The Internal Revenue Service (IRS) and the U.S. Department of the Treasury have finalized new reporting requirements for cryptocurrency custodial brokers, starting from transactions in 2026.
On Friday, the U.S. Treasury Department finalized a rule mandating that cryptocurrency brokers—including exchanges and payment processors—report to the Internal Revenue Service any updates regarding users' sales and exchanges of digital assets.
The new regulations, which are a result of the $1T bipartisan 2021 Infrastructure Investment and Jobs Act, are intended to crack down on cryptocurrency users who might be neglecting their taxes.
It was projected that the new regulations could generate almost $28 billion in revenue over a ten-year period at the time the bill was passed.
According to Treasury, the rule will gradually phase in beginning with the 2026 tax filing season, aligning the tax requirements for cryptocurrencies with the current tax reporting requirements for brokers of other financial instruments like bonds and stocks.
Treasury officials stated that the final rule was changed from the original proposal to limit certain burdens and costs on brokers and to roll in the new requirements gradually. Additionally, it has a $10,000 reporting threshold for transactions using stablecoins, a class of cryptocurrency token that is usually linked to an asset like the US dollar.
After Treasury introduced the rule last year, the cryptocurrency industry launched a campaign of comment letters, claiming that the requirements infringed on the privacy of cryptocurrency owners and that the proposal's definition of a broker was too broad.
Treasury also reported that it had gone over more than 44,000 comments on the plan. Additionally, it stated that it plans to release more regulations later this year that will impose tax reporting obligations on non-custodial brokers, such as decentralized cryptocurrency exchanges.
In a statement, the Treasury emphasized that the new rule "merely established reporting requirements... to help taxpayers in filing accurate returns and paying taxes owed under existing law." Additionally, it clarified that cryptocurrency owners "have always been required to pay taxes on the sale or exchange of digital assets."
According to the Treasury Department, the rule creates a new tax reporting form called Form 1099-DA, which is intended to assist taxpayers in determining whether they owe taxes and to spare cryptocurrency users from having to perform laborious calculations to ascertain their gains.
To help with their tax preparation, brokers would have to forward the forms to digital asset holders as well as the IRS.
Regardless of whether the transactions produced a profit or not, the IRS currently mandates that users of cryptocurrencies report a variety of digital asset activities on their tax returns.
Users must do that computation on their own, and the digital asset trading platforms do not provide the IRS with that data.
Compliance challenges and privacy concerns
The implementation of the new cryptocurrency reporting requirements has sparked apprehension within the crypto industry regarding potential privacy infringements, significant compliance expenses, and far-reaching implications for market participants.
These concerns stem from the need to report and share extensive data as part of these new regulations.
Despite apprehensions about potential privacy infringements, substantial compliance expenses, and broader implications for market participants, many acknowledge that these concerns pale in comparison to the importance of bolstering transparency in digital asset transactions and fortifying tax enforcement within the cryptocurrency sector.
Furthermore, the implementation of these new reporting regulations for digital asset transactions could potentially reshape investor behavior and market volatility within the cryptocurrency landscape, as tax compliance becomes a more prominent factor in trading decisions starting from 2025.