IRS Delays Digital Asset Reporting Requirements for Brokers

At a glance

• Main takeaway: In December 2022, the Internal Revenue Service (IRS) delayed 1099-B reporting regulations for digital assets, which were due to come into force in the 2023 calendar year.
• Impact on your business: Based on the latest IRS correspondence, companies do not yet know if they will have to file 1099 forms for sales of digital assets for the 2023 tax year. We are advising clients to assume Treasury and the IRS will provide guidance this year, though they may not. Be prepared to file IRS Form 1099 in early 2024 for 2023 transactions.
• Next steps: Digital asset brokers should (i) implement the necessary internal controls, (ii) update their policies, (iii) review and update their AML/KYC compliance; and (iv) prepare to provide full tax reporting to individuals and the IRS for the 2023 tax year.

The full story:

In December, the IRS issued an important announcement delaying Form 1099-B reporting requirements for digital asset transactions. Currently, our understanding is that the IRS will create a new form called IRS Form 1099-DA [Digital Assets] to use when reporting digital asset transactions.

The Infrastructure Investment and Jobs Act (P.L. 117-58) was signed into law by President Biden in November of 2021. The Law expanded the definition of “broker” to include anyone “regularly providing any service effectuating transfers of digital assets on behalf of another for consideration.” 

Pursuant to the IRS Announcement 2023-02, no draft forms are currently available, and the form is expected to be released in 2024. Until the IRS issues regulations, a digital asset broker may, if they choose, report gross proceeds and basis, and furnish statements to taxpayers and/or the IRS, though there is currently no requirement to do so.

We believe providing this data to customers is a best business practice.

The time to start getting ready for this new rule is now.

We have been advising clients since November 2021 to prepare for these filing requirements and are once again advising clients to do so now. Aprio can help you prepare for these filing requirements and to develop best practices to comply with the rules we expect to be codified later this year.

In November 2021, the Congress also put in place a new rule requiring taxpayers to file IRS Form 8300 to report to receipt of $10,000 or more of digital assets. This is scheduled to go into effect on January 1, 2024, with the first forms due January 15, 2024. At time of writing, the IRS has still not released any rules, regulations, or a draft form. Time will tell whether or not the IRS will delay this rule.

Aprio is already working with clients on their anti-money laundering/know your customer (AML/KYC) matters to enable our clients to comply with these new filing requirements.

We shall see if the IRS will address the value of assets with no stated market value; and how recipients will report the receipt of digital assets from non-entities, such as Decentralized Autonomous Organizations (DAOs).

With so many questions still outstanding, it is not surprising that the IRS issued an announcement to delay implementation of new rules.

Aprio’s blockchain team members are ready and able to help you establish information gathering and reporting protocols around cryptocurrency and digital assets that comply with pending IRS and Treasury regulations.

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Disclosures

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.