US Treasury Releases Cryptocurrency Tax Regime for 2025, But Delays Rules for Non-Custodians

The U.S. Treasury Department has released its long-awaited tax regime for cryptocurrency transactions, setting filing rules for digital asset brokers that will begin with transactions made next year, but it has delayed some of its most controversial decisions regarding brokers who never take possession of customers’ cryptocurrencies.

New Internal Revenue Service (IRS) rules for cryptocurrency brokers released Friday require trading platforms, hosted wallet services, and digital asset kiosks to submit disclosures about movements and gains of customer assets. Those assets will also include — in very limited circumstances — stablecoins such as Tether (USDT) and Circle Internet Financial (USDC) and high-value nonfungible tokens (NFTs), though the IRS explicitly declines to settle the long-running battle over whether the tokens should be considered securities or commodities.

While the rule focuses on the most obvious platforms like Coinbase Inc. (COIN) and Kraken, noncustodial cryptocurrency businesses — such as decentralized exchanges and unhosted wallet providers — only get a temporary reprieve from the new deposit requirements. Popular cryptocurrency platforms that handle a “substantial majority” of transactions can no longer wait for the rules, the agency argued, but the other issues require further study and will get their own rule “later this year.”

“The Treasury Department and the IRS disagree that non-depository industry participants should not be treated as broker-dealers,” according to the explanation included in Friday’s rule. “However, the Treasury Department and the IRS would benefit from further review of issues involving non-custodial industry players.”

The final rule for the most commonly used brokers begins with transactions on January 1, 2025, leaving crypto taxpayers with another reporting year in which they are on their own to figure out their 2024 returns in the meantime, though crypto companies have already been moving to accommodate. The IRS has given brokers an extra year until 2026 to start having to track the “cost basis” of assets — the amount each was originally purchased for.

Real estate transactions paid for with cryptocurrencies after January 1, 2026, will also need to be reported, the regulation states. “Real estate filers” will need to report the fair market value of the digital assets used in any such transaction.

An infrastructure bill introduced in Congress in 2021 paved the way for the IRS, the Treasury Department, to establish this formal approach to cryptography. Since then, the sector has been frustrated by a constantly delayed process. The final proposal attracted 44,000 public comments.

“With the bipartisan Infrastructure Investment and Jobs Act, digital asset investors and the IRS will have better access to the documentation they need to easily file and review their tax returns.

returns,” Acting Assistant Secretary for Tax Policy Aviva Aron-Dine said in a statement. “By implementing the law’s reporting requirements, these final regulations will help taxpayers more easily pay taxes due under current law, while reducing tax evasion by high-net-worth investors.”

IRS Commissioner Danny Werfel said the final regulations took public comments into account.

“These regulations are an important part of the broader effort to improve tax compliance for high-income individuals. We must ensure that digital assets are not used to hide taxable income, and these final regulations will improve the detection of non-compliance in the high-risk area of ​​digital assets,” he said. “Our research and experience demonstrate that third-party reporting improves compliance. Additionally, these regulations will provide taxpayers with much-needed information, reducing the burden and simplifying the process of reporting their digital asset activities. »

The process of drafting the controversial tax rule has sparked widespread concern within the industry that the U.S. government will go too far by imposing impossible requirements on miners, online forums, software developers and other entities that help investors but are not traditionally considered brokers and lack the customer information or disclosure infrastructure that would allow them to comply.

The IRS said it recognizes that crypto brokers should not include those “who provide validation services without providing other functions or services, or persons who are only engaged in the sale of certain materials or l he licensing of certain software, the sole function of which is to allow people to control the private keys used to access digital assets on a distributed ledger.

U.S. tax regulators estimate that about 15 million people will be affected by the new rule and that about 5,000 businesses will have to comply.

The IRS said it has tried to avoid some burdens for stablecoin users, particularly when they are used to buy other tokens and in payments. Basically, a normal cryptocurrency investor and user who makes no more than $10,000 on stablecoins in a year is exempt from reporting. Sales of stablecoins — the most common in cryptocurrency markets — will be counted collectively in an “aggregate” report rather than as individual transactions, the agency said, though more sophisticated and high-volume stablecoin investors will not be eligible.

The agency said that these tokens “unambiguously fall within the statutory definition of digital assets because they are digital representations of the value of fiat currency that are recorded on cryptographically secured distributed ledgers,” so they cannot be exempted despite their purpose of maintaining a stable value. The IRS also said that ignoring these transactions entirely “would eliminate a source of information about digital asset transactions that the IRS can use to ensure taxpayers’ reporting obligations are met.”

But the IRS added that if Congress passes one of its bills that would regulate stablecoin issuers, the tax rules may need to be revised.

The tax agency also faced complex legal arguments over how to handle NFTs, according to its detailed notes on that topic, and the agency decided that only taxpayers who earn more than $600 a year from their sales NFTs must report their aggregate earnings to the government. The resulting documents will include taxpayer identification information, the number of NFTs sold, and profits.

“The IRS intends to monitor NFTs reported under this optional aggregate reporting method to determine whether such reporting impedes its tax enforcement efforts,” according to the text of the rule. “If abuse is detected, the IRS will reconsider these special reporting rules for NFTs.”

As part of its efforts, the IRS released its definition of digital assets and the different activities covered by the regulations on Friday.

The IRS also established a safe harbor for certain reporting requirements “on which taxpayers may rely to assign an unused digital asset basis to digital assets held in each taxpayer’s wallet or account on or after January 1, 2025 “, he indicated.

Earlier this year, the US tax agency released a draft Form 1099-DA to track crypto transactions – the form millions of crypto investors would receive from their brokers.

The IRS clarified Friday that any attempt in this rule to assign categories to crypto assets is not intended to strengthen one side in the industry’s ongoing battle with regulators – particularly the Securities and Exchange Commission ( SEC) of the United States – to define whether the tokens are securities or commodities. This debate is currently raging in several cases before federal judges, and while the SEC is only willing to admit that bitcoin (BTC) is permanently out of the agency’s reach, Commodity Futures Trading Commission Chairman Rostin Behnam , said that Ethereum Ether (ETH) is also a commodity.

Such a position “is outside the scope of these final regulations,” the IRS explained.

Nikhilesh De contributed reporting.