• The U.S. Department of the Treasury's Internal Revenue Service will require crypto brokers to file 1099 forms like their traditional investment-firm cousins, but decentralized finance (DeFi) operations and non-hosted wallet providers will have to wait for their own rule later in the year.

• The rule released Friday will go into effect for transactions starting in 2025 and will require brokers to keep tabs on cost basis for customers' tokens starting in 2026.

• The IRS won't call for reporting on most routine stablecoin sales and is putting a $600 annual threshold on NFT proceeds before they need to be reported.

The U.S. Treasury Department issued its long-awaited tax regime for cryptocurrency transactions, setting up filing rules for digital assets brokers that will begin with transactions happening next year, but it put off some of its most contentious decisions about brokers that never take possession of customers' crypto.

The new Internal Revenue Service (IRS) rules for crypto brokers released on Friday call for trading platforms, hosted wallet services and digital assets kiosks to submit disclosures on the movements and gains of customers' assets. Those assets will also include – in very limited circumstances – the stablecoins such as Tether's {{USDT}} and Circle Internet Financial's {{USDC}} and high-value non-fungible tokens (NFTs), though the IRS explicitly refuses to settle the longstanding battle over whether tokens should be considered securities or commodities.

While this rule focuses on the most obvious platforms such as Coinbase Inc. (COIN) and Kraken, non-custodial crypto businesses – such as decentralized exchanges and unhosted wallet providers – are only getting a temporary reprieve from the new filing demands. The popular crypto platforms that handle a "substantial majority" of transactions can't wait any longer for rules, the agency contended, but the other issues need more study and they'll get their own rule "later this year."

"The Treasury Department and the IRS do not agree that non-custodial industry participants should not be treated as brokers," according to the explanations included with the Friday rule. "However, the Treasury Department and the IRS would benefit from additional consideration of issues involving non-custodial industry participants."

The final rule for the more commonly used brokers begins with transactions on Jan. 1, 2025, leaving crypto taxpayers with another filing year in which they're on their own to figure out their 2024 returns in the interim, though crypto firms have already been moving to adapt. The IRS gave an additional year until 2026 for brokers to start having to keep track of the "cost basis" for the assets – the amount each was originally purchased for.

Real estate transactions paid for with cryptocurrencies after Jan. 1, 2026 will also need reporting, the regulation said. "Real estate reporting persons" will have to file the fair market value of the digital assets used in any such transaction.

A 2021 infrastructure bill in Congress had set the stage for the Treasury's IRS to establish this formal approach to crypto, and since then the industry has been frustrated with a continuously delayed process. The eventual proposal drew 44,000 public comments.

"Because of the bipartisan Infrastructure Investment and Jobs Act, investors in digital assets and the IRS will have better access to the documentation they need to easily file and review tax

returns,” said Acting Assistant Secretary for Tax Policy Aviva Aron-Dine, in a statement. “By implementing the law’s reporting requirements, these final regulations will help taxpayers more easily pay taxes owed under current law, while reducing tax evasion by wealthy investors.”

IRS Commissioner Danny Werfel said the final regulations took in the public comments.

"These regulations are an important part of the larger effort on high-income individual tax compliance. We need to make sure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets," he said. "Our research and experience demonstrate that third-party reporting improves compliance. In addition, these regulations will provide taxpayers with much needed information, which will reduce burden and simplify the process of reporting their digital asset activity."

Controversial rule

The process of writing this controversial tax rule provoked widespread concern from the industry that the U.S. government would overreach by imposing impossible requirements on miners, online forums, software developers and other entities that aid investors but wouldn't traditionally be considered brokers and don't have the information about customers nor the disclosure infrastructure that would let them comply.

The IRS said it recognizes that crypto brokers shouldn't include those "providing validation services without providing other functions or services, or persons that are solely engaged in the business of selling certain hardware, or licensing certain software, for which the sole function is to permit persons to control private keys which are used for accessing digital assets on a distributed ledger."

The U.S. tax regulators estimated about 15 million people will be affected by the new rule, and about 5,000 firms will need to comply.

But the IRS added that if Congress passes one of its bills that would regulate stablecoin issuers, the tax rules may have to be revised.

As part of its efforts, the IRS published its definition for digital assets and the various activities covered by Friday's regulations.

The IRS also defined a safe harbor for certain reporting requirements "on which taxpayers may rely to allocate unused basis of digital assets to digital assets held within each wallet or account of the taxpayer as of Jan. 1, 2025," it said.

Earlier this year, the U.S. tax agency had released a proposed 1099-DA form to track crypto transactions – the form that millions of crypto investors would receive from their brokers.

Read More: IRS Unveils Form Your Broker May Send Next Year to Report Your Crypto Moves

Nikhilesh De contributed reporting.