Proposed Tax Rules for Digital Asset Brokers

Key Insights

• The Proposed Rule broadly defines brokers to include digital asset exchanges, payment processors, and persons who regularly offer to redeem digital assets that were created or issued by that person.
• Decentralized exchanges and other “digital asset middlemen” may be subject to tax reporting requirements if they are able to collect customer identity and gross proceeds information, even if they do not in fact collect such information.
• Brokers do not include wallet providers whose software only allows users to control their private keys and that do not allow customers access to digital asset trading platforms. In addition, miners or validators who are solely engaged in validating distributed ledger transactions are not included as brokers.
• Brokers would be required to provide information — including customers’ names, addresses, gross proceeds, types and amounts of digital assets transacted in, and the wallet address from which the digital assets were transferred — to both the customer and the IRS.
• The Proposed Rule’s scope is broader than proposals currently pending in Congress, including the bipartisan Keep Innovation in America Act, led by House Financial Services Chairman Patrick McHenry (R-NC) and Rep. Ritchie Torres (D-NY).
• Public comments on the proposal may be submitted until Oct. 30, 2023.