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Digital Asset 1099s: The IRS’ Proposed Mandate Unveiled

This article pulls out the key takeaways of the IRS wanting to crack down on the underreporting of digital asset transactions by requiring digital asset brokers to report 1099s.
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The IRS wants to crack down on underreporting of digital asset transactions by requiring digital asset brokers to report 1099s.

The Big Picture

  • The IRS reported a potential for a 75% non-compliance rate among taxpayers identified through record production from digital asset exchanges. 
  • The 282 pages of proposed regulations cast a wide net over who is considered a broker.
  • Those affecting digital asset transactions, aka a digital asset broker, will want to understand their reporting requirements, which start as early as 2025. 
  • After determining if you are a digital asset broker, the next logical step is to determine which customers and what type of transactions should be reported.
  • As the length of the proposed regulations suggests, there are a lot of nuances, and each digital asset broker will want to decide if they are a broker based on their own facts and circumstances.

What’s Next

  • Taxpayers: 
    • Taxpayers performing digital asset transactions have historically been burdened with tracking all their cost basis and proceeds. 
    • However, taxpayers shouldn’t rejoice over these new proposed regulations just yet. In many cases, the regulations only require gross proceeds to be reported. Cost basis determinations will still be up to the taxpayer.
  • Digital Asset Brokers:
    • The IRS estimates that as many as 9,500 brokers will be brought into the purview of these new regulations, and the cost of global compliance could reach up to $750 million. 
    • Other jurisdictions are also moving to align with these regulations, such as the EU’s DAC8 reporting regime.
    • Digital asset brokers may be wondering how they are going to comply with these new rules and in some cases may make a business decision to stop supporting U.S. customers in an effort to avoid the compliance burden. 

Go Deeper

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