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Prepping for updated digital asset reporting regulations.

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TLDR:

  • The IRS is drafting proposed regulations on digital asset reporting requirements.
  • The final regulations are expected to be coordinated with international reporting under the Crypto Asset Reporting Framework.

The Internal Revenue Service is currently working on the Crypto Asset Reporting Framework to coordinate the U.S.’s collection and exchange of tax information on non-U.S. individuals to foreign tax authorities. Changes to future iterations of the Form 1099 and 1042-S regulations will need to be made to collect the necessary information for tax data exchange. The final regulations are anticipated to be released by the end of the year, with over 120,000 public comments currently being considered. The IRS intends to draft regulations to minimize duplicate reporting for U.S. and non-U.S. crypto and digital asset providers. The proposed regulations highlight aspects such as broker definitions, digital asset definitions, and wash sales, with the new Form 1099-DA resembling Form 1099-B for reporting sales of traditional financial products.

The phased-in approach to different components of reporting, including gross proceeds and cost basis reporting, will be implemented. Custodial brokers that hold assets from acquisition to sale will be required to report cost basis in the second phase. The proposed regulations also include details on broker definitions, digital asset definitions, and the potential future inclusion of wash sales rules for digital assets. The new Form 1099-DA for digital assets mirrors Form 1099-B for traditional financial products, with additional boxes for specific reporting requirements.

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