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What is the IRS’s definition of a crypto broker?

The term “broker” encompasses individuals or organizations that consistently offer services to facilitate digital asset transactions. This definition aims to ensure that only those who genuinely possess insight into transaction details are required to adhere to the Form 1099-DA reporting guidelines.

The guidelines established by the IRS are rooted in earlier regulations from July 2024 and concentrate on expanding broker reporting responsibilities to decentralized finance (DeFi), which includes digital asset transactions that occur without a traditional intermediary.

The introduction of the phrase “digital asset middleman” comes from provisions that were initially postponed owing to their complexity and contentious nature.

The impetus for the broker reporting requirement derives from the 2021 Infrastructure Investment and Jobs Act, often referred to as the Bipartisan Infrastructure Law. This legislation broadened existing broker reporting duties to encompass digital assets under Sections 6045 and 6045A, with an estimated revenue generation of close to $28 billion over ten years.

Entities identified as brokers include:

• Digital asset exchanges: Platforms, whether custodial or non-custodial, that facilitate trades.
• Hosted wallet providers: Organizations managing wallets and confirming user identities.
• Digital asset kiosks: Physical machines like Bitcoin ATMs that deal in cryptocurrencies.
• Crypto payment processors: Systems that enable digital asset transactions while authenticating buyers and sellers.
• DeFi brokers: Only front-end service providers, such as token swap interfaces, qualify as brokers. Activities like liquidity provision, staking, and lending are exempt from reporting obligations.

Providers of “unhosted” wallets, which give users complete control over private keys, are usually exempt unless they operate similarly to an exchange.

The classification of a digital asset broker has sparked considerable debate following the passage of the Infrastructure Investment and Jobs Act in November 2021.

The IRS’s broadening of the “broker” definition in digital asset transactions

The Infrastructure Investment and Jobs Act notably expanded the meaning of “broker” under Internal Revenue Code Section 6045 to include those who facilitate digital asset transactions.

IRS regulations define brokers generally as entities involved in the buying and selling of digital assets. Below is a timeline outlining these regulations:

Custodial brokers (June 2024 — Treasury Decision 10000)

This category incorporates custodial digital asset trading platforms, such as centralized exchanges (CEXs) which maintain customers’ private keys. It extends to hosted wallet providers, digital asset kiosks (like Bitcoin ATMs), and certain digital payment processors. These entities are required to report because they have custody, facilitating the tracking of transactions.

DeFi brokers (December 2024 — Treasury Decision 10021)

The December 2024 regulations from the IRS emphasize trading front-end service providers within the DeFi space, such as interfaces connecting users to decentralized exchanges (DEXs). The Treasury and IRS apply a tri-layer model (interface, application, settlement) to determine DeFi participants, concentrating on those with enough control or influence, in line with Financial Action Task Force (FATF) recommendations.

However, due to the decentralized nature of DeFi platforms, concerns about privacy and compliance arose.

Discussion surrounding the repeal of the IRS broker rule

In March 2025, discussions regarding the repeal of the DeFi broker regulations intensified, resulting in the Senate voting 70–27 in favor of repeal on March 4, followed by a vote of 292–132 in the House on March 11, as stipulated in the Congressional Review Act (CRA).

Support from President Trump has been evident, with his crypto advisor confirming backing for the repeal. Should this repeal be enacted, it would effectively prevent the IRS from imposing similar regulations in the future, significantly affecting DeFi reporting requirements.

With support across party lines, featuring 76 Democrats joining Republican votes in the House, this trend reflects broader political shifts favoring cryptocurrency innovation, particularly under Trump’s pro-crypto administration, showcased in his executive order aimed at establishing a national crypto stockpile.

Did you know? Five draft versions of the reporting form preceded the finalized IRS crypto broker rules. Updated general instructions related to reporting were issued on Jan. 8, 2025, detailing requirements for the new form.

What is the new tax reporting form for cryptocurrency transactions?

The newly introduced form, titled “Digital Asset Proceeds from Broker Transactions,” aims to standardize the reporting of digital asset transactions, including cryptocurrency exchanges. Released on Dec. 5, 2024, it is intended to help taxpayers accurately report gains or losses from these transactions and to enhance the IRS’s ability to track this income more effectively.

Think of it as a specialized version of other tax forms, akin to the 1099-B typically used for stock transactions but designed specifically for the digital asset landscape.

