New regulations finalized by the IRS and U.S. Department of Treasury have significant implications for the cryptocurrency industry. Starting in 2026, crypto platforms will be required to report transactions to the IRS. This move is in line with a provision of the Infrastructure Investment and Jobs Act passed by the Biden Administration in 2021.
One of the key changes introduced by these regulations is the requirement for crypto platforms to provide a standard 1099 form, similar to those used by banks and traditional brokerages. This standardized reporting will make it simpler for both individual investors and the government to accurately track and report gains from selling crypto and other digital assets. Previously, there was no real standardization around how these gains were reported.
The IRS has emphasized that these regulations are not only aimed at simplifying tax payments but also at cracking down on tax evasion. By ensuring that digital assets are not used to hide taxable income, the IRS hopes to improve detection of noncompliance in the high-risk space of digital assets. IRS Commissioner Danny Werfel stated that these regulations will help address this issue.
However, it’s important to note that these regulations only apply to “custodial” platforms like Coinbase, which actually hold customer assets. After lobbying efforts from the crypto industry, decentralized brokers that do not take possession of customer assets have been exempted from these rules. This exclusion has been hailed as a victory for the industry by the Blockchain Association, an industry lobbying group.
The Treasury Department and IRS have also made it clear that they will be addressing decentralized brokers in a separate set of regulations. This indicates that further measures may be implemented to ensure compliance and transparency in this sector of the cryptocurrency industry.
Overall, these new regulations represent a significant step forward in bringing greater clarity and accountability to the taxation of cryptocurrency transactions. By standardizing reporting requirements, the IRS aims to make it easier for individuals and the government to accurately report gains and contribute to a fairer tax system. While there may be ongoing discussions and developments in this area, it is clear that the IRS is taking steps to adapt to the evolving landscape of digital assets.