Digital asset transactions: Broker reporting, amount realized, and basis

Digital assets continue to be at the forefront of investing and policy discussions. American ownership of cryptocurrency has nearly doubled in the last three years or so, with 28% of American adults holding cryptocurrency and more expressing interest in buying cryptocurrency this year.¹ The first cryptocurrency–based exchange–traded fund (ETF) launched in January 2024, and a range of cryptocurrency ETFs are now available on the open market, with tens of billions of dollars invested.² Earlier this year, BlackRock announced that it had added its Bitcoin ETF to its model portfolio,³ and it recently filed to offer a new class of tokenized shares of its Treasury Fund.⁴

On the policy side, federal government regulation over digital assets is a rapidly changing landscape. The Biden administration took what was generally viewed as an enforcement–led approach to digital assets, with the SEC suing digital asset exchange platforms for trading and offering digital assets without registering them as securities.⁵ In contrast, President Donald Trump campaigned on a promise of promoting the adoption of digital assets,⁶ and during his first week in office, he issued an executive order establishing a working group on digital asset markets.⁷ The group is tasked with recommending regulatory and legislative proposals regarding digital assets, including a federal framework for the issuance and regulation of digital assets.⁸ The SEC also formed a separate cryptocurrency task force in early 2025 to develop a framework for cryptocurrency assets, with goals of clear regulatory lines and realistic paths to registration.⁹ In July 2024, the IRS issued final regulations requiring certain brokers and others to file information returns and furnish payee statements on digital asset sales and exchanges.¹⁰ After first providing some general background, this article discusses the regulations’ definition of a digital asset, the types of brokers required to report, and the determination of amount realized and basis. It then addresses more specific rules regarding the identification of digital assets sold, exceptions from reporting requirements, and the phased–in timing of the reporting obligations for different types of brokers and transactions.

Background on the regulations

Before the current administration took office, Congress, Treasury, and the IRS took steps to subject digital assets to similar tax reporting rules as securities and commodities. In 2021, Congress passed the Infrastructure Investment and Jobs Act (Infrastructure Act), P.L. 117–58, which, as relevant here, amended certain sections of the Internal Revenue Code to address information reporting on digital assets by brokers. The Infrastructure Act provided an expanded definition of “broker” that covered those transacting in digital assets, as well as a definition of the term “digital assets.” The Infrastructure Act also provided that digital assets would be considered covered securities for purposes of adjusted basis reporting.¹¹

In December 2022, Treasury and the IRS stated that they intended to implement the Infrastructure Act amendments to the Code by issuing new regulations and providing forms and instructions for broker reporting.¹²

On Aug. 29, 2023, the IRS and Treasury published proposed regulations in the Federal Register regarding digital asset transactions. The proposed regulations primarily came under Sec. 6045, which covers broker information reporting, but also provided rules under Sec. 1001 for determining the amount realized in a sale or exchange of a digital asset and under Sec. 1012 for calculating adjusted basis in digital assets, among others.¹³

On July 9, 2024, the IRS published final regulations regarding information reporting and the determination of amount realized and basis for digital asset sales and exchanges.¹⁴ The final regulations reflected consideration of more than 44,000 written comments received on the proposed regulations.¹⁵ Together with the final regulations, the IRS provided transition and penalty relief from reporting and backup withholding for certain transactions to help phase in implementation.¹⁶

On Dec. 30, 2024, Treasury and the IRS published additional final regulations addressing the application of the final regulations to certain noncustodial participants in the decentralized finance (DeFi) segment of the digital asset industry.¹⁷ The additional final regulations were heavily criticized by industry advocates and Republican lawmakers, who argued that because DeFi exchanges do not act as intermediaries, they lack visibility into who their users are, making it difficult for them to comply with the broker reporting rules.¹⁸ In January 2025, legislators introduced resolutions that disapproved of the regulations under the Congressional Review Act, a tool that allows Congress to overturn final rules issued by a federal agency within a specified period.¹⁹ In March 2025, House Resolution 25 was passed by the House and Senate. In April 2025, Trump signed the resolution, rendering the additional final regulations ineffective and unable to be reissued in substantially similar form.²⁰ This legislative action did not affect the final regulations in T.D. 10000, and this discussion now turns to the content of those regulations.

Definition of ‘digital asset’

The final regulations retain the broad definition of “digital asset” from the Infrastructure Act and the proposed regulations, despite requests from commenters to narrow the types of assets included.²¹ A digital asset is defined as any digital representation of value that is recorded on a cryptographically secured distributed ledger (or similar technology). This term is broad enough to include cryptocurrencies, stablecoins, nonfungible tokens (NFTs), tokenized securities, and other assets.²²

Brokers required to report

The final regulations require gross proceeds reporting by a broad group of digital asset brokers who, in the ordinary course of their trade or business, stand ready to effect sales of digital assets by other parties.²³ This category covers digital asset industry participants that take possession of a customer’s digital assets, such as operators of custodial digital asset trading platforms and certain digital asset hosted wallet providers, as well as persons who interact as principals and counterparties to transactions with their customers, such as owners of digital asset kiosks and certain issuers of digital assets that regularly offer to redeem those digital assets.²⁴

