Bulletin No. 2024–31

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2024–31

July 29, 2024

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

REG-120137-19, page 336.

These proposed regulations would remove the prohibition

in the current regulation under section 6311(d)(2) that prevents the IRS from paying a fee under a contract that allows

the receipt of credit card or debit card payments from a

taxpayer. The proposed regulations would also remove the

prohibition on charging the taxpayer a fee for paying taxes

by credit or debit card. The proposed regulations reflect

amendments to section 6311 made in the Taxpayer First

Act. The proposed regulation would not require the IRS to

change its current procedure of using third parties to process credit and debit card tax payments.

Rev. Proc. 2024-27, page 300.

This revenue procedure provides specifications for the private

printing of red-ink substitutes for the 2024 Forms W-2 and

W-3. This revenue procedure will be produced as the next revision of Publication 1141. Rev. Proc. 2023-25 is superseded.

ADMINISTRATIVE, INCOME TAX

T.D. 10000, page 185.

The regulations require information reporting by brokers

for certain digital asset sales and exchanges. They apply

to brokers who take possession of the assets involved in

these sales and exchanges, including custodial digital asset

exchanges, certain hosted wallet providers, certain processors of digital asset payments, and digital asset kiosks,

which are sometimes known as digital asset ATM machines.

Brokers covered by these final regulations will be required

to file new Form 1099-DA and furnish payee statements

reporting the gross proceeds of transactions occurring on

or after January 1, 2025. Certain brokers will be required to

report basis on Forms 1099-DA for transactions occurring

on or after January 1, 2026. Basis reporting is required

only if the customer acquired the digital asset being sold

or exchanged from the same broker on or after January

Finding Lists begin on page ii.

1, 2026. Real estate reporting persons, who were already

required to file information returns under the existing section 6045 regulations, will now also be required to report

dispositions of digital assets as all or part of the purchase

price of real property, beginning with transactions occurring on or after January 1, 2026. In addition to the broker

reporting rules, these regulations also establish rules for

calculating the value and basis of digital assets.

EMPLOYMENT TAX

REG-109032-23, page 332.

These proposed regulations under sections 3111, 3131,

3132, 3134 and 3221 of the Internal Revenue Code authorize the assessment and collection of any overpayment

interest paid to a taxpayer on an erroneous refund of the

employment tax credits provided under the Families First

Coronavirus Response Act, the Coronavirus Aid, Relief, and

Economic Security Act, and the American Rescue Plan Act

of 2021. This allows the IRS to efficiently recover any overpayment interest on erroneous refunds while preserving

administrative protections for taxpayers.

INCOME TAX

Rev. Proc. 2024-28, page 326.

Subject to certain requirements, this Revenue Procedure generally permits taxpayers to rely on any reasonable allocation

of units unattached basis to a digital asset wallet or account

that holds the same number of remaining digital asset units

based on the taxpayer’s records of such unattached basis

and remaining units. The allocation must be a reasonable

allocation as defined in section 5.02 of this Revenue Procedure and must be made as of January 1, 2025. However,

the taxpayer may identify the method of allocation and may

comply with the requirements set forth in section 4.02 of this

Revenue Procedure at a later date to the extent permitted by

section 5.02(4) or 5.02(5) of this Revenue Procedure.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

July 29, 2024 

Bulletin No. 2024–31

Part I

26 CFR 1.6045-1 Returns of information of brokers

and barter exchanges

T.D. 10000

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Parts 1, 31, and

301

Gross Proceeds and Basis

Reporting by Brokers and

Determination of Amount

Realized and Basis for

Digital Asset Transactions

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations regarding information

reporting and the determination of amount

realized and basis for certain digital asset

sales and exchanges. The final regulations

require brokers to file information returns

and furnish payee statements reporting

gross proceeds and adjusted basis on

dispositions of digital assets effected for

customers in certain sale or exchange

transactions. These final regulations also

require real estate reporting persons to

file information returns and furnish payee

statements with respect to real estate purchasers who use digital assets to acquire

real estate.

