IRS Eases Digital Asset Tax Transition with Broker Relief and New Reporting Rules

The U.S. Internal Revenue Service (IRS) has introduced significant changes to digital asset tax reporting, including transitional relief for brokers and updated requirements for taxpayers. These developments, detailed in IRS Notices 2024-56 and 2025-33, aim to ease the transition for brokers and taxpayers as the agency expands its oversight of digital asset transactions. The relief includes penalty exemptions for brokers in 2025 and 2026 if they are making good-faith efforts to comply, as well as temporary suspensions of backup withholding for digital asset transactions during these years [1].

Under the new reporting framework, digital assets are classified as property rather than currency, necessitating the reporting of gains and losses on transactions such as sales, exchanges, and crypto-based payments. The IRS has issued Form 1099-DA to streamline this reporting, with mandatory submissions beginning in 2025 for covered digital assets. The form captures key details such as the digital asset identifier, acquisition and disposal dates, quantities, gross proceeds, and whether the transaction resulted in a gain or loss. Cost-basis reporting is set to become mandatory by 2026, with a phased implementation extending through 2027 [1].

The tax treatment of cryptocurrency depends on its use and holding period. For example, if a business accepts crypto as payment or earns it through mining or staking, the value is treated as ordinary income at the time of receipt. Later, if the asset is sold for a profit, a capital gains tax may also apply. In 2025, crypto held for one year or less is taxed at the individual’s regular income tax rate, while assets held for longer periods qualify for lower long-term capital gains rates, which can be 0%, 15%, or 20% depending on income level. These tax brackets apply to sole proprietorships, partnerships, and S corporations, while C corporations face a flat 21% tax rate on crypto gains [2].

Businesses and individuals are also required to track non-taxable events, such as transferring crypto between wallets or gifting crypto within the IRS annual exclusion limit. However, any taxable event—such as selling, trading, or accepting crypto as payment—must be reported accurately to avoid penalties. The IRS now includes a direct question on tax forms asking whether digital assets were received, sold, or disposed of during the year, reinforcing the importance of precise record-keeping [2].

With the implementation of Form 1099-DA and the expanded IRS monitoring tools, compliance is becoming increasingly critical. Taxpayers are advised to review prior transactions, establish robust tracking systems, and consult with tax professionals to navigate the evolving landscape. The transitional relief period offers a narrow window for taxpayers to prepare for stricter enforcement starting in 2027, when brokers may be required to withhold taxes if their records do not align with the payee’s information [1]. As digital asset tax rules continue to develop, businesses and individuals must remain proactive in understanding and meeting their reporting obligations.

Source: [1] IRS Relief for Digital Asset Tax Reporting: What to Know (https://scltaxservices.com/blogs/irs-relief-for-digital-asset-tax-reporting-what-to-know/) [2] Cryptocurrency Tax Rate Guide for 2025 (https://blog.cmp.cpa/cryptocurrency-tax-rate-utah)