White House makes recommendations on digital asset transactions

Editor: Susan M. Grais, CPA, J.D., LL.M.

President Donald Trump’s Working Group on Digital Asset Markets released Strengthening American Leadership in Digital Financial Technology (the report) on July 30, 2025, which includes many recommendations that would affect tax reporting by digital asset brokers. The report compiles policy recommendations, both tax and nontax, for regulating and encouraging the growth of digital assets, including the following recommendations affecting information reporting. Many of these recommendations are included in the IRS Priority Guidance Plan published on Sept. 30, 2025, including guidance on the Crypto–Asset Reporting Framework (CARF) and electronic Forms 1099–DA, Digital Asset Proceeds From Broker Transactions.

CARF

The report recommends that Treasury and the IRS “should consider proposing regulations” to implement the CARF, which is an international regime led by the Global Forum on Transparency and Exchange of Information for Tax Purposes, a body of the Organisation for Economic Co–operation and Development (OECD), for reporting key information about a customer’s digital asset transactions to its country of tax residence. CARF is an automatic–exchange–of–information regime similar to the Foreign Account Tax Compliance Act (FATCA) (part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010, P.L. 111–147) and the OECD’s Common Reporting Standard. By participating in CARF, the United States would receive data about U.S. persons’ digital asset accounts that are held outside the United States, while other countries would receive data from the IRS about their residents’ digital asset accounts that are maintained in the United States.

The report further recommends that the proposed CARF regulations “not impose any new reporting requirements on DeFi [decentralized finance] transactions.” While that recommendation is consistent with the congressional repeal of the regulations that would have required certain DeFi providers to file Forms 1099–DA (T.D. 10021, overturned by joint resolutions of disapproval under the Congressional Review Act), it appears to be inconsistent with CARF, which requires reporting by anyone who “exercises control or sufficient influence over” a “trading platform” (OECD, International Standards for Automatic Exchange of Information in Tax Matters: Crypto–Asset Reporting Framework and 2023 Update to the Common Reporting Standard (October 2023), p. 54). On the other hand, the latest Frequently Asked Questions on CARF published by the OECD (July 2025) state that “in the context of DeFi arrangements, an implementing jurisdiction may defer” application of the control and sufficient–influence test until there is further guidance.

The presidential report notes that “the IRS does not have authority to require digital asset exchanges to report on controlling persons of many shell companies and therefore cannot provide that information to other countries,” as CARF requires. The report also states that legislation “could require” reporting on “foreign controlling persons of certain passive entities.” While noting that implementation of CARF would ensure that the IRS would obtain information on U.S. taxpayers that control certain entities through its reciprocal exchange of information, the report does not affirmatively recommend such legislation. The report also adds that any proposed CARF regulations “should be used as a forum to gather further feedback, including a reasonable timetable for CARF implementation.”

Observation: CARF requires identifying and reporting controlling persons of certain entities, as well as eventual reporting on DeFi. It is not clear how Treasury and the IRS could implement CARF without including provisions for reporting on controlling persons and on DeFi. Another potential complication is that CARF requires brokers to aggregate transactions and report both purchases and sales of digital assets; current U.S. rules generally require a separate Form 1099–DA for each sale of a digital asset but no reporting for purchases. Stablecoins (which have values pegged to other assets, such as the U.S. dollar) are also subject to different reporting rules under the Form 1099–DA regime than they would be under CARF. While the report asks that the guidance “minimize burdens on brokers to the extent consistent with CARF rules,” it seems likely that the burden would be substantial.

Electronic Forms 1099-DA

The report addresses obtaining consent from customers to receive Forms 1099–DA electronically. The current rules require the customer’s consent to be obtained, after making certain disclosures, before a broker or other Form 1099–DA filer provides those forms electronically. Without consent, the forms must be mailed or delivered in person. The report recommends proposed regulations that would provide “a less burdensome method of obtaining consent” for digital asset brokers.

Transfer statements

The report recommends that Treasury and the IRS consider proposing regulations under Sec. 6045A that would require a broker to provide a customer’s basis and holding period when transferring digital assets to another digital asset broker. While the IRS has implemented digital asset broker reporting on Form 1099–DA, as well as cost–basis and holding–period tracking for assets acquired through and retained at a custodial broker, it has so far not required transferring digital asset brokers to provide this information. The report is silent on the Sec. 6045A(d) requirement that brokers who transfer digital assets that are not destined for another broker file an information return with the IRS stating the basis and holding period of the assets.

Wash sales

The report also recommends several substantive tax policies that would directly affect digital asset brokers. The report recommends extending rules disallowing losses on wash sales to digital assets and incorporating wash–sale adjustments into the basis and holding period reported on Form 1099–DA.

Observation: The wash–sale rules are among the most complicated rules implemented by securities brokers for Form 1099–B, Proceeds From Broker and Barter Exchange Transactions, and transfer statement reporting. The high volume of trades by some holders of digital assets will create significant challenges for digital asset brokers in their own wash–sale implementations. This potential change in the law also demonstrates the risk that digital asset brokers who build their own cost–basis systems will need to identify changes in the law and make upgrades that may require significant budgets.

Payment stablecoins

The report recommends legislation that would characterize payment stablecoins (stablecoins intended to be a medium of exchange) for federal income tax purposes, with debt as the “most appropriate” possible characterization as compared to money or currency. The report further recommends that in making this characterization, new legislation should consider existing federal income tax rules that could “impede the widespread use of payment stablecoins,” such as those governing wash sales. Options to address wash sales include (1) excluding payment stablecoins issued under the rules of the recently enacted Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, P.L. 119–27, from the wash–sale rules; (2) providing a de minimis test for applying the wash–sale rules to losses on payment stablecoins; or (3) excluding gains and losses on payment stablecoins from tax calculations altogether.

Exchange-traded products

The report notes the proliferation of exchange–traded products (ETPs) organized as investment trusts that hold digital assets. The trusts are treated as grantor trusts for U.S. federal income tax purposes, and investors generally receive Forms 1099 for trust income and transactions. Investment trusts are generally prohibited from engaging in profit–making businesses and from varying the investments of the trust. Investment trusts that fail to satisfy these requirements are typically characterized as partnerships for U.S. federal income tax purposes, which are generally regarded as having more complicated tax reporting rules than trusts, with investors receiving Schedules K–1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. The report recommends that Treasury and the IRS publish guidance on whether an ETP that stakes its assets to generate additional income retains its characterization as a trust. The report does not appear to take a position on this issue.

ETPs generally state that they preemptively abandon any unsolicited assets, such as airdrops. This has led to some concern among brokers about whether such statements are effective to avoid constructive receipt of income and whether brokers are responsible for reporting the income to the owners of ETP units, who are treated as the grantors/owners of their share of the investment trust. The report recommends that Treasury and the IRS “issue administrative guidance that addresses de minimis receipts of digital assets” but does not advocate for a particular position.

Editor

Susan M. Grais, CPA, J.D., LL.M., is a managing director (retired) at Ernst & Young LLP in Washington, D.C.

For additional information about these items, contact thetaxadviser@aicpa.org.

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