New IRS Rules Require BDs to Report Sales, Exchanges of Digital Assets

“These brokers include operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks, and certain processors of digital asset payments (PDAPs). The majority of digital asset transactions today occur using these brokers,” the IRS said.

The regs implement reporting requirements by the Infrastructure Investment and Jobs Act, enacted in 2021.

“This is welcome news and long overdue,” Ric Edelman, founder of the RIA Edelman Financial Engines (earlier Edelman Financial Services) who now leads the Digital Assets Council of Financial Professionals, told ThinkAdvisor Monday in an email.

“More than 50 million Americans own bitcoin and other digital assets, so these rules are essential,” Edelman said. “Trillions of dollars in capital gains have [been] generated over the past decade, and it’s a good bet that the IRS has not collected taxes on most of those profits. This is partly because of willful tax evasion, but also because honest taxpayers don’t understand their obligations and aren’t provided the information they need to report gains on their tax returns.”

The new rules issued by the IRS “solves both of these problems: by requiring crypto exchanges to issue 1099s, tax evaders will find it far more difficult to cheat. And honest taxpayers will find it as easy to report their crypto gains as they have long done for their stocks, bonds, mutual funds and ETFs,” Edelman added.

“The IRS will collect much-needed (and rightly owed) tax revenue,” Edelman said. ”Honest taxpayers will be able to satisfy their obligations easily and conveniently. And tax cheats will go to prison. Great news all around!”