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Crypto Platforms to Report Transactions to the IRS

By Wesley Grant
July 1, 2024
in Compliance and Regulation, Digital Assets & Crypto, News
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crypto IRS

Bitcoin, calculator and other objects on the wooden table.

The Internal Revenue Service has finalized its rules for next year’s tax reporting, and crypto platforms will be required to report all transactions.

Capital gains from the sale of crypto or digital assets have already been considered taxable, but there were no concrete guidelines in place. For tax year 2025, however, crypto platforms must provide their customers with the newly developed 1099-DA form, similar to the form brokerages send to document capital gains from stocks.

The primary aim of the IRS, which falls under the purview of the Department of the Treasury, is to crack down on tax evasion. It’s estimated that the new regulations will capture around $28 billion that wasn’t previously reported.

“These regulations are an important part of the larger effort on high-income individual tax compliance,” said IRS Commissioner Danny Werfel. “We need to make sure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets.”

Immediate Regulation

The new guidelines only apply to platforms like Coinbase that take assets into their custody. Because most crypto transactions happen on custodial platforms like Coinbase and Kraken, the IRS felt there was an immediate need to regulate them.

Decentralized platforms that facilitate exchanges between users won’t be regulated yet, but the IRS still plans to issue a ruling on those platforms later in the year.

The IRS considered stablecoins, a type of crypto that has increasingly been adopted by major payments companies, less volatile. Under the new rules, stablecoin transactions under $10,000 won’t have to be reported. In addition, NFT gains under $600 don’t have to be reported.

Community Backlash

The crypto community has been critical of the IRS’s attempts to institute tax laws on digital asset transactions. The crux of their argument is that crypto isn’t a security like a stock and shouldn’t be regulated like one.

In recent months, that difference of opinion led the Securities and Exchange Commission to take actions against the major crypto platforms—including Coinbase—for operating as unregistered securities brokers.

As the latest action by the U.S. government, the IRS regulations created a backlash in the crypto community. Some crypto groups have called the tax guidelines burdensome, invasive, and damaging. However, there could be some positive ramifications from the laws.

“These regulations are about capital gains taxes, and it’s understandable,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “No one likes to be taxed, but it’s the norm. I don’t think there will be a significant effect from this, as it’s applicable in traditional finance and capital markets. If anything, it could be viewed as a positive step toward a regulatory framework in which the crypto industry is accepted and solidified.”

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Tags: Coinbasecryptocrypto tax reportingIRSSECStablecoin

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