The final regulations also include in the definition of “broker” certain industry participants who act as “digital asset middlemen” by providing a facilitative service with respect to a digital asset transaction. This term encompasses participants that accept or process digital assets as payments for other property already subject to gross–proceeds reporting (i.e., securities or commodities) or for broker services, as well as physical digital asset terminals or kiosks that accept digital assets in exchange for cash, stored–value cards, or other digital assets.²⁵

The term “digital asset middleman” also includes a processor of digital asset payments (PDAP) who provides certain services effectuating digital asset transactions.²⁶ Under the final rules, a PDAP is a digital asset middleman with respect to a transaction if they receive digital asset payments from one party and pay those assets or cash or other digital assets to a second party, but only if they have actual knowledge or ordinarily would know the nature of the transaction and the gross proceeds therefrom.²⁷ The knowledge qualifier was added in the final rules in response to comments that a PDAP may not have sufficient information about the transaction to know it is a sale.²⁸ The preamble to the final regulations states that if a PDAP processes a transaction in which the payment to a merchant comes from a buyer with an account at the PDAP, the PDAP would ordinarily have the information necessary to know that the transaction constitutes a sale and would know the gross proceeds.

Like PDAPs, real estate reporting persons (such as real estate brokers, title companies, law firms acting as closing agents, and mortgage lenders already required to report gross proceeds under Sec. 6045) may also be considered digital asset middlemen under the final rules. Real estate reporting persons are included in the definition of digital asset middleman if they provide services with respect to a real estate transaction in which digital assets are used as consideration for the real estate, but only if they have actual knowledge or ordinarily would know that digital assets were used by the real estate buyer to make payment to the seller.²⁹ The knowledge qualifier was added to the final rules in response to comments on the proposed rules that real estate persons may not always know when digital assets are used in a real estate transaction.³⁰ A real estate reporting person is considered to have actual knowledge that a payment was made using digital assets if the terms of the real estate contract provide for payment using digital assets.³¹

The final regulations reserved on certain aspects of the definition of “digital asset middleman,” delaying reporting requirements for participants that operate within the DeFi segment of the digital assets industry, such as noncustodial digital asset trading platforms and unhosted digital asset wallet providers.³² The additional final regulations published on Dec. 30, 2024, finalized the definition of “digital asset middleman” to encompass certain DeFi participants that provide trading front–end services that accept, encode, and transmit orders to sell digital assets.³³ However, as discussed above, those regulations were nullified by congressional action and cannot be reissued in substantially similar form. Accordingly, DeFi participants are not considered digital asset brokers under the final regulations.³⁴

The final regulations apply only to U.S. digital asset brokers. The proposed regulations applied to non–U.S. brokers, but the final regulations reserved on the rules requiring non–U.S. brokers to report on U.S. customers, in response to comments that those rules should be coordinated with international rules governing reporting on digital assets.³⁵

Gross-proceeds reporting

The final regulations require brokers to report gross proceeds from dispositions of digital assets that come within the definition of a sale of a digital asset. This includes the disposition of digital assets made in exchange for cash, different digital assets, or stored–value cards.³⁶ It also includes (1) the disposition of a digital asset in exchange for real estate, if the disposition is effected by a real estate reporting person, and (2) the disposition of a digital asset in exchange for other property subject to gross proceeds reporting under Sec. 6045 (i.e., securities or commodities) if the disposition is effected by a broker in the business of effecting sales of such property.Reporting similarly applies when there is a disposition of a digital asset in exchange for services provided by these types of brokers.³⁷

A reportable sale of a digital asset also includes the payment by a party of a digital asset to a PDAP in return for the payment of that digital asset, cash, or a different digital asset to a second party. This type of transaction is considered a PDAP sale, unless it would already meet one of the other definitions of a sale of a digital asset (e.g., an exchange of digital assets that a custodial broker executes is a reportable sale of a digital asset regardless of whether a PDAP effectuated it and therefore is not a PDAP sale).³⁸ Commenters on the proposed regulations noted that PDAPs may not always have information about the buyer in a PDAP sale since they often contract only with the merchant in the transaction. Accordingly, the final regulations limit the definition of “customer” with respect to PDAPs to only include buyers if the PDAP has an agreement or other arrangement with the buyer for the provision of digital asset payment services that allows the PDAP to verify such person’s identity or otherwise comply with the Financial Crimes Enforcement Network’s anti–money–laundering program.³⁹

The expansive definition of a sale of a digital asset, combined with the broad definition of the term “digital asset,” captures many types of digital asset transactions. However, the final rules provide some relief from reporting in response to comments on the proposed regulations. To begin with, the final regulations contain exceptions to what constitutes a sale of a digital asset. For example, there is no reporting required for transactions involving closed–loop digital assets, i.e., digital assets that exist only in a closed system like a video game or a loyalty rewards program and cannot be sold or exchanged outside that system for fiat currency.⁴⁰ Similarly, there is no requirement to report dispositions of digital assets in cascading digital asset transactions, i.e., digital assets disposed of and withheld by the broker from digital assets received by the customer to pay for the customer’s digital asset transaction costs or satisfy withholding obligations.⁴¹