The form obliges “brokers” (such as crypto exchanges or platforms) to furnish detailed information about digital asset transactions both to the individuals concerned and to the IRS. For transactions occurring in 2025, brokers must report:

• The client’s name, address, and Taxpayer Identification Number (TIN)
• The date and time of each transaction
• The type and amount of the digital asset sold (e.g., Bitcoin, Ether), along with a unique identifier code from the Digital Token Identification Foundation (DTIF)
• The gross proceeds (total amount received in US dollars) from the sale.

If you are a taxpayer residing in the US and you sell or swap crypto through a broker, you will receive the new tax form to utilize when preparing your taxes. Note that you must still report all taxable crypto transactions, even if a form is not issued (for instance, trades on non-reporting platforms).

Key dates to remember include:

• Reporting gross proceeds: This commences for transactions after Jan. 1, 2025, with reports due in early 2026. You will receive your initial form for 2025 transactions by Jan. 31, 2026, and brokers must submit these to the IRS by Feb. 28 (or March 31 for electronic submissions).
• Reporting of basis: This begins for transactions on or after Jan. 1, 2026, and will include specifics on cost basis and gain/loss characterization for certain brokers.

Why is this new form necessary?

Prior to this, reporting crypto transactions was inconsistent, with some exchanges issuing outdated forms or offering no reporting at all, leaving taxpayers to track their trades manually. This variability complicated accurate reporting and hampered the IRS’s ability to verify income. Consequently, it is part of an overarching initiative to address the tax gap and align digital asset reporting with more conventional financial practices.

Did you know? Unlike traditional stock reporting, which is straightforward under the 1099-B, the decentralized characteristics of cryptocurrency and the absence of universal identifiers have presented challenges. The new form addresses this with the DTIF code and focuses strictly on digital assets, defined as any value recorded on a blockchain, such as cryptocurrencies or non-fungible tokens (NFTs), but excluding cash.

The implications of the new reporting rules for cryptocurrency

Starting on Jan. 1, 2025, the IRS introduced new cryptocurrency tax reporting regulations that impose stricter record-keeping and reporting standards on brokers and investors. These updates aim to enhance tax compliance and ensure accurate reporting for digital asset transactions, aligning them more closely with traditional financial assets.

Here’s what you need to know about these updates:

• Tracking cost basis per account: Investors are now mandated to track their acquisition costs separately for each wallet or account, moving away from the previous universal tracking method. For each transaction, you will need to document the purchase date, cost of acquisition, and other specifics. Beginning in 2025, brokers must report these transactions to the IRS using the revised tax form, similar to procedures banks follow for stock transactions. This change, as specified in Treasury Decision 10000 (June 2024), aims to close loopholes by linking gains to specific accounts, making it harder to hide taxable activities.
• Specific identification needed for transactions: New regulations require taxpayers to use specific identification for every digital asset sale, detailing the exact purchase date, amount, and cost of the sold asset. If this information is not provided, the IRS will default to a first-in, first-out (FIFO) method—meaning your oldest coins will be sold first—which could lead to higher taxable gains if those earlier purchases were at lower costs. Previously, many investors aggregated their cost basis across holdings, which was easier but less precise. This change, effective in 2025, necessitates meticulous record-keeping to prevent unexpected tax liabilities.
• Temporary grace period provided: To ease the transition, there is a temporary safe harbor outlined in Revenue Procedure 2024-28. If you have been following a universal cost basis approach, you have until Dec. 31, 2025, to properly reallocate your basis across different wallets or accounts. This one-time adjustment period allows for corrections without penalties, but it’s crucial to act quickly—brokers will not report the basis for transactions until 2026, so you must ensure accuracy in 2025.
• Increased fines for noncompliance: Failing to adhere to these new regulations can result in significant costs. The IRS has raised penalties for underreporting crypto income in 2025, introduced interest on unpaid taxes, and increased audits for discrepancies in gains and losses. Notice 2024-56 offers some relief for brokers making a good faith effort in 2025; however, taxpayers do not receive similar leeway—noncompliance could lead to increased scrutiny, especially given that the revised tax form provides clearer data for IRS review.

The revised rules also influence taxpayers living abroad but subject to IRS reporting—these individuals must track cost basis for each account and detail digital asset sales on the new tax form, regardless of their residency. 

For example, a US citizen in Europe or a nonresident with US crypto income is now required to maintain accurate records of purchase dates and costs for each wallet, facing heightened compliance responsibilities and potential tax obligations on US-sourced income.

From monitoring cost basis on an account-by-account basis to confronting stricter penalties, these changes signify an effort to bring cryptocurrency reporting in line with traditional financial practices, providing a brief opportunity for adjustment while making compliance imperative and expanding the tax oversight to a global scale.