How does the IRS define a crypto broker?

This definition ensures that only those truly "in a position to know" transaction details are subject to Form 1099-DA reporting requirements.

The U.S. Internal Revenue Service (IRS) has defined the term "broker" for purposes of crypto reporting to include any person or entity who regularly provides services to carry out a digital asset transfer.

The U.S. Internal Revenue Service (IRS) has defined the term "broker" for purposes of crypto reporting to include any person or entity who regularly provides services to carry out a digital asset transfer.

This definition will ensure that only those who are truly in "a position to know" the transaction details are subject to reporting on Form 1099-DA.

These new rules, which are being reported by the Donut cryptocurrency tax platform, builds on prior rulemaking (T.D. 10000) from July 2024 and sees the IRS focusing on extending broker reporting obligations to decentralized finance (DeFi), which involves digital asset transactions without a traditional intermediary. T.D. 10021 introduces the term "digital asset middleman," which the IRS previously delayed due to its complexity and controversy.

The broker reporting mandate comes from the 2021 Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law, which saw existing broker reporting obligations under Sections 6045 and 6045A extended to include digital assets. The provision is being reported to raise nearly $28 billion in revenue over a decade.

It was also recently announced that the IRS will be accepting payments in cryptocurrency this year.

According to the IRS, entities classified as brokers include:

* Those who accept digital assets from a seller in exchange for fiat currency or another digital asset, and deliver the digital asset to the buyer.

* Those who accept digital assets from a buyer in exchange for fiat currency or another digital asset, and credit the seller’s account.

* Platforms that facilitate digital asset transactions between users, such as exchanges.

* Digital asset custodians who hold digital assets on behalf of users.

Those who provide "unhosted" wallets, where users retain complete control over their private keys, are generally exempt unless they function in a manner similar to an exchange.

The definition of a digital asset broker has been a subject of much debate since the enactment of the Infrastructure Investment and Jobs Act in November 2021.

The definition of a digital asset broker has been a subject of much debate since the enactment of the Infrastructure Investment and Jobs Act in November 2021.

The broad scope of the term, which includes anyone who performs services "in anticipation of" a digital asset transfer, has raised concerns among industry stakeholders about the administrative burden and potential for errors in reporting.