IRS Announcement of New Cryptocurrency Tax Regulations in the United States Effective 2025 DEX and Wallet Providers Exempted for Now
On the 28th, the US Internal Revenue Service (IRS) announced the final draft of the cryptocurrency tax system, explicitly requiring reporting criteria for cryptocurrency brokers, and emphasizing that decentralized exchange (DEX) and self-custody wallet operators, among other decentralized network infrastructure operators, are not currently covered by the law and will be subject to future tax implementation through other specific laws.
Contents:
IRS Announces Final Draft of Cryptocurrency Tax Regulations
Cryptocurrency Businesses Temporarily Exempt from New Rules
IRS: Narrowing the Tax Gap and Strengthening Compliance
Cryptocurrency Community Reiterates Privacy Concerns and Compliance Costs
In its latest release on Friday, the US cryptocurrency tax system stated that the IRS will require cryptocurrency brokers to submit a “1099-DA form” similar to those submitted by traditional investment companies. This form will detail the cost of users’ tokens, purchase and sale dates, sales revenue, and total income, and will take effect on January 1, 2025.
IRS Cryptocurrency Tax Rules Final Draft:
It is reported that the term “broker” refers to centralized exchanges (CEX), custody wallet services, and cryptocurrency payment providers, while the scope of taxation covers cryptocurrencies and NFTs. The following tax thresholds have been established:
Ordinary investors and users whose annual stablecoin income does not exceed $10,000 are exempt from reporting, and the same applies to NFT holders whose annual income is below $600.
In addition, “more detailed regulations are expected to be released on July 9th on the official website.”
Furthermore, starting January 1, 2026, the rules will also be expanded to include real estate transactions paid with cryptocurrency, and real estate brokers will need to submit the value and data of real estate transactions conducted through digital assets.
Given the difficulty of regulating decentralized cryptocurrency businesses, the IRS also indicated that decentralized exchanges (DEX) and self-custody wallet providers are currently not bound by the new tax regulations.
At the same time, cryptocurrency brokers are not required to report the following transactions:
Wrapping and unwrapping transactions
Liquidity provider transactions
Staking transactions
Lending and shorting transactions by participants in the digital asset market
Notional principal contract transactions
The IRS emphasizes:
The US Department of Justice (DOJ) and IRS are expected to provide rules for these brokers in another separate regulation later this year.
IRS Commissioner Danny Werfel wrote in a statement:
This will help narrow the tax gap for digital assets and effectively monitor the occurrence of high-risk non-compliant behavior in this field.
And added, “IRS research and experience have shown that third-party reporting can improve compliance.”
However, the cryptocurrency community and related industry organizations strongly oppose this and argue that implementing the “1099-DA form” may raise privacy concerns.
The Blockchain Association, a US blockchain advocacy group, mentioned in a letter it sent to the IRS a few weeks ago that these rules would impose unnecessary burdens on investors, cryptocurrency companies, and the IRS itself:
According to the Paperwork Reduction Act, authorities should not impose unnecessary paperwork requirements that increase the burden on individuals and entities participating in the financial system. The estimated annual production of 8 billion tax compliance forms will waste about 4 billion hours of labor and cost $254 billion in compliance costs each year.
And added, “However, this cost will only cover the annual tax gap of approximately $10 billion, which is completely unreasonable.”
Previously, the “10,000 Dollar Cryptocurrency Tax Law” in the US Infrastructure Investment and Jobs Act (IIJA), which took effect earlier this year, has also been criticized for its unclear regulations and difficult compliance. The authorities subsequently stated that there is no need to report details of cryptocurrency transactions and personal information until the new regulations are introduced.
(Infrastructure Bill: US Tax Agency to Temporarily Suspend Regulations Requiring Reporting of Cryptocurrency Transactions Over $10,000)
1099-DA
IRS
Cryptocurrency broker
Cryptocurrency tax
Tax
US Internal Revenue Service
Further reading:
“Bitcoin Jesus” Early Investor Roger Ver Arrested, Charged with Evading Taxes Over $48 Million
IRS Lists Top 10 Fraud Cases for 2023: Fraudulent COVID Relief Claims, Lottery Tax Scams, Cryptocurrency Accounting for 40%