Second, the final regulations provide reporting thresholds and optional aggregate reporting for certain transactions. There is a de minimis reporting threshold of $600 for PDAP sales, below which PDAPs are not required to report.⁴² For brokers who transact in certain types of digital assets — specified NFTs and qualifying stablecoins — optional aggregate reporting and de minimis thresholds also apply.⁴³ A specified NFT is defined as an indivisible, unique NFT not tied to securities or commodities.⁴⁴ A qualifying stablecoin is defined as a stablecoin that meets the following three requirements for an entire calendar year: (1) It is designed to track other currencies; (2) it uses one of two approved stabilization mechanisms; and (3) it is accepted as payment by persons other than the issuer.⁴⁵ Brokers who use the optional reporting method for specified NFTs or qualifying stablecoins are permitted to report sales of specified NFTs or qualifying stablecoins on an aggregate rather than transactional basis and do not have to report below de minimis thresholds of $600 for sales of specified NFTs and $10,000 for sales of qualifying stablecoins.⁴⁶ Brokers using the optional method also benefit from an exemption from reporting on exchanges of qualifying stablecoins for nonqualifying stablecoin digital assets.⁴⁷

The final regulations additionally provide reporting exceptions for certain digital asset transactions that may otherwise result in duplicate reporting obligations. For instance, the final regulations adopt a multiple–broker rule for digital asset brokers that requires the broker first crediting the gross proceeds to the customer’s wallet address or account to report the transaction to the IRS only when more than one digital asset broker would otherwise have a reporting obligation.⁴⁸ Similarly, the final rules provide that certain dual–classification assets (i.e., contracts covered by Sec. 1256(b) and assets that are digital assets solely because the sale is cleared on a certain cryptographically secured network or represents an interest in a money market fund) are only required to be reported as sales of securities or commodities and not as sales of digital assets.⁴⁹

Apart from these reporting exceptions in the final regulations, the IRS provided separate reporting relief for specific types of digital asset transactions that it has identified as requiring further study. In Notice 2024–57, the IRS delayed information reporting indefinitely for wrapping and unwrapping transactions, liquidity provider transactions, and staking transactions, as well as certain lending, short sale, and notional principal contract transactions involving digital assets.

The applicability dates for gross proceeds reporting depend on the type of digital asset broker. For real estate reporting persons, gross proceeds reporting on digital asset transactions begins Jan. 1, 2027, for transactions occurring in calendar year 2026 or later.⁵⁰ For all other digital asset brokers, gross proceeds reporting begins Jan. 1, 2026, for transactions occurring in calendar year 2025 or later.⁵¹ However, Notice 2024–56 provides reporting relief for 2025 transactions. The notice states that the IRS will not assess information–reporting penalties on brokers for sales of digital assets effected in calendar year 2025 and required to be reported in calendar year 2026 as long as they make good–faith efforts to file accurate and timely Forms 1099–DA, Digital Asset Proceeds From Broker Transactions, and furnish accurate and timely payee statements. Good–faith–effort relief may be claimed only before the IRS contacts the broker regarding an examination and must be claimed within one year after the original due date for filing information returns and furnishing payee statements.⁵²

Adjusted basis reporting

Generally, adjusted basis reporting is required only for brokers who acquire digital assets for their customers and hold them in customer accounts. Adjusted basis reporting for these brokers begins Jan. 1, 2027, for transactions occurring in calendar year 2026 or later, but only with respect to digital assets the customer acquired from, and held with, the same broker on or after Jan. 1, 2026.⁵³The proposed regulations required basis reporting for assets held in the broker’s account since Jan. 1, 2023. However, commenters pointed out that requiring reporting for assets acquired before the applicability date of the final regulations would be difficult and could lead to inconsistencies between broker and customer reporting. Accordingly, in the final regulations, Treasury and the IRS delayed the acquisition date for digital assets subject to basis reporting to Jan. 1, 2026.⁵⁴ Basis reporting is also required for nondigital–asset options and forward contracts on digital assets held by custodial brokers that are entered into on or after Jan. 1, 2026, as was the case in the proposed regulations.⁵⁵

Determination of amount realized and gross proceeds

In defining gross proceeds from the sale of a digital asset for reporting purposes, the final regulations follow the substantive tax rules under Regs. Sec. 1.1001–7 for determining a taxpayer’s amount realized from the sale or other disposition of digital assets.⁵⁶ Under these rules, the amount realized from a sale or other disposition of a digital asset is the sum of (1) the cash paid for the asset, (2) the fair market value (FMV) of property received for the asset (or, in the case of a debt instrument, the issue price of the debt instrument), and (3) the FMV of services received for the assets, reduced by allocable digital asset transaction costs.⁵⁷ Digital asset transaction costs are defined as amounts paid in cash or property (including digital assets) to effect the sale, disposition, or acquisition of a digital asset, including transaction fees, transfer taxes, and commissions.⁵⁸ Under the final regulations, digital asset transaction costs are generally allocable entirely to the digital assets disposed of for purposes of amount realized and gross proceeds. There is a special rule for digital asset transaction costs in cascading digital asset transactions; those costs are allocated to the digital assets disposed of in the original transaction.⁵⁹

