The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have released new tax guidelines for cryptocurrency brokers, which will take effect starting January 1, 2025. This new regime aims to align reporting requirements for crypto brokers with traditional investment firms, requiring them to disclose customer asset movements and gains.

Reporting Requirements for Crypto Brokers

The new IRS rules apply to cryptocurrency trading platforms, hosted wallet services, and digital asset kiosks. These entities will need to file 1099 forms and provide cost basis data starting from the year 2026. The regulations also cover stablecoin transactions and high-value non-fungible tokens (NFTs), but ordinary sales of stablecoins below $10,000 and NFT gains below $600 annually are exempt from reporting.

Deferred Decisions on DeFi and Unhosted Wallets

The IRS has postponed decisions on DeFi activities and unhosted wallet providers, citing the need for further analysis. The agency highlighted the challenges of controlling non-custodial companies, noting that such firms may not possess the necessary customer data and transparency frameworks. This decision provides a temporary reprieve to the DeFi sector and unhosted wallet providers as the IRS continues to review the 44,000 public comments received.

Stablecoin and NFT Reporting

The IRS has clarified that most ordinary stablecoin transactions will not need to be reported, with certain exceptions for large transactions and those generating more than $10,000 in annual revenue. For NFTs, only taxpayers who have earned $600 or more annually from sales must file and report their total income, including the taxpayer identification information, the number of NFTs sold, and the amount of profit made.

Industry Concerns and Compliance Burden

The introduction of these tax regulations has faced pushback from the cryptocurrency industry, with concerns raised about potential government overreach and the burdensome requirements on entities that do not traditionally function as brokers, such as miners and software developers. The Blockchain Association and the Digital Chamber have flagged the substantial compliance burden, arguing that the proposed rule could require the submission of billions of forms, imposing significant costs and time constraints on brokers.

The IRS estimates that the new rule will affect about 15 million people and 5,000 firms. The agency aims to balance the need for comprehensive reporting with the industry's capacity to comply, while noting that any future changes in legislation regarding stablecoins could lead to adjustments in the tax rules.

As the crypto industry navigates this new regulatory landscape, the IRS's decision to defer rulings on DeFi and unhosted wallets provides a window for further dialogue and potential refinements to the tax framework.