DATES: Effective date: These regulations

are effective on September 9, 2024.

Applicability dates: For dates of

applicability, see §§1.1001-7(c); 1.10121(h)(5); 1.1012-1(j)(6); 1.6045-1(q);

1.6045-4(s); 1.6045B-1(j); 1.6050W1(j); 31.3406(b)(3)-2(c); 31.3406(g)-1(f);

31.3406(g)-2(h);

301.6721-1(j);

301.6722-1(g).

FOR FURTHER INFORMATION

CONTACT: Concerning the final regulations under sections 1001 and 1012,

Bulletin No. 2024–31

Alexa Dubert or Kyle Walker of the Office

of the Associate Chief Counsel (Income

Tax and Accounting) at (202) 317-4718;

concerning the international sections of

the final regulations under sections 3406

and 6045, John Sweeney or Alan Williams

of the Office of the Associate Chief Counsel (International) at (202) 317-6933;

and concerning the remainder of the final

regulations under sections 3406, 6045,

6045A, 6045B, 6050W, 6721, and 6722,

Roseann Cutrone of the Office of the

Associate Chief Counsel (Procedure and

Administration) at (202) 317-5436 (not

toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments

to the Regulations on Income Taxes (26

CFR part 1), the Regulations on Employment Tax and Collection of Income Tax at

the Source (26 CFR part 31), and the Regulations on Procedure and Administration

(26 CFR part 301) pursuant to amendments made to the Internal Revenue Code

(Code) by section 80603 of the Infrastructure Investment and Jobs Act, Public

Law 117-58, 135 Stat. 429, 1339 (2021)

(Infrastructure Act) relating to information reporting by brokers under section

6045 of the Code. Specifically, the Infrastructure Act clarified the rules regarding how certain digital asset transactions

should be reported by brokers, expanded

the categories of assets for which basis

reporting is required to include all digital

assets, and provided a definition for the

term digital assets. Additionally, the Infrastructure Act clarified that transfer statement reporting under section 6045A(a) of

the Code applies to covered securities that

are digital assets and added a new information reporting provision under section

6045A(d) to require brokers to report on

transfers of digital assets that are covered

securities, provided the transfer is not a

sale and is not to an account maintained by

a person, as defined in section 7701(a)(1)

of the Code, that the broker knows or has

reason to know is also a broker. Finally,

the Infrastructure Act provided that these

amendments apply to returns required to

185

be filed, and statements required to be

furnished, after December 31, 2023, and

provided a rule of construction stating that

these statutory amendments shall not be

construed to create any inference for any

period prior to the effective date of the

amendments with respect to whether any

person is a broker under section 6045(c)

(1) or whether any digital asset is property

which is a specified security under section

6045(g)(3)(B).

On August 29, 2023, the Treasury

Department and the IRS published in the

Federal Register (88 FR 59576) proposed regulations (REG-122793-19) (proposed regulations) relating to information

reporting under section 6045 by brokers,

including real estate reporting persons

and certain third party settlement organizations under section 6050W of the Code.

Additionally, the proposed regulations

included specific rules under section 1001

of the Code for determining the amount

realized in a sale, exchange, or other disposition of digital assets and under section

1012 of the Code for calculating the basis

of digital assets. The proposed regulations

stated that written or electronic comments

provided in response to the proposed regulations must be received by October 30,

2023.

The Treasury Department and the IRS

received over 44,000 written comments

in response to the proposed regulations.

Although

https://www.regulations.gov

indicated that over 125,000 comments

were received, this larger number reflects

the number of “submissions” that each

submitted comment indicated were

included in the posted comment, whether

or not the comment actually included such

separate submissions. All posted comments were considered and are available

at https://www.regulations.gov or upon

request. A public hearing was held on

November 13, 2023.

Several comments requested an

extension of the time to file comments

in response to the proposed regulations.

These requests for extension ranged from

a few weeks to several years, but most

comments requested a 60-day extension.