The determination of the FMV of property (other than a debt instrument) or services received in exchange for a digital asset for gross proceeds purposes is based on existing legal principles and requires a reasonable method that generally looks to contemporaneous evidence of the value of the property or services at the date and time of the transaction.⁶⁰ However, the final regulations consider a disposition of digital assets to pay digital asset transaction costs to be an exchange of digital assets for services, and in that situation, the value of the services giving rise to the costs is measured based on the digital assets used to pay for the costs rather than the value of the services.⁶¹ In valuing digital assets, the broker may perform its own valuation, or it may rely on the value provided by a digital asset aggregator, as long as a reasonable valuation method is used.⁶² If the FMV of property or services cannot be determined with reasonable accuracy under the above criteria, the value must be determined by reference to the FMV of the transferred digital assets. If neither the value of the received property or services nor the value of the transferred digital assets can be determined with reasonable accuracy, the broker must report that the received property or services have indeterminable value.⁶³

The final regulations governing the determination of amount realized and gross proceeds were effective Jan. 1, 2025.⁶⁴

Determination of basis

In defining the initial basis of a digital asset for reporting purposes, the final regulations follow the substantive tax rules under Regs. Sec. 1.1012–1 for computing the taxpayer’s basis of digital assets received.⁶⁵ Under these rules, the basis of a digital asset depends on the consideration paid for the asset. In the case of a digital asset purchased for cash, the basis is the amount of cash paid, plus any allocable digital asset transaction costs.⁶⁶ In the case of a digital asset received in exchange for a debt instrument, the basis is the issue price of the debt instrument, plus allocable digital asset transaction costs.⁶⁷ In the case of a digital asset received in exchange for a materially different digital asset, the basis is the cost of the digital asset received, without adding allocable digital asset transaction costs.⁶⁸ In the case of a digital asset received in exchange for materially different property (other than a debt instrument or a materially different digital asset), the basis is the cost of the digital asset received, plus allocable digital asset transaction costs.⁶⁹ In the case of a digital asset received in connection with the performance of services, the basis is determined by the regulations under Secs. 61 and 83, which govern the receipt of property for services.⁷⁰

As indicated above, digital asset transaction costs are generally allocated to the digital assets received, except when a digital asset is exchanged for a materially different digital asset, in which case the transaction costs are allocated to the asset disposed of (the proposed regulations required that such costs be split between the disposed–of and received digital asset).⁷¹ The same special rule for allocating digital asset transaction costs in cascading digital asset transactions for purposes of amount realized and gross proceeds applies for basis purposes.⁷²

In determining the cost of the digital asset received in exchange for property for basis purposes, the final regulations look to the FMV of the digital asset received at the time and date of the exchange.⁷³ Again, the broker may perform its own valuation or rely on the valuation of a digital asset data aggregator, provided the valuations apply reasonable methods.⁷⁴ If the value of the digital asset received cannot be determined with reasonable accuracy, then the broker must use the value of the transferred property.⁷⁵ If neither the value of the received digital asset nor the value of the transferred property can be determined with reasonable accuracy, the broker must report that the basis of the received digital asset is zero.⁷⁶

The final regulations governing the determination of basis were effective Jan. 1, 2025.⁷⁷

Identification of digital assets sold

When a taxpayer holds multiple units of the same digital asset and disposes of certain of those units, the final regulations provide ordering rules for determining which units should be treated as sold.⁷⁸

For digital assets not held in broker custody, the taxpayer may identify the units sold by specifically identifying such units in their books and records by reference to an identifier, such as purchase date and time or purchase price for the units.⁷⁹ The taxpayer must make this identification before the time and date of the sale and must maintain adequate records for all units of a specific digital asset to establish that the unit sold is removed from the wallet.⁸⁰ If specific identification is not made, the taxpayer is treated as having sold the units in the order of the earliest date acquired, regardless of when they were transferred into the taxpayer’s wallet.⁸¹

For digital assets held in the custody of a broker, the taxpayer may identify the units sold by reference to an identifier that the broker finds sufficiently specific. The taxpayer must make this identification before the time and date of the sale, but the final regulations consider a standing order to be adequate identification in order to allow taxpayers to make identifications using a predetermined set of parameters (the proposed regulations did not consider a standing order to be sufficient identification).⁸² Again, the taxpayer must maintain records to substantiate any identification of units sold.⁸³ There is a default specific–identification rule for exchanges of digital assets for other digital assets where digital assets are withheld for payment of digital asset transaction costs or related backup withholding taxes; this rule was added to ensure that the disposition of the withheld units will not give rise to gain or loss and will not be subject to information reporting or backup withholding.⁸⁴

When no specific identification is made for digital assets held in broker custody, the broker must treat the taxpayer as having sold units in order of the time from the earliest date on which the units were acquired by the taxpayer, without regard to when the units were transferred into the custody of the broker.⁸⁵ Unlike the proposed regulations, the final regulations permit brokers to consider customer–provided information in determining when the taxpayer acquired the units, such as the date and time of the acquisition. The customer must provide such information to the broker no later than the time of sale.⁸⁶ If the broker does not receive a specific identification of the units sold from the customer and does not have any transfer–in date records or customer–provided acquisition information, the broker must first report the units not acquired by the broker as sold. Thereafter, the broker must treat the units as sold in order of time from the earliest date on which units of the same digital asset were acquired by the customer (the broker may again take customer–provided acquisition information into account for this purpose), and then based on their transfer–in date and time.⁸⁷

These basis determination rules were effective Jan. 1, 2025,⁸⁸ but the IRS has provided some transition relief. For example, since the identification of units and the FIFO determination must be done on a per–wallet or per–account basis,⁸⁹ the IRS provided guidance to taxpayers regarding how to transition from a universal–basis–allocation methodology to a wallet–by–wallet or account–by–account basis allocation methodology.⁹⁰

