Such a position “is beyond the scope of these final regulations,” the IRS explained.
Nikhilesh De contributed reporting.