Providers of digital asset services would be subjected to tax reporting regulations akin to those governing brokers of securities and analogous financial instruments, as outlined in the inaugural set of proposed regulations delineating protocols for assets like cryptocurrency and nonfungible tokens. These guidelines, disseminated by the Internal Revenue Service on Friday, introduce the requirement for digital asset brokers to submit information returns and payee statements relating to asset sales conducted on behalf of customers during specific transactions, in accordance with Internal Revenue Code Section 6045.
Additionally, the comprehensive 282-page proposal recommended that brokers incorporate gain or loss details and basis information for sales occurring on or after January 1, 2026, under specific circumstances. This provision is designed to equip customers with the requisite information for compiling their tax returns.
The effective date of these regulations is slated for transactions from the preceding year, with enforcement beginning in 2026.
Law360 covered the topic in an article on August 25, 2023 where Gray Reed Partner Joshua Smeltzer was one of the experts interviewed. Board Certified in Tax Law by the Texas Board of Legal Specialization, Joshua uses his experience as a former litigator for the U.S. Department of Justice to defend clients in tax audits, tax appeals, and litigation in Federal District Court, U.S. Tax Court, the U.S. Court of Federal Claims, and tax issues in U.S. Bankruptcy Court.
The Law360 Excerpt:
The inclusion of NFTs in the proposed rules may be concerning for stakeholders because there has not been a lot of IRS guidance on the matter, according to Joshua Smeltzer, partner at Gray Reed.
“There will need to be a real discussion in comments provided to the IRS about making that a workable reporting regime and potentially carving out specific NFTs from the requirements at all,” Smeltzer toldLaw360.
“This will be true of many industries now subject to these rules as the IRS tries to balance obtaining the information it needs without creating duplicative reporting obligations or unnecessary compliance expenses for assets that do not actually require informational reporting,” Smeltzer said.
“I expect to see a lot of comments from both tax advisers and industry professionals to make sure that the lines are not drawn too broadly,” he said.
Read the full article here (subscription required).
Read the proposed regulations here.