The IRS issued additional transition guidance in December 2024 regarding basis determination for digital asset units held in broker custody. The guidance states that Treasury and the IRS understand that some digital asset brokers may not have the technology in place to accept specific instructions or standing orders, leaving some taxpayers unable to make adequate identification of digital assets sold in accordance with the final regulations and resulting in a default to the FIFO rule. Accordingly, Notice 2025–7 permits taxpayers to use additional methods for making adequate identification of their digital asset units held in broker custody. Taxpayers can identify the particular units to be sold either (1) by reference to any identifier sufficient to identify basis and holding period for the relevant units or (2) by recording a standing order on the taxpayer’s books and records, provided it includes sufficient information to identify the relevant units.⁹¹

Form 1099-DA

Gross proceeds and adjusted basis reporting will be made on the newly developed Form 1099–DA, which brokers will be required to send to the IRS.⁹² The final regulations set forth the information that will be required on Form 1099–A, including (1) the name, address, and tax identification number (TIN) for the taxpayer; (2) the number of digital asset units sold; (3) the sale date; (4) the gross proceeds; (5) whether the sale was for cash, stored–value cards, services, or other property; (6) the transfer–in date and number of units transferred in, if applicable; and (7) whether they relied on customer–provided acquisition information to identify the units sold.⁹³ Moreover, for transactions for which adjusted basis reporting is required, the broker must include the adjusted basis of the asset sold, the date it was purchased, and whether any gain or loss is short–term or long–term.⁹⁴ The final regulations removed the requirement in the proposed regulations that the broker also report the time of the acquisition and sale or disposition of the digital assets and that the broker report the transaction identification (transaction ID) and digital asset address for the transaction, but brokers must still maintain records regarding transaction IDs and addresses for seven years for most digital asset transactions.⁹⁵

The final regulations and instructions to the Form 1099–DA require that additional information be provided for tokenized securities, defined as digital assets (1) that provide the holder with an interest in a separate security (other than a digital asset or a qualifying stablecoin) or (2) the offer and sale of which are registered with the SEC, other than as an asset treated as a security for securities–law purposes solely as an investment contract. For gross proceeds involving a tokenized security, the broker must also include on the Form 1099–DA the Committee on Uniform Security Identification Procedures number of the security, any loss disallowed due to a wash sale, and the amount of accrued market discount and computed average basis method, if applicable.⁹⁶

Backup withholding

Under the backup withholding rules, brokers who are required to report gross proceeds under Sec. 6045 are also required to deduct and withhold a tax at the statutory backup rate (currently 24%) if a payee provides an incorrect TIN or fails to provide a certified TIN on Form W–9, Request for Taxpayer Identification Number and Certification.⁹⁷

The final regulations, like the proposed regulations, provide that the backup withholding provisions generally apply to sales of digital assets for which gross–proceeds reporting is required. Comments on the proposed regulations requested that backup withholding only apply to sales of digital assets for cash, citing illiquidity and volatility concerns, but the final regulations did not provide an exclusion for sales of digital assets for noncash property.⁹⁸

The final regulations state that the backup withholding rules are effective for brokers reporting sales of digital assets occurring on or after Jan. 1, 2025.⁹⁹ However, Notice 2024–56 provides relief from backup withholding tax and related penalties for any sales of digital assets effected in calendar year 2025, and Notice 2025–33 extends that relief for another year.¹⁰⁰ Accordingly, backup withholding is not required on digital asset sales effected by brokers during calendar year 2025 or 2026. Moreover, for digital asset sales effected in 2027, Notice 2025–33 permits brokers to rely on uncertified TINs from payees (i.e., TINs not provided on Form W–9) if they were provided by payees that opened accounts with the broker prior to Jan. 1, 2026, and the broker, prior to effecting the sale of the digital asset, submits the name and TIN combination to the IRS TIN matching program and those identifiers match IRS records.¹⁰¹ The IRS recognized that the ability to rely on uncertified TINs applied only to customers with TINs, which are generally U.S. persons. Accordingly, Notice 2025–33 provides additional relief for brokers to establish certain customers as exempt foreign persons. Specifically, if a customer with an account established prior to Jan. 1, 2026, has not been previously classified as a U.S. person by the broker, and the information the broker has in its files for the customer includes a non–U.S. residence address, then the broker is not required to backup withhold with respect to digital assets sales effected during 2027 for that customer.¹⁰²

Notice 2024–56 and Notice 2025–33 also provide that the IRS will not assert penalties for a broker’s failure to deduct, withhold, and pay any backup withholding tax that is caused by a decrease in the value of received digital assets (other than a specified NFT) between the time of the transaction giving rise to the backup withholding liability and the time the broker liquidates 24% of the received digital assets for backup withholding, provided the broker undertakes to effect that liquidation immediately after the transaction giving rise to the backup withholding liability.¹⁰³ Further, backup withholding is indefinitely postponed for (1) sales of digital assets in exchange for specified NFTs, (2) sales of digital assets for real estate by real estate reporting persons, and (3) certain sales of digital assets effected by PDAPs, until further notice from the IRS.¹⁰⁴

