Under the Investment Infrastructure and Jobs Act (the “IIJ”), Section 6045 of the Internal Revenue Code was modified to include digital assets among the class of assets brokers must report information on when they facilitate transactions. With these revisions, brokers of cryptocurrencies must provide information on customers and gross proceeds. In addition, these brokers must also track tax basis and holding periods.
Reporting for the 2023 and 2024 tax years is optional, but mandated reporting begins in 2025. It comes as no surprise then, that on Sept. 9, 2024, the IRS and U.S. Treasury Department issued a draft of an entirely new form – 1099-DA. While the draft makes clear that it should not be filed until finalized, review of the draft’s instructions can at least give taxpayers and tax return preparers an anticipatory sense of the instructions to be followed in order to comply with the new reporting obligations.
Anticipating taxpayers’ need for guidance, Treasury issued Proposed Regulations last August to parse the IIJ. Under the Proposed Regulations, a “broker” includes digital asset trading platforms, payment platforms, wallet providers, and persons who regularly offer to redeem digital assets created or issued by that person. Cryptocurrencies are clearly under the definition of “digital assets.” This defined term also applies to decentralized exchanges that collect information on the identification of customers and their transactions.
However, the term “broker” excludes miners and validators who solely validate transactions; hardware or software wallet providers that function solely to allow users to control their private keys and access assets on the block chain; merchants who accept digital assets as payment for goods and services; and persons who simply create and sell digital assets such as NFTs.
Even though a taxpayer may be widely regarded as a “miner” within the industry of cryptocurrency, implications under the IIJ merit careful analyses to confirm said taxpayer qualifies as a miner in the context of the IIJ (as opposed to a “broker” with reporting obligations), so it does not incur any surprises, such as penalties with the IRS for non-filing.
