septembre 26 2023

The Kingdom of Glass: Cryptocurrency Account Disclosures to Be Mandated by The US Internal Revenue Service


At the end of August 2023, the US Internal Revenue Service (the “IRS”) proposed new cryptocurrency tax reporting regulations in furtherance of the legislative mandate to expand such reporting contained in 2021’s Infrastructure Investment and Jobs Act (PL 117-58).1 The smart money isn’t betting that these new rules will be made effective in the short term. When these rules are finalized, however, they will create substantial tax reporting obligations on digital asset trading platforms, payment processors and wallet providers. This Legal Update summarizes, in Q&A format, some of what the IRS has in mind and certain ins and outs of the proposed regulations. The IRS will be holding a hearing on the proposals on November 7, 2023 (and has listed no less than 49 issues on which it is seeking input). So, it’s fair to say that cryptocurrency tax reporting is still a work-in-progress.

These proposed regulations are the most comprehensive and significant federal tax proposal on cryptocurrencies to date and would significantly expand both the types of persons required to provide information to the IRS and the amount of information that the IRS would receive. If there’s any guiding principle to the proposed regulatory scheme, it’s the Dalai Lama’s thought that “a lack of transparency results in distrust and a deep sense of insecurity.” The opacity around cryptocurrency trading has stoked a sense within the IRS that US taxpayers may not be reporting all of their income and gains from digital asset transactions. The proposed regulations create a 21st century reporting regime on top of the existing rules for security transactions.

I. What Transactions Will Be Subject to Information Reporting?

The proposed regulations provide that most dispositions of digital assets will be subject to information reporting, including dispositions for cash, digital assets that differ “materially in kind or extent,”2 stored value cards, broker services or certain other property.3 While the direct purchase of goods and services with cryptocurrencies generally will not be subject to reporting, if the property acquired is subject to other reporting requirements (including stock and real estate), the use of cryptocurrency to acquire that property becomes reportable. And although direct purchases are not subject to reporting, if the transaction is processed by an intermediary, the intermediary will have tax reporting requirements. (In other words, it’s likely that luxury good dealers who directly accept bitcoin will become very popular.)

Under the proposed regulations, cryptocurrencies received in hard forks and airdrops will not be subject to reporting. The proposed regulations exempt loans of digital assets from information reporting. But the IRS has stated that is likely to change this rule in the future.


Speaking of financial transactions involving cryptocurrencies, tax reporting for option and forward contract transactions will be determined based on whether the option or contract is a digital asset, not based on the property subject to the option or contract. Accordingly, if the option or forward is itself traded on a blockchain, digital asset reporting will be required.4 If the option or forward is not blockchain traded, even if the derivative references a digital asset, it remains subject to the existing rules for option and forward contract reporting.5 The proposed regulations reserve on reporting for Section 1256 contracts referencing digital assets (as the IRS believes that such contracts do not yet exist). In the case of both options and forward contracts, however, if the option or forward is physically settled, digital asset reporting will be required for the settlement. Other physically settled derivatives involving cryptocurrencies also will be subject to information reporting.6

If a broker executes a transaction that is internal to its platform, such as matching buy-sell orders with inventory, instead of by purchasing cryptocurrency in an open market transaction to fill an order, the transaction will be subject to information reporting. Reporting will be required even if the exchange ledger is not widely distributed, i.e., it is private or permissioned.

If a transaction constitutes both a securities transaction and a digital asset transaction, such as a transaction in a regulated futures contract, the transaction will be reportable only as a digital asset transaction.7 The IRS specifically acknowledged that the digitization of existing financial assets by brokers could raise special issues but decided to require reporting of such transactions only as digital asset transactions. Similarly, the digital asset reporting rules, and not the commodity reporting rules, will apply to digital asset transactions that also meet the definition of a commodity transaction. (The definition of commodity will be expanded to include assets that are self-certified to the Commodity Futures Trading Commission.) These proposed regulations will also allow brokers to defer basis reporting for “dual classification assets” until the digital asset rules are finalized. In contrast to the rules for most dual asset transactions, the use of cryptocurrencies in real estate will be subject only to the real estate reporting rules.

The payment of gas fees, staking fees and like amounts are treated as dispositions of cryptocurrency under the proposed regulations. Accordingly, the payment of these fees will trigger tax reporting. There is no proposed de minimis exception.

II. Who Will Be Required to Provide Information Reporting on Digital Asset Transactions?

The new reporting requirements will apply to “brokers.” Notwithstanding some congressional concern about the breath of the definition of a broker, the IRS has proposed a fairly expansive definition of broker for this purpose. A broker will include digital asset platforms, payment processors, hosted wallet providers and issuers of cryptocurrencies who regularly offer to redeem their digital currencies, such as stable coin issuers. The IRS will also require reporting with respect to persons who use cryptocurrencies to purchase real estate or stocks but, in general, not other assets or services. Furthermore, “any person that provides facilitative services that effectuate sales of digital assets by customers” is treated as a broker, provided that such person is in a position to know the identity of the party that makes the sale and the nature of the transaction.8 A person who controls the payment services for cryptocurrency payments will be considered to have the ability to control the transaction. Regularity of activity will bear on whether a person is acting as a broker. The IRS will require exchanges that are “willfully blind” to the identities of their customers to modify their systems to capture this information and become reporting agents.