Once backup withholding does apply, it applies to PDAP sales and sales of specified NFTs and qualifying stablecoins without regard to the applicable de minimis amounts.¹⁰⁵ However, backup withholding does not apply to sales of qualifying stablecoins in exchange for a nonqualifying stablecoin digital asset that are not subject to gross–proceeds reporting.¹⁰⁶

Broker rules are extensive

The final regulations — together with the transition and penalty relief — are extensive and cover a breadth of aspects related to the taxation and reporting of digital asset transactions. These range from general topics such as the definition of a “digital asset,” the types of brokers required to report, and the determination of amount realized and basis, to more specific rules regarding identification of digital assets sold, exceptions from reporting requirements, and the phased–in timing of the reporting obligations for different types of brokers and transactions. This article provides an overview of these new rules for digital asset transactions but is not intended to be an exhaustive guide.

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Footnotes

¹Blackstone, “2025 Cryptocurrency Adoption and Consumer Sentiment Report,” Security.org (Jan. 31, 2025).

²Light, “Bitcoin Was Left for Dead. Why Wall Street Is Bringing It Back to Life,” Barron’s (April 9, 2024); McGee, “Cryptoverse: Bitcoin ETFs Take $50 Billion Baby Steps Toward Big Time,” Reuters (Sept. 3, 2024).

³Greifeld, “BlackRock Adds Its Bitcoin ETF to Model Portfolio for First Time,” Bloomberg (Feb. 28, 2025).

⁴Lee, “BlackRock Brings Blockchain Push to a $150 Billion Treasury Fund,” Bloomberg (April 30, 2025).

⁵Lang, “US SEC Crackdown on Coinbase, Binance Puts Crypto Exchanges on Notice,” Reuters (June 8, 2023); Lang and Hunnicutt, “Trump Orders Crypto Working Group to Draft New Regulations, Explore National Stockpile,” Reuters (Jan. 24, 2025).

⁶Id.

⁷Executive order, “Strengthening American Leadership in Digital Financial Technology,” The White House (Jan. 23, 2025).

⁸ Id.

⁹SEC, press release, “SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force” (Jan. 21, 2025); Butler, “First Look at Crypto Under the Current Administration,” Thomson Reuters (March 19, 2025).

¹⁰T.D. 10000, 89 Fed. Reg. 56480 (July 9, 2024).

¹¹Joint Committee on Taxation, Technical Explanation of Section 80603, “Information Reporting for Brokers of Digital Assets,” of the Infrastructure Investment and Jobs Act (August 2021), pp. 5–6; Joint Committee on Taxation, Selected Issues Regarding the Taxation of Digital Assets (June 2023), p. 4.

¹²Announcement 2023-2.

¹³REG-122793-19, 88 Fed. Reg. 59576 (Aug. 29, 2023).

¹⁴T.D. 10000, 89 Fed. Reg. 56480 (July 9, 2024).

¹⁵News Release IR-2024-178, June 28, 2024. The final regulations pertain exclusively to federal tax laws and do not imply any changes to securities or commodities laws (preamble to T.D. 10000).

¹⁶Notices 2024-56 and 2024-57.

¹⁷Treasury, press release, “U.S. Department of the Treasury Releases Final Regulations Implementing Bipartisan Tax Reporting Requirements for Brokers of Digital Assets” (Dec. 27, 2024); T.D. 10021, 89 Fed. Reg. 106928 (Dec. 30, 2024). Treasury and the IRS also issued transition and penalty relief with the additional final regulations in Notice 2025-3.

¹⁸Smeltzer, “Blockchain Advocates File Suit Challenging IRS DeFi Regulations,” Forbes (Dec. 30, 2024); Rubin, “Republicans Want to Kill Tax-Reporting Rule for Some Crypto Trades,” The Wall Street Journal (Jan. 31, 2025).

¹⁹Subtitle E of the Contract With America Advancement Act of 1996, P.L. 104-121.

²⁰ P.L. 119-5, 119th Cong. 1st Sess. (2025); Lang, “Trump Signs Bill to Nullify Expanded IRS Crypto Broker Rule,” Reuters (April 10, 2025).

²¹Preamble, T.D. 10000.

²²Id., Regs. Sec. 1.6045-1(a)(19).

²³Preamble, T.D. 10000; Regs. Secs. 1.6045-1(a)(1) and (10)(i).

²⁴Id.

²⁵Id.; Regs. Secs. 1.6045-1(a)(10)(i)(D), (21)(i), (21)(iii)(B)(1), (21)(iii)(B)(3), and (21)(iii)(B)(5).

²⁶Preamble, T.D. 10000.

²⁷Id.; Regs. Secs. 1.6045-1(a)(10)(i)(D), (21)(i), (21)(iii)(B)(4), and (22).

²⁸Preamble, T.D. 10000.

²⁹Id.; Regs. Secs. 1.6045-1(a)(1), (2)(ii)(C), (10)(i)(D), (21)(i), (21)(iii)(B)(2), and Regs. Sec. 1.6045-4(e). The preambles to the proposed and final regulations explain that these real estate reporting persons were already subject to broker reporting rules with respect to real estate transactions but were generally limited to reporting on cash consideration. The final regulations were drafted to ensure that real estate reporting persons are also required to report when digital assets are used as consideration in a real estate deal.

³⁰Preamble, T.D. 10000.

