On June 28, 2024, the Treasury and the IRS released final regulations on reporting requirements for brokers of digital assets (the “Final Regulations”) and provided transitional relief, including Notice 2024-56, Notice 2024-57 and Revenue Procedure 2024-28. The Final Regulations update the proposed regulations published on August 29, 2023 (the “Proposed Regulations”), which we discussed in detail here. These updates come after “strong public interest” in the Proposed Regulations resulted in the submission of more than 44,000 comments, some of which we discussed here. Seven key features of the Final Regulations and transitional relief are discussed below.

1. Beginning in 2026, the Final Regulations require certain brokers to report specific transactions occurring on or after January 1, 2025. They establish rules to determine basis, gain and loss from and backup withholding for these transactions. Basis reporting will be required starting in 2027 for transactions occurring on or after January 1, 2026.
   
   
2. The Final Regulations apply to brokers who take possession of the digital assets being sold by their customers, a category of brokers which includes operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, certain processors of digital asset payments and digital asset kiosks. They do not include reporting requirements for non-custodial brokers, such as decentralized finance ("DeFi") platforms and unhosted digital asset wallet providers. The Treasury and the IRS plan to issue additional rules later this year establishing reporting requirements for these brokers.
   
   
3. The Final Regulations clarify that stablecoins and nonfungible tokens qualify as digital assets. They adopt annual de minimis reporting thresholds of $10,000 and $600 for qualifying stablecoins and certain nonfungible tokens, respectively, below which no reporting is required. The Final Regulations permit sales above these thresholds to be reported on an aggregate basis (rather than a transactional basis).
   
   
4. Unlike the Proposed Regulations, the Final Regulations do not require brokers to report the time of transactions, transaction IDs or digital asset addresses.
   
   
5. Notice 2024-56 provides transitional relief from penalties and backup withholding.
   
   
6. Notice 2024-57 provides that, until the Treasury and the IRS issue further guidance, brokers are not required to report wrapping and unwrapping transactions, liquidity provider transactions, staking transactions, lending of digital assets, short sales of digital assets and notional principal contract transactions.
   
   
7. Revenue Procedure 2024-28 provides a safe harbor to allocate unused basis of digital assets to other digital assets held within each wallet or account as of January 1, 2025.