Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[TD 10021]</DEPDOC> <RIN>RIN 1545-BR39</RIN> <SUBJECT>Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final regulations. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains final regulations regarding information reporting by brokers that regularly provide services effectuating certain digital asset sales and exchanges. The final regulations require these brokers to file information returns and furnish payee statements reporting gross proceeds on dispositions of digital assets effected for customers in certain sale or exchange transactions. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These regulations are effective on February 28, 2025. <E T="03">Applicability dates:</E> For dates of applicability, <E T="03">see</E> § 1.6045-1(q). </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Roseann Cutrone or Jessica Chase of the Office of the Associate Chief Counsel (Procedure and Administration) at (202) 317-5436 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Authority</HD> This document contains amendments to the Income Tax Regulations (26 CFR part 1) by adding final regulations under section 6045 of the Internal Revenue Code (Code) to require certain decentralized finance industry participants to file and furnish information returns as brokers. Section 6045(a) provides an express delegation of authority to the Secretary of the Treasury or her delegate (Secretary) to require every person doing business as a broker to make returns, in accordance with such regulations as the Secretary may prescribe, showing the name and address of each customer, with such details regarding gross proceeds and such other information as the Secretary may by forms or regulations require. Section 80603 of the Infrastructure Investment and Jobs Act, Public Law 117-58, 135 Stat. 429, 1339 (2021) (Infrastructure Act) amended section 6045 clarify the definition of broker as it relates to persons responsible for regularly providing services effectuating transfers of digital assets, to expand the categories of assets for which basis reporting is required to include all digital assets, and to provide a definition for the term digital assets. Finally, the Infrastructure Act provided that these amendments apply to returns required to be filed, and statements required to be furnished, after December 31, 2023, and provided a rule of construction stating that these statutory amendments shall not be construed to create any inference for any period prior to the effective date of the amendments with respect to whether any person is a broker under section 6045(c)(1) or whether any digital asset is property which is a specified security under section 6045(g)(3)(B). The final regulations are also issued under the express delegation of authority under section 7805(a) of the Code. Section 7805(a) authorizes the Secretary to “prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.” The Infrastructure Act amended section 6045, and the Secretary has determined that these final regulations are needful for the enforcement of the Code because tax compliance would be increased if brokers were required to file information returns, and furnish payee statements, under section 6045. <E T="03">See</E> Proposed Rules, Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions, 88 FR 59576 (August 29, 2023) (describing need for regulation and its anticipated impact on tax administration). <HD SOURCE="HD1">Background</HD> On August 29, 2023, the Treasury Department and the IRS published in the <E T="04">Federal Register</E> (88 FR 59576) proposed regulations (REG-122793-19) (proposed regulations) relating to information reporting under section 6045 by brokers. These proposed regulations included rules that would apply to brokers that generally act as agents and dealers in transactions with their customers involving digital assets, which are defined generally as any digital representation of value that is not cash and is recorded on a cryptographically secured distributed ledger (that is, a database that records transactions across multiple computers) or any similar technology. The proposed regulations also included rules that would apply to brokers that act as digital asset middlemen, a new category of broker proposed to address the use of digital assets to make certain payments and to reflect the clarified definition of broker under the Infrastructure Act. This proposed new category of broker would include certain participants that operate within the segment of the digital assets industry that is commonly referred to as decentralized finance (DeFi). <SU>1</SU> <FTREF/> The DeFi industry offers services that allow for transactions that use automatically executing software commonly referred to as smart contracts based on distributed ledger technology without any participant in the DeFi industry (DeFi participant) taking custody of the private keys used for accessing the digital asset customer's digital assets on a distributed ledger. Additionally, the proposed regulations included specific rules under section 1001 of the Code for determining the amount realized in a sale, exchange, or other disposition of digital assets and under section 1012 of the Code for calculating the basis of digital assets. <FTNT> <SU>1</SU>  This preamble's use of the DeFi term is not intended to create any inference as to whether or not this segment of the digital assets industry operates without any centralized participants. </FTNT> The proposed regulations stated that written or electronic comments provided in response to the proposed regulations must be received by October 30, 2023. The due date for comments was extended until November 13, 2023. In response to the proposed regulations, the Treasury Department and the IRS received over 44,000 written comments. <SU>2</SU> <FTREF/> All posted comments were considered and are available at <E T="03">https://www.regulations.gov</E> or upon request. A public hearing was held on November 13, 2023. In addition, the Treasury Department and the IRS continued to accept late comments through noon eastern time on April 5, 2024. <FTNT> <SU>2</SU>  Although <E T="03">https://www.regulations.gov</E> indicated that over 125,000 comments were received, the Treasury and the IRS did not actually receive over 125,000 comments. Instead, 125,000 reflects the number of “submissions” that each comment self-reported as being included in the comment, whether or not the comment actually included such separate submissions. </FTNT> On July 9, 2024, the Treasury Department and the IRS published in the <E T="04">Federal Register</E> (89 FR 56480) final regulations (REG-122793-19) (TD 10000) regarding information reporting by certain brokers and the determination of amount realized and basis for certain digital asset sales and exchanges. TD 10000 generally applies to digital asset brokers that act as agents for a party in the transaction, such as operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, and certain processors of digital asset payments (PDAPs), as well as persons that interact with their customers as counterparties to transactions, such as owners of digital asset kiosks, brokers who accept digital assets as payment for commissions and certain other property, brokers that transact as dealers in digital assets, and certain issuers of digital assets who regularly offer to redeem those digital assets. Additionally, TD 10000 finalized specific rules under section 1001 for determining the amount realized in a sale, exchange, or other disposition of digital assets and under section 1012 for calculating the basis of digital assets. TD 10000 did not finalize the definition of digital asset middleman from the proposed regulations as applied to DeFi participants (referred to in the preamble to TD 10000 as non-custodial industry participants) because the Treasury Department and the IRS determined that additional consideration of the issues and comments received with respect to these participants was warranted. Instead, TD 10000 reserved on the proposed definition of digital asset middleman that would have treated these participants as brokers. The preamble to TD 10000 also indicated that the Treasury Department and the IRS intend to expeditiously issue separate final regulations with respect to these participants. The <E T="03">Summary of Comments and Explanation of Revisions</E> of these final regulations summarizes the digital asset middleman provisions in the proposed regulations that were reserved in TD 10000, which provisions are explained in greater detail in the preamble to the proposed regulations. After considering the comments to these provisions, the reserved portion of the proposed regulations relating to the definition of a digital asset middleman is adopted as amended by this Treasury decision in response to such comments as described in the <E T="03">Summary of Comments and Explanation of Revisions.</E> These final regulations concern Federal tax laws under the Internal Revenue Code only. No inference is intended with respect to any other legal regime, including the Federal securities laws and the Commodity Exchange Act, or the Bank Secrecy Act and its implementing regulations, ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 254k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━