Regulations help make filing easier for digital asset holders on taxes already owed
WASHINGTON – As part of the Biden-Harris Administration’s implementation of the bipartisan Infrastructure Investment and Jobs Act (IIJA), the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) today released final regulations regarding reporting requirements for trading front-end service providers interacting directly with customers on digital asset transactions, often referred to as “DeFi brokers.”
The final rules announced today do not change or impose any new tax obligations on digital assets. Taxpayers have always been obligated to include gains from sales or exchanges of digital assets in their income. Instead, the rules announced todayrequire brokers – not digital asset holders – to report on the gross proceeds of the sale of their digital assets through a Form 1099. Today’s rules ensure DeFi brokers of digital assets are subject to the same information reporting rules as brokers for securities and operators of custodial digital asset trading platforms.
By collecting more information from brokers, the owner of a digital asset who engages in DeFi transactions will receive a Form 1099 from brokers and be reminded that those transactions are taxable, thereby reducing the number of inadvertent errors or noncompliance on the taxpayer’s federal income tax returns andsaving taxpayers time and money during the filing process.
“These regulations will help ensure that all taxpayers play by the same set of rules and have access to the information they need to file their taxes accurately,” said Aviva Aron-Dine, Performing the Duties of Assistant Secretary for Tax Policy. “Aligningtax reporting requirements for digital assets with reporting for other assets will make filing easier and cheaper for compliant taxpayers while also helping close the tax gap."
The final regulations come after Treasury published final regulations addressing reporting requirements primarily for custodial brokers earlier this year. The final regulations do not treat operators of digital protocols or developers of protocol software as brokers and modify the proposed regulations in ways that limit burdens on brokers while ensuring taxpayers and the IRS receive the information they need.
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