Long-awaited proposed regulations for digital asset reporting under Sec. 6045 would require brokers to report sales and exchanges of digital assets to the IRS and customers as part of Treasury’s broader effort to close the tax gap and crack down on tax evasion.
In the preamble to REG-122793-19, posted Friday in the Federal Register, the IRS and Treasury explained that the proposed regulations extend information reporting rules under Sec. 6045 to include brokers who act as agents, principals, or digital asset middlemen to sell digital assets for others. The regulations cover sales or exchanges of digital assets for cash, broker services, and property of a type that is subject to reporting by the brokers. The proposed regulations also extend the reporting rules to brokers who effect, on behalf of customers, payments of digital assets associated with payment card and third-party network transactions subject to reporting under Sec. 6050W.
The proposed regulations clarify that the definition of broker for purposes of Sec. 6045 includes digital asset trading platforms, digital asset payment processors, certain digital hosted wallet providers, and persons who regularly offer to redeem digital assets that were created or issued by that person.
The proposed regulations require brokers, for sales or exchanges of digital assets that take place on or after Jan. 1, 2025, to report gross proceeds on a forthcoming new form, Form 1099-DA, and to provide payee statements to customers. Brokers, in certain circumstances, would also be required to include gain or loss and basis information for sales that take place on or after Jan. 1, 2026, on these information returns and statements, so that customers have the information they need to prepare their tax returns.
In addition, the proposed rules would require reporting on real estate purchasers who use digital assets to acquire real estate in a reportable transaction and extend the information that must be reported under Regs. Sec. 1.6045-4 with respect to sellers of real estate to include the fair market value of digital assets received by sellers in exchange for real estate.
Additionally, in the case of a transaction involving the exchange of digital assets for goods (other than digital assets) or services, under the proposed regulations the provision of the goods or services would be treated as reportable under Sec. 6050W and the disposition of the digital assets as reportable under Prop. Regs Sec.1.6045-1 and not under Sec. 6050W. Also, the proposed rules state that exchanges of digital assets for property or services are generally not reportable as barter exchange transactions under the existing rules under Regs. Sec. 1.6045-1(e).
Finally, the proposed regulations provide specific rules under Sec. 1001 for determining the amount realized in a sale, exchange, or other disposition of digital assets and under Sec. 1012 for calculating the basis of digital assets.
The changes came in response to amendments to Sec. 6045 made by the Infrastructure Investment and Jobs Act, P.L. 117-58, which was signed into law in November 2021.
The IRS estimated that the regulations would affect 13 million to 16 million owners, a figure that the Service acknowledged could be low, along with up to 9,500 brokers.
Treasury officials said in a call Thursday that the proposed regulations focus on four areas: enforcement, consumer protection, equity (by helping to close the tax gap), and standardization of the rules to align reporting on digital assets with that on other assets.
IRS Commissioner Danny Werfel said in a news release Friday that the proposed regulations are part of an effort “to make sure digital assets are not used to hide taxable income,” adding that “the proposed regulations are designed to provide a clearer line of sight into activities by high-income people as well as others using them. We want to make sure everyone pays what they owe under the tax laws, and our research and experience demonstrate that third-party reporting improves compliance.”
Comments on the proposed regulations must be received by Oct. 30. A public hearing is scheduled for Nov. 7, with a second hearing possible the next day if needed.