Blockchain
US Treasury Issues 2025 Cryptocurrency Tax Rule, Delay Rules for Non-File Holders
The U.S. Treasury Department has issued a long-awaited tax regime for cryptocurrency transactions, setting filing rules for digital asset brokers that will begin with transactions made next year, but it has delayed some of its most controversial decisions on brokers who never take possession of clients’ crypto.
New Internal Revenue Service (IRS) rules for cryptocurrency brokers released Friday require trading platforms, hosted wallet services, and digital asset kiosks to provide information about the movements and earnings of customers’ assets. Those assets will also include, in very limited circumstances, stablecoins like Tether’s (USDT) and Circle Internet Financial (USDC) and high-value non-fungible tokens (NFTs), although the IRS explicitly refuses to resolve the long-standing battle over whether tokens should be considered securities or commodities.
While the rule focuses on the more obvious platforms like Coinbase Inc. (COIN) and Kraken, non-custodial crypto businesses like decentralized exchanges and unhosted wallet providers are only getting temporary respite from new storage requirements. Popular crypto platforms that handle a “substantial majority” of transactions can no longer wait for the rules, the agency argued, but the other issues require further study and will have their own rule “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 cryptocurrency after January 1, 2026, will also have to be reported, the regulation says. “Real estate reporting persons” will have to report the fair market value of the digital assets used in any such transactions.
A 2021 infrastructure bill introduced in Congress had laid the groundwork 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 their 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 rule took public comments into account.
“These regulations are an important part of the broader tax compliance effort for high-income earners. We need to ensure that digital assets are not being used to hide taxable income, and these final regulations will improve compliance detection in the high-risk digital asset space,” 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 the burden and simplify the process of reporting their digital asset activity.”
The process of writing this controversial tax rule was provocative widespread concern from the sector where the U.S. government would go overboard by imposing impossible requirements on miners, online forums, software developers and other entities that help investors but that would not traditionally 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 other functions or services, or persons who are solely engaged in the business of selling certain hardware or licensing certain software, whose sole function is to allow people to control the private keys used to access digital assets on a distributed ledger.”
U.S. tax regulators estimate that about 15 million people will be affected by the new rule and about 5,000 businesses will have to comply.
The IRS said it sought to avoid some burdens for stablecoin users, especially when they are used to buy other tokens and in payments. In practice, a typical cryptocurrency investor and user who earns no more than $10,000 in stablecoins in a year is exempt from reporting. Stablecoin sales, the most common in cryptocurrency markets, will be counted collectively in an “aggregate” report rather than as individual transactions, the agency said, although sophisticated, high-volume stablecoin investors will not qualify.
The agency said that these tokens “unequivocally fall within the legal definition of digital assets as they are digital representations of the value of fiat currency recorded on cryptographically protected distributed ledgers,” so they cannot be exempt despite their goal of achieving this. 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 hinders its tax enforcement efforts,” according to the text of the rule. “If abuse is found, 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 has also established a safe harbor for certain reporting requirements “that taxpayers can rely on to allocate the unused digital asset base to digital assets held in each taxpayer’s wallet or account as of January 1, 2025,” he has declared.
Earlier this year, the US tax agency had released a proposed Form 1099-DA to track cryptocurrency transactions, the form that millions of cryptocurrency investors would receive from their brokers.
The IRS made clear 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 willing to admit only bitcoin (BTC) is definitely out of the agency’s reach, Commodity Futures Trading Commission Chairman Rostin Behnam said that Ethereum’s ether (ETH) it’s also a commodity.
Such a position “is beyond the scope of these final regulations,” the IRS explained.
Nikhilesh De contributed reporting.