³¹Regs. Sec. 1.6045-1(a)(21)(iii)(B)(2). Real estate reporting persons may also have a separate obligation to report the receipt of digital assets by a seller for real estate transactions on a revised Form 1099-S, Proceeds From Real Estate Transactions (Regs. Secs. 1.6045-4(e), (g), (h)(1)(vii), (h)(2)(iii), and (h)(3)). For this type of reporting as well, the real estate reporting person is only required to report if they have actual knowledge, or ordinarily would know, that digital assets were received by the seller as consideration for the real estate in the transaction.

³²Regs. Secs. 1.6045-1(a)(21)(ii) (reserved) and (iii)(A) (partially reserved).

³³T.D. 10021.

³⁴The final regulations also reserved from the definition of “digital asset middleman” the breadth of specific exclusions for certain validation services, sales of hardware, and licensing of software. However, the preamble to and examples in the final regulations make clear that persons solely engaged in the business of 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 that are used for accessing digital assets on a distributed ledger, are not digital asset brokers (Regs. Secs. 1.6045-1(b), Examples (2)(ix) and (x)).

³⁵Regs. Sec. 1.6045-1(g)(4)(i)(A)(2).

³⁶Regs. Secs. 1.6045-1(a)(1), (a)(9)(i), and (a)(9)(ii)(A). A sale of a digital asset also includes the delivery of a digital asset pursuant to the settlement of a forward contract, option, regulated futures contract, any similar instrument, or any other executory contract that would be treated as a sale of a digital asset if the contract had not been executory (Regs. Sec. 1.6045-1(a)(9)(ii)(A)(3)).

³⁷Regs. Secs. 1.6045-1(a)(9)(i), (ii)(B), and (ii)(C).

³⁸Regs. Secs. 1.6045-1(a)(1) and (a)(9)(ii)(D).

³⁹Regs. Sec. 1.6045-1(a)(2)(ii)(A).

⁴⁰Regs. Secs. 1.6045-1(c)(3)(ii)(E)–(H).

⁴¹Regs. Secs. 1.6045-1(c)(3)(ii)(C)–(D). The final regulations also added U.S. digital asset brokers to the list of customers for whom gross proceeds reporting on digital assets is not required — the proposed regulations did not include digital asset brokers in the list of exempted customers (Regs. Sec. 1.6045-1(c)(3)(i)(B)(12)).

⁴²Regs. Secs. 1.6045-1(d)(2)(i)(B)–(C).

⁴³Regs. Secs. 1.6045-1(d)(10)(i) and (iii).

⁴⁴Regs. Sec. 1.6045-1(d)(10)(iv).

⁴⁵Regs. Sec. 1.6045-1(d)(10)(ii).

⁴⁶Regs. Secs. 1.6045-1(d)(10)(i)(A)–(B) and (d)(10)(iii). To avoid having to apply multiple de minimis thresholds to the same digital assets, the $600 de minimis threshold for PDAP sales applies only to digital assets other than specified NFTs or qualifying stablecoins (Regs. Sec. 1.6045-1(d)(2)(i)(C)).

⁴⁷Regs. Sec. 1.6045-1(d)(10)(i)(C). Brokers are not required to submit a form or otherwise make an election to report under the optional method, or use it consistently from year to year or customer to customer. However, the method must be used consistently for a particular customer for an entire year for that customer’s sales.

⁴⁸Regs. Sec. 1.6045-1(c)(3)(iii)(B). The nonreporting broker must obtain a certificate that the reporting broker is an exempt U.S. digital asset broker.

⁴⁹Regs. Secs. 1.6045-1(c)(8)(ii)–(iv).

⁵⁰Regs. Sec. 1.6045-1(q).

⁵¹Regs. Secs. 1.6045-1(d)(2)(i)(B) and (q).

⁵²Notice 2024-56, §3.01.

⁵³Regs. Secs. 1.6045-1(d)(2)(i)(D) and (a)(15)(i)(J).

⁵⁴Regs. Secs. 1.6045-1(d)(2)(i)(D) and (a)(15)(i)(J); Prop. Regs. Secs. 1.6045-1(d)(2)(i)(C) and (a)(15)(i)(J).

⁵⁵Regs. Secs. 1.6045-1(a)(15)(i)(H) and (K).

⁵⁶Preamble, T.D. 10000.

⁵⁷Regs. Secs. 1.1001-7(b)(1)(i), (iii), and (iv); Regs. Sec. 1.1001-7(b)(3).

⁵⁸Regs. Sec. 1.1001-7(b)(2)(i).

⁵⁹Regs. Secs. 1.1001-7(b)(2)(ii)(A) and (B); Regs. Sec. 1.6045-1(d)(5)(iv).

⁶⁰Regs. Secs. 1.1001-7(b)(3) and 1.6045-1(d)(5)(ii)(A)(1).

⁶¹Regs. Secs. 1.1001-7(b)(1)(ii) and 1.6045-1(d)(5)(ii)(A)(1).

⁶²Regs. Secs. 1.6045-1(d)(5)(ii)(A)(1), (ii)(A)(3), and (ii)(B). Various requirements must be satisfied for the valuation method to be considered reasonable.

⁶³Regs. Secs. 1.1001-7(b)(4) and 1.6045-1(d)(5)(ii)(A)(2).

