Final IRS Broker Regs: New Insights

Making sense of the new IRS guidance on crypto

Crypto tax craziness is upon us again. The temporary digital asset broker reporting was issued in August 2023 and the IRS received tens of thousands of comments. Almost a year later, the final regs were handed down about a month ago.

What's significant about this?

The IRS issued two pieces of additional guidance: Rev. Proc. 2024-28 and Notice 2024-57 at the same time as the final regs to provide transitional guidance. There is some good news and some bad news. 

The good news: Notice 2024-57 Reporting and Penalty Relief for Brokers for Certain Digital Asset Transactions Under Section 6045

Informs brokers that until the U.S. Treasury Department and the IRS issue further guidance, brokers will not have to file information returns or furnish payee statements on digital asset sales and exchanges for the following six types of transactions:

1. Wrapping and unwrapping transactions
2. Liquidity provider transactions
3. Staking transactions
4. Transactions described by digital asset market participants as lending of digital assets
5. Transactions described by digital asset market participants as short sales of digital assets
6. Notional principal contract transactions

I previously wrote how The IRS Tripled Your Tax Prep Cost, which explains the headaches bestowed upon taxpayers that create orders of magnitude more work for taxpayers and NOT less. Fortunately, there are six fewer things to deal with for the moment.

The bad news: Rev. Proc. 2024-28 Guidance for Taxpayers to Allocate Basis in Digital Assets to Wallets or Accounts as of January 1, 2025 is guidance on how to transition from universal cost basis tracking to account by account and wallet by wallet cost basis tracking. Universal means all your wallets and accounts are “dumped together” in your crypto tax software for purposes of calculating taxes.

37 wallets means 37 sets of tracking

Crypto tax is hard enough to manage on a universal basis and now your cost basis tracking just skyrocketed. Each wallet and account requires its own separate tracking. I don’t know about you but nightmare is the first word that comes to my mind. Now you have to transition from universal to wallet by wallet.

This forces more unnecessary work on the taxpayers who already comply. It’s not going to make the non-compliance people suddenly comply. It’s not going to create more accurate books and records; it’s going to create less accurate books and records. Every broker has to track and report your transactions so information returns are going to be filed inaccurately, amidst a bunch of other craziness. More on this incredibly arduous requirement to come. 

Here are the Final Regulations in case you’re interested in diving in.

Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions

Remember your goal is always to get a Crypto Bullseye™.

Yours in Crypto,

Kirk David Phillips, CPA, CMA, CFE, CBP