The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today released proposed regulations on the sale and exchange of digital assets by brokers.
This proposal is part of the agencies’ effort to crack down on tax cheats while helping regular taxpayers know how much they owe on the sale or exchange of digital assets. It is one aspect of a larger initiative by the Treasury, via the Infrastructure Investment and Jobs Act (IIJA), to close the tax gap, address the tax evasion risks posed by digital assets, and help ensure that everyone plays by the same set of rules.
Under current law, taxpayers owe tax on gains and may be entitled to deduct losses on digital assets when sold. However, for many taxpayers it is difficult and costly to calculate their gains.
These proposed rules require brokers to provide a new Form 1099-DA to help taxpayers determine if they owe taxes. Further, they would help taxpayers avoid having to make complicated calculations or pay digital asset tax preparation services in order to file their tax returns. These regulations align tax reporting on digital assets with tax reporting on other assets. As a result, they avoid preferential treatment between different types of assets.
Under the proposed rules, the first year that brokers would be required to report any information on sales and exchanges of digital assets is in 2026. For sales and exchanges, the reporting date would be 2025.
The nonpartisan Joint Committee on Taxation (JCT) noted that using reliable and objective third-party income verification reduces tax evasion and leads to more accurate reports of income on tax returns. The JCT estimated that the provisions would raise almost $28 billion over 10 years.
The proposed regulations are open for public comment and written feedback until Oct. 30. The Treasury Department and the IRS welcome comments and feedback on the proposed regulations from affected taxpayers, industries, and other interested parties. A public hearing has been scheduled for Nov. 7, 2023, with a second public hearing date for Nov. 8, 2023, if the number of requests to speak at the first hearing exceed the number that can be accommodated in one day.