⁶⁴Regs. Secs. 1.1001-7(b)(5) and 1.6045-1(q).

⁶⁵Preamble, T.D. 10000.

⁶⁶Regs. Sec. 1.1012-1(h)(1)(i).

⁶⁷Regs. Sec. 1.1012-1(h)(1)(v).

⁶⁸Regs. Secs. 1.1012-1(h)(1)(iv) and (h)(3).

⁶⁹Regs. Secs. 1.1012-1(h)(1)(iii) and (h)(3).

⁷⁰Regs. Sec. 1.1012-1(h)(1)(ii).

⁷¹Regs. Secs. 1.1012-1(h)(2)(ii)(A) and (B); Regs. Sec. 1.6045-1(d)(6)(ii)(C)(2).

⁷²Regs. Secs. 1.1012-1(h)(2)(ii)(C) and 1.6045-1(d)(6)(ii)(C)(2).

⁷³Regs. Secs. 1.1012-1(h)(3) and 1.6045-1(d)(6)(ii)(C)(1).

⁷⁴Regs. Sec. 1.6045-1(d)(6)(ii)(C)(1).

⁷⁵Id.

⁷⁶Id. Compare this to the reporting on gross proceeds as undeterminable in the gross-proceeds context (Regs. Sec. 1.6045-1(d)(5)(ii)(A)(2)).

⁷⁷Preamble, T.D. 10000, and Regs. Sec. 1.1012-1(h)(5).

⁷⁸Regs. Secs. 1.1012-1(j)(1)–(3); Regs. Sec. 1.6045-1(d)(2)(ii)(B).

⁷⁹Regs. Secs. 1.1012-1(j)(1)–(2).

⁸⁰Id.

⁸¹Regs. Sec. 1.1012-1(j)(1).

⁸²Regs. Secs. 1.1012-1(j)(3)(ii) and 1.6045-1(d)(2)(ii)(B)(2).

⁸³Regs. Secs. 1.1012-1(j)(3)(ii).

⁸⁴Preamble, T.D. 10000; Regs. Secs. 1.1012-1(j)(3)(iii) and 1.6045-1(d)(2)(ii)(B)(3).

⁸⁵Regs. Sec. 1.1012-1(j)(3)(i); Regs. Sec. 1.6045-1(d)(2)(ii)(B)(1).

⁸⁶Regs. Sec. 1.6045-1(d)(2)(ii)(B)(4). The information must also be reasonably reliable.

⁸⁷Regs. Sec. 1.6045-1(d)(2)(ii)(B)(1).

⁸⁸Regs. Sec. 1.1012-1(j)(6).

⁸⁹Preamble, T.D. 10000; Rev. Proc. 2024-28, §2.

⁹⁰Rev. Proc. 2024-28 provided a safe harbor in which taxpayers could allocate their units of unattached basis to a digital asset wallet or account that held the same number of remaining digital asset units, so long as the allocation was reasonable. The allocation had to be made as of Jan. 1, 2025 (Rev. Proc. 2024-28, §§3 and 5).

⁹¹Notice 2025-7, §§2 and 4.02.

⁹²Regs. Sec. 1.6045-1(d)(2)(i)(B). Brokers will also be required to send payee statements to customers (Regs. Secs. 301.6721-1(h)(3)(iii) and 301.6722-1(e)(2)(viii)). See also Secs. 6724(d)(2)(H) and (I).

⁹³Regs. Secs. 1.6045-1(d)(2)(i)(B)(1)–(5) and (7)–(8).

⁹⁴Regs. Sec. 1.6045-1(d)(2)(i)(D).

⁹⁵Regs. Secs. 1.6045-1(d)(2)(i)(B) and (d)(11).

⁹⁶Regs. Secs. 1.6045-1(c)(8)(i)(D) and (d)(2)(i)(B)(6); Instructions to Form 1099-DA. It is worth reiterating that some real estate reporting persons may also have reporting obligations on a revised Form 1099-S with respect to sellers who receive digital assets in a real estate transaction. See footnote 31.

⁹⁷Sec. 3406 and Regs. Sec. 31.3406(b)(3)-2; preamble, T.D. 10000.

⁹⁸Preamble, T.D. 10000.

⁹⁹Regs. Sec. 31.3406(b)(3)-2(c).

¹⁰⁰Notice 2024-56, §3.01; Notice 2025-33, §3.01.

¹⁰¹Notice 2025-33, §3.02; see also Notice 2024-56, §3.02.

¹⁰²Notice 2025-33, §3.03. Information-reporting penalties are also delayed with respect to such transactions; see also Regs. Sec. 1.6045-1(g)(4)(vi)(F).

¹⁰³Notice 2024-56, §3.06; Notice 2025-33, §3.04.

¹⁰⁴Notice 2024-56, §§1, 3.03, 3.04, and 3.05.

¹⁰⁵Regs. Secs. 31.3406(b)(3)-2(b)(6)(i)(A) and (ii).

¹⁰⁶Regs. Sec. 31.3406(b)(3)-2(b)(6)(i)(B)(1). If a digital asset loses its peg to a currency during a calendar year and therefore does not satisfy the conditions to be a qualifying stablecoin, the regulations provide a 30-day grace period before withholding is required (Regs. Sec. 31.3406(b)(3)-2(b)(6)(i)(B)(2)).

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