Treasury finalizes digital asset information reporting framework

In brief

What happened?

Treasury and the IRS on June 28 released final regulations regarding information reporting, backup withholding, and the determination of amount realized and basis for certain digital asset sales and exchanges. The final regulations require brokers to file information returns and furnish payee statements reporting gross proceeds and adjusted basis on dispositions of certain digital assets effected for customers in certain sale or exchange transactions. Simultaneously with the release of the final regulations, the IRS issued Notice 2024-56 and Notice 2024-57, both providing transition penalty relief associated with filling and furnishing information returns related to certain transactions and relief from the obligation to impose backup withholding. Both notices require impacted digital asset brokers to make a good-faith effort to comply with final regulations. 

The final regulations impose obligations to file information returns and furnish payee statements on dispositions of digital assets based on companies engaging in a broad array of services or activities related to digital assets. 

The final regulations finalize the general framework of the proposed regulations issued in August 2023. The final regulations, together with the two Notices, provide targeted relief around the initial effective dates, scope of the brokers required to report, and information to be reported under the regulations. The final regulations also reserve for future study the reporting obligations on certain transactions executed on decentralized exchanges or platforms.  

In short, the final regulations: 

• identify who is a digital asset “broker” required to report; 
• define which “digital assets” are subject to reporting; 
• provide what information is required to be reported on such transactions;  
• specify when information reporting is required and the transaction period to which reporting relates; and
• identify information to be retained by reporting brokers.  

Why is it relevant?

Information reporting for certain brokers transacting in digital assets from “custodied” wallets begins with respect to transactions on or after January 1, 2025. This will require the first information returns under these final regulations to be filed and furnished in January and March 2026. Notice 2024-56 indicates that the IRS will not impose failure to file and furnish penalties for Forms 1099-DA, Digital Asset Proceeds From Broker Transactions, not filed for 2025 transactions by relevant digital asset brokers, provided that the brokers make a good faith effort to comply. The finalization of the regulations provides certainty as to the information reporting obligations for impacted brokers and their customers. See PwC Tax Insight, IRS releases draft Form 1099-DA for digital asset reporting, April 25, 2024, for more information about Form 1099-DA.

The final regulations also provide welcome relief on the specific information to be reported for digital asset transactions, the brokers in scope for information reporting, and the documentation necessary to support the US or non-US status of a customer.  

Action to consider 

The final regulations provide the information necessary for impacted brokers to design their information reporting procedures and systems. Impacted brokers should assess the updated information to be reported under the regulations against the data currently obtained to identify and remediate any gaps. Additionally, brokers should review and update (as needed) their customer tax onboarding procedures and be ready to collect reliable Forms W-9 and W-8 by January 1, 2026. 

Where information reporting is not currently required, impacted brokers may want to identify for their broader organization the circumstances in which exceptions to reporting may no longer apply, and procedures for monitoring eligibility for the applicable exceptions.