Much-Anticipated Tax Reporting Regulations On Digital Asset Transactions Issued

The proposed regulations provide much-needed guidance on the statutory changes to certain tax reporting requirements made by Congress in the 2021 Infrastructure Investment and Jobs Act. The 2021 law introduced additional information reporting requirements for sales and exchanges of digital assets and expanded the scope of brokers responsible for such reporting.

The new rules will generally require brokers to provide IRS Form 1099s to both customers and the IRS reporting certain dispositions of, or involving, digital assets. "Brokers" for this purpose has been defined broadly to include not only traditional custodial brokers, but certain digital asset trading platforms, digital asset payment processors and issuers of digital assets. The proposed regulations have clarified, however, that miners and stakers are generally out of scope. While brokers can be U.S. or non-U.S. persons, the latter may be exempt from reporting depending on the circumstances of the transaction.