A hosted wallet provider who solely holds and transfers digital assets but does not and cannot process gross proceeds will not be treated as a broker. Payment processors, including credit card companies, that facilitate the payment for cash, goods, other cryptocurrencies and services for cryptocurrencies, however, will be treated as brokers.

The preamble to the proposed regulations makes clear that decentralized autonomous organizations (“DAOs”) will be treated as persons and, hence, brokers. This rule will apply regardless of whether the DAO is formed as an organization. In other words, DAOs that are just collections of participants holding governance tokens will be treated as brokers. DAOs and similarly situated persons are referred to as “digital asset middlemen” under the proposed regulations.9 The IRS has invited comments on when the holding of governance tokens causes someone to become a digital asset middleman.10 A person whose sole role is staking, however, will not be treated as a digital asset middleman. Likewise, persons engaged in hardware sales and software licensing will not be treated as digital asset middlemen.

Stablecoin issuers that redeem their stablecoins for cash are treated as brokers. As stated above, merchants who accept digital assets for goods and services, however, will not be treated as brokers.

In general, non-US brokers (other than foreign partnerships controlled by US persons) will be exempt from the cryptocurrency tax reporting rules unless part of the transaction is effectuated from inside the United States. The location of sales is determined based on the residence of the digital asset broker rather than the office location used to effectuate the transaction (as is the case with securities sales). A transaction will be considered an exempt foreign transaction only if the broker “completes the acts necessary to effect the sale outside the United States pursuant to instructions directly transmitted to that office from outside of the United States by the broker’s customer.”11 Virtually any indication that the client is a U.S. person will bring the transaction within the new reporting rules. Foreign brokers reporting certain sales of cryptocurrencies under the FATCA regime will be exempt from the new reporting rules.

Complex rules are proposed to distinguish sales effected by US brokers, non-US brokers and controlled foreign corporations (“CFCs”).

III. Which Assets Will Be Subject to Reporting?

The proposed regulations make clear that stablecoins and nonfungible tokens (“NFTs”), as well as cryptocurrencies, are subject to new reporting requirements.

IV. Who Is Exempt from Information Reporting?

The existing list of tax reporting “exempt recipients” will carry over to the cryptocurrency reporting regime. Accordingly, most foreign persons, corporations, financial institutions and tax-exempt organizations will not be subject to cryptocurrency tax reporting. Transactions between digital asset brokers, however, will not be exempt from reporting.

V. What Must Be Reported Under the Proposed Reporting Regulations?

The proposed regulations require that the following information be reported by the broker to the IRS and the taxpayer:

  1. Name, address and taxpayer identification number of the payer;
  2. The date and time of disposition using Coordinated Universal Time;
  3. Gross proceeds (dollars or fair market value of goods and services, reduced by one-half of transaction costs);
  4. Transaction ID (if any);
  5. Digital asset address;
  6. Consideration received for the cryptocurrency; and
  7. If the transaction involves a hosted wallet, the information necessary to identify the wallet and the amount originally transferred into the wallet.

Section 80603(b)(1) of the Infrastructure Investment and Jobs Act mandates basis reporting requirements for cryptocurrency acquisitions that occur on or after January 1, 2023. The proposed regulations follow this statutory mandate but only for sales that occur on or after January 1, 2026. In other words, brokers must keep basis information for client cryptocurrency acquisitions on or after January 1, 2023, but will be required to report such information only for dispositions in 2026 and after. If a broker chooses to adopt earlier reporting, the IRS will not impose penalties for mistakes in such reporting. Taxpayers may elect specific identification of the coins sold or, if a specific identification method is not elected, use a “FIFO” method in determining the cryptocurrencies that have been sold.

VI. Will These Rules Really Be Made Applicable to 2023?

It’s hard to tell, but it appears unlikely. The reporting burden appears to be phenomenal. And based on our experience, it’s hard to see how any broker could comply with these rules for 2023 and have statements ready by early 2024. But it’s possible that reporting could be mandated in short order, maybe beginning in 2025 for 2024.


Mark Leeds ((212) 506-2499; is a tax partner with the New York office of Mayer Brown. Mark’s legal practice includes addressing cryptocurrency tax issues. Mark will be addressing the proposed IRS regulations at the Beryl Elites 5th Annual New York City Alternatives Investments Conference on November 6, 2023.



1 REG-122793-1 (August 29, 2023).

2 The proposed regulations do not offer any guidance on when the IRS believes that one cryptocurrency materially differs from another cryptocurrency.

3 Prop. Treas. Reg. § 1.6045-1(a)(9).

4 Prop. Treas. Reg. § 1.6045-1(e)(9)(ii).

5 Prop. Treas. Reg. § 1/6045-1(e)(9)(i).

6 Prop. Treas. Reg. § 1.6045-1(a)(9)(ii)(A)(3).

7 Prop. Treas. Reg. § 1.6045-1(c)(8)(i).

8 Prop. Treas. Reg. § 1.6045-1(a)(10). The “position to know” standard is taken from the Financial Action Task Force (“FATF”) recommendations.

9 Prop. Treas. Reg. § 1.6045-1(a)(21)(i).

10 Prop. Treas. Reg. § 1.6045-1(a)(21)(iii)(A).

11 Prop. Treas. Reg. § 1.6045-1(g)(3)(iii)(B).

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