U.S. Treasury Issues Crypto Tax Regime For 2025, Delays Rules for Non-Custodians (2024)

The U.S. Treasury Department issued its long-awaited tax regime for cryptocurrency transactions, setting up filing rules for digital assets brokers that will begin with transactions happening next year, but it put off some of its most contentious decisions about brokers that never take possession of customers' crypto.

The new Internal Revenue Service (IRS) rules for crypto brokers released on Friday call for trading platforms, hosted wallet services and digital assets kiosks to submit disclosures on the movements and gains of customers' assets. Those assets will also include – in very limited circ*mstances – the stablecoins such as Tether's (USDT) and Circle Internet Financial's (USDC) and high-value non-fungible tokens (NFTs), though the IRS explicitly refuses to settle the longstanding battle over whether tokens should be considered securities or commodities.

While this rule focuses on the most obvious platforms such as Coinbase Inc. (COIN) and Kraken, non-custodial crypto businesses – such as decentralized exchanges and unhosted wallet providers – are only getting a temporary reprieve from the new filing demands. The popular crypto platforms that handle a "substantial majority" of transactions can't wait any longer for rules, the agency contended, but the other issues need more study and they'll get their own rule "later this year."

"The Treasury Department and the IRS do not agree that non-custodial industry participants should not be treated as brokers," according to the explanations included with the Friday rule. "However, the Treasury Department and the IRS would benefit from additional consideration of issues involving non-custodial industry participants."

The final rule for the more commonly used brokers begins with transactions on Jan. 1, 2025, leaving crypto taxpayers with another filing year in which they're on their own to figure out their 2024 returns in the interim, though crypto firms have already been moving to adapt. The IRS gave an additional year until 2026 for brokers to start having to keep track of the "cost basis" for the assets – the amount each was originally purchased for.

Real estate transactions paid for with cryptocurrencies after Jan. 1, 2026 will also need reporting, the regulation said. "Real estate reporting persons" will have to file the fair market value of the digital assets used in any such transaction.

A 2021 infrastructure bill in Congress had set the stage for the Treasury's IRS to establish this formal approach to crypto, and since then the industry has been frustrated with a continuously delayed process. The eventual proposal drew 44,000 public comments.

"Because of the bipartisan Infrastructure Investment and Jobs Act, investors in digital assets and the IRS will have better access to the documentation they need to easily file and review tax

returns,” said Acting Assistant Secretary for Tax Policy Aviva Aron-Dine, 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 regulations took in the public comments.

"These regulations are an important part of the larger effort on high-income individual tax compliance. We need to make sure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets," he said. "Our research and experience demonstrate that third-party reporting improves compliance. In addition, these regulations will provide taxpayers with much needed information, which will reduce burden and simplify the process of reporting their digital asset activity."

Controversial rule

The process of writing this controversial tax rule provoked widespread concern from the industry that the U.S. government would overreach by imposing impossible requirements on miners, online forums, software developers and other entities that aid investors but wouldn't traditionally be considered brokers and don't have the information about customers nor the disclosure infrastructure that would let them comply.

The IRS said it recognizes that crypto brokers shouldn't include those "providing validation services without providing other functions or services, or persons that are solely engaged in the business of selling certain hardware, or licensing certain software, for which the sole function is to permit persons to control private keys which are used for accessing digital assets on a distributed ledger."

The U.S. tax regulators estimated about 15 million people will be affected by the new rule, and about 5,000 firms will need to comply.

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."

But the IRS added that if Congress passes one of its bills that would regulate stablecoin issuers, the tax rules may have 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 makes more than $600 in a year from their NFT sales need their aggregated proceeds reported to the government. The resulting filings will include the taxpayers' identifying information, the number of NFTs sold and what the profits were. "The IRS intends to monitor NFTs reported under this optional aggregate reporting method to determine whether this reporting hampers its tax enforcement efforts," according to the rule text. "If abuses are detected, the IRS will reconsider these special reporting rules for NFTs."

As part of its efforts, the IRS published its definition for digital assets and the various activities covered by Friday's regulations.

The IRS also defined a safe harbor for certain reporting requirements "on which taxpayers may rely to allocate unused basis of digital assets to digital assets held within each wallet or account of the taxpayer as of Jan. 1, 2025," it said.

Earlier this year, the U.S. tax agency had released a proposed 1099-DA form to track crypto transactions – the form that millions of crypto investors would receive from their brokers.

The IRS clarified Friday that any attempt in this rule to assign buckets to crypto assets isn't meant to reinforce a side in the industry's ongoing battle with regulators – specifically the U.S. Securities and Exchange Commission (SEC) – to define whether tokens are securities or commodities. That debate is raging now in several cases before federal judges, and while the SEC is only willing to admit bitcoin (BTC) is definitely outside of the agency's reach, Commodity Futures Trading Commission Chair Rostin Behnam has said that Ethereum's ether (ETH) is also a commodity. Such a stance "is outside the scope of these final regulations," the IRS explained.

Nikhilesh De contributed reporting.