U.S. Treasury Issues Crypto Tax Regime For 2025, Delays Rules for Non-Custodians

The Internal Revenue Service (IRS) has issued new tax rules for digital assets, including cryptocurrencies and non-fungible tokens (NFTs), requiring brokers to report transactions to the government. The rule aims to improve compliance and provide needed information to reduce burden on taxpayers. However, it has raised concerns in the industry regarding potential overreach and impossible requirements for entities that aid investors but don’t traditionally function as brokers.

The U.S. Treasury Department has finally unveiled the long-anticipated tax framework for cryptocurrency deals, outlining reporting requirements for digital asset brokers effective from next year. However, it postponed making some significant decisions regarding brokers who never have custody of their clients’ crypto assets.

Beginning this week, the Internal Revenue Service (IRS) has unveiled new regulations for crypto intermediaries. Under these rules, digital asset trading platforms, hosted wallet services, and kiosks are required to report on behalf of their clients’ transactions involving cryptocurrencies, stablecoins such as Tether (USDT) and Circle Internet Financial’s USDC, and high-value non-fungible tokens (NFTs), albeit under specific conditions. However, the IRS remains undecided in its classification of tokens as securities or commodities, leaving this debate unsettled.

The regulation primarily targets well-known crypto platforms like Coinbase Inc. (COIN) and Kraken for now, granting a brief respite to non-custodial businesses such as decentralized exchanges and unhosted wallet providers. However, the most widely used crypto platforms that process a significant percentage of transactions cannot delay any longer for regulations, according to the agency. The less clear-cut issues require further examination and will be addressed with separate rules “later this year.”

The Treasury Department and the Internal Revenue Service (IRS) hold differing views regarding the classification of non-custodial industry participants as brokers. The Friday rule’s explanations note this discrepancy. Nevertheless, both departments acknowledge the need for further examination of concerns surrounding non-custodial industry participants.

Starting from January 1, 2025, the standard procedure for most crypto brokers will be updated with new rules. During this transition period, crypto taxpayers are responsible for calculating their tax returns for the year 2024 on their own. Crypto firms have been making preparations in advance. The Internal Revenue Service (IRS) has granted an extra year, until 2026, for brokers to begin recording the “cost basis” of their assets – the initial purchase price.

Starting from January 1, 2026, individuals involved in real estate transactions that are settled using cryptocurrencies will be required to report these transactions. The responsible parties, referred to as “real estate reporting persons,” must submit the fair market value of the digital assets exchanged during these transactions.

As a cryptocurrency investor, I’ve been keeping a close eye on the developments regarding the IRS and their formal approach to regulating crypto transactions. The anticipation built up since the infrastructure bill was passed in Congress last year. However, the implementation process has been a source of frustration for the industry due to repeated delays. When the eventual proposal was finally unveiled, it attracted an unprecedented number of public comments – a total of 44,000.

Due to the Bipartisan Infrastructure Investment and Jobs Act, documentation for tax reporting regarding digital asset investments will be more accessible for both investors and the Internal Revenue Service (IRS). This means a smoother process for filing and reviewing tax-related information.

Acting Tax Policy Assistant Secretary Aviva Aron-Dine announced that “these regulations, which enact the reporting rules outlined in the law, will facilitate easier tax payments for taxpayers and minimize tax evasion among affluent investors.”

IRS Commissioner Danny Werfel said the final regulations took in the public comments.

The regulations regarding high-income individuals’ tax compliance on digital assets are crucial in our larger endeavor. By implementing these final regulations, we aim to prevent the use of digital assets as means to conceal taxable income. These rules will enhance the ability to detect noncompliance within the complex realm of digital assets.

Controversial rule

The proposed tax rule for this contentious issue raised alarm among industries, as there were fears that the U.S. government could excessively regulate miners, online forum moderators, software developers, and other entities, imposing unrealistic obligations on them despite being neither brokers nor possessing customer information or disclosure systems to ensure compliance.

The IRS acknowledges that crypto brokers should exclude individuals who merely validate transactions without offering additional functions or services, as well as those solely involved in selling hardware or licensing software for the purpose of managing private keys to gain access to digital assets on a decentralized platform.

Approximately 15 million individuals in the United States are expected to be influenced by the new regulation, while around 5,000 businesses must ensure compliance.

The IRS said it tried to avoid some burdens on users of stablecoins, especially when used to buy other tokens and in payments. Basically, a normal crypto investor and user who doesn’t earn more than $10,000 on stablecoins in a year is exempted from the reporting. Stablecoin sales – the most frequent in the crypto markets – will be tallied collectively in an “aggregated” report rather than as individual transactions, the agency said, though more sophisticated and high-volume stablecoin investors won’t qualify.

The agency said that these tokens “unambiguously fall within the statutory definition of digital assets as they are digital representations of the value of fiat currency that are recorded on cryptographically secured distributed ledgers,” so they couldn’t be exempted despite their aim to hew to a steady value. The IRS also said that totally ignoring those transactions “would eliminate a source of information about digital asset transactions that the IRS can use in order to ensure compliance with taxpayers’ reporting obligations.”

If Congress passes a bill regulating stablecoin issuers as proposed, the IRS noted that the existing tax regulations could potentially require adjustments.

The Internal Revenue Service (IRS) encountered intricate legal dilemmas while figuring out how to manage taxes on Non-Fungible Tokens (NFTs), as evidenced by their detailed records on this subject. As a result, the IRS declared that taxpayers who earn over $600 annually from selling NFTs must report their combined earnings to the government. The subsequent filings will disclose the taxpayers’ identification details, the quantity of NFTs sold, and their respective profits.

As a crypto investor, I keep an eye on the latest developments from the Internal Revenue Service (IRS). Recently, they released their definition for digital assets and outlined the specific activities that fall under the purview of their new regulations. These clarifications are essential for us in the crypto community to ensure compliance with tax laws.

The IRS established a guideline, referred to as a safe harbor, for specific reporting obligations. Taxpayers can rely on this safe harbor to distribute unused basis of digital assets among their digital wallets or accounts as of January 1, 2025.

This year, the Internal Revenue Service (IRS) in the United States introduced a proposed 1099-DA form for reporting crypto transactions. Crypto investors with millions in holdings will obtain this form from their respective brokers.

Nikhilesh De contributed reporting.