IRS Expands Broker Definition to Include Crypto Entities, Effective 2025

The Internal Revenue Service (IRS) has expanded its definition of a "broker" to include entities that facilitate digital asset transactions, a move that aims to enhance tax compliance and reporting in the cryptocurrency space. The new rules, effective from January 1, 2025, require brokers to report specific details about digital asset sales or exchanges to both taxpayers and the IRS using Form 1099-DA. This form is designed to standardize the reporting of digital asset transactions, ensuring that gains or losses from selling or exchanging digital assets are accurately reported.

The definition of a broker under the new rules includes digital asset exchanges, hosted wallet providers, digital asset kiosks, crypto payment processors, and DeFi brokers. These entities are required to report details such as the customer's name, address, Taxpayer Identification Number (TIN), the date and time of each transaction, the amount and type of digital asset sold, and the gross proceeds from the sale. The new rules also introduce a unique nine-digit code from the Digital Token Identification Foundation (DTIF) to identify digital assets, addressing the challenges posed by the decentralized nature of cryptocurrencies.

The IRS's expansion of the broker definition is part of a broader effort to close the tax gap and bring crypto in line with traditional financial reporting. The new rules are built on prior rulemaking, including Treasury Decision 10000 from July 2024, which focused on extending broker reporting obligations to decentralized finance (DeFi). The rules also introduce the term "digital asset middleman," which was previously delayed due to its complexity and controversy. The broker reporting mandate originates from the 2021 Infrastructure Investment and Jobs Act, which expanded existing broker reporting obligations under Sections 6045 and 6045A to include digital assets.

The new rules have sparked debate and efforts to repeal the DeFi broker rules. In March 2025, discussions on repealing the DeFi broker rules intensified, with the Senate and House voting to repeal the rules under the Congressional Review Act. President Donald Trump has signaled support for the repeal, which, if signed, would permanently bar the IRS from implementing similar regulations, significantly impacting DeFi reporting. The repeal efforts reflect broader political shifts toward supporting crypto innovation, especially under President Trump’s pro-crypto stance.

Form 1099-DA requires brokers to report specific details about digital asset transactions, including the customer's name, address, TIN, the date and time of each transaction, the amount and type of digital asset sold, and the gross proceeds from the sale. The form also includes a new checkbox that brokers must mark if they relied on customer-provided acquisition information to calculate the basis. This change helps taxpayers align their records with broker reports and ensures that digital asset transactions are reported accurately.

The new rules also introduce a transition rule for tokenized securities, which must now be reported on Form 1099-DA instead of Form 1099-B. However, a transitional rule for 2025 allows brokers to report cash sales of tokenized securities on either Form 1099-B or Form 1099-DA, giving traditional brokers extra time to update their systems for full compliance by 2026. The new rules also introduce specific instructions for reporting sales of qualifying stablecoins and specified NFTs, ensuring that unique assets are tracked distinctly from cryptocurrencies or stablecoins.

The IRS's new crypto broker rules have significant implications for taxpayers, requiring stricter record-keeping and reporting. Under the updated rules, crypto investors must now track their cost basis separately for each account or wallet, ditching the old universal tracking approach. Brokers must report these transactions to the IRS using Form 1099-DA, mirroring how banks report stock trades. The new rules also require taxpayers to use specific identification for each digital asset sale, pinpointing the exact purchase date, amount, and cost of the asset sold. The IRS offers a temporary safe harbor under Revenue Procedure 2024-28, allowing taxpayers to reallocate their basis across accounts or wallets accurately until Dec. 31, 2025. However, noncompliance with the new rules comes with increased fines, interest on unpaid taxes, and ramping up audits for mismatched gains and losses.

The new rules also affect non-domiciled taxpayers, mandating detailed cost basis tracking for each account and specific identification of digital asset sales on Form 1099-DA, regardless of where they reside. This means that US citizens living abroad or foreign nationals with US-based crypto income must now maintain precise records of purchase dates and costs per wallet, facing increased compliance efforts and potential tax obligations on US-sourced gains. The IRS's updated crypto broker rules aim to align crypto with traditional finance, offering a brief safe harbor to adapt but signaling a clear shift: Compliance is no longer optional, and the tax net now stretches globally, leaving little room for oversight as the crypto landscape matures.