In response to these comments, the due

date for the comments was extended until

November 13, 2023. The comment period

July 29, 2024

was not extended further for several reasons. First, information reporting rules are

necessary to make digital asset investors

aware of their taxable transactions and to

make those transactions more transparent to the IRS to reduce the tax gap. It is,

therefore, a priority that the publication

of these regulations is not delayed more

than is necessary. Second, although the

Infrastructure Act amended section 6045

in November 2021 to broadly apply the

information reporting rules for digital

asset transactions to a wide variety of brokers, the broker reporting regulations for

digital assets were added to the Treasury

Priority Guidance Plan in late 2019. Brokers, therefore, have long been on notice

that there would be proposed regulations

on which to comment. Third, as discussed

in Part VI. of this Summary of Comments

and Explanation of Revisions, the Treasury Department and the IRS understand

that brokers need time after these final regulations are published to develop systems

to comply with the final reporting requirements. Without further delaying the applicability date of these much-needed regulations, therefore, extending the comment

period would necessarily reduce the time

brokers would have to develop these systems. Fourth, a 60-day comment period

is not inherently short or inadequate.

Executive Order (E.O.) 12866 provides

that generally a comment period should

be no less than 60 days, and courts have

uniformly upheld comment periods of

even shorter comment periods. See, e.g.,

Connecticut Light & Power Co. v. NRC,

673 F.2d 525, 534 (D.C.Cir. 1982), cert.

denied, 459 U.S. 835, 103 S.Ct. 79, 74

L.Ed.2d 76 (1982) (denying petitioner’s

claim that a 30 day comment period was

unreasonable, notwithstanding petitioner’s complaint that the rule was a novel

proposition); North American Van Lines v.

ICC, 666 F.2d 1087, 1092 (7th Cir. 1981)

(claim that 45 day comment period was

insufficient rejected as “without merit”).

Indeed, over 44,000 comments were

received before the conclusion of the

comment period ending on November 13,

2023, which demonstrates that this comment period was sufficient for interested

parties to submit comments. Fifth, it has

been a longstanding policy of the Treasury Department and the IRS to consider

comments submitted after the published

July 29, 2024

due date, provided consideration of those

comments does not delay the processing of the final regulation. IRS Policy

Statement 1-31, Internal Revenue Manual 1.2.1.15.4(6) (September 3, 1987).

In fact, all comments received through

the requested 60-day extension period

were considered in promulgating these

final regulations. Moreover, the Treasury

Department and the IRS accepted late

comments through noon eastern time on

April 5, 2024.

The Summary of Comments and Explanation of Revisions of the final regulations

summarizes the provisions of the proposed

regulations, which are explained in greater

detail in the preamble to the proposed regulations. After considering the comments

to the proposed regulations, the proposed

regulations are adopted as amended by

this Treasury decision in response to such

comments as described in the Summary of

Comments and Explanation of Revisions.

These final regulations concern Federal tax laws under the Internal Revenue

Code only. No inference is intended with

respect to any other legal regime, including the Federal securities laws and the

Commodity Exchange Act, which are outside the scope of these regulations.

Summary of Comments and

Explanation of Revisions

I. Final §1.6045-1

A. Definition of digital assets subject to

reporting

The proposed regulations required

reporting under section 6045 for certain dispositions of digital assets that

are made in exchange for cash, different

digital assets, stored-value cards, broker

services, or property subject to reporting

under existing section 6045 regulations

or any other property in a payment transaction processed by a digital asset payment processor (referred to in these final

regulations as a processor of digital asset

payments or PDAP). The proposed regulations defined a digital asset as a digital

representation of value that is recorded

on a cryptographically secured distributed ledger (or any similar technology),

without regard to whether each individual

transaction involving that digital asset is

186

actually recorded on the cryptographically

secured distributed ledger. Additionally,

the proposed regulations provided that a

digital asset does not include cash in digital form.

While some comments expressed

support for the definition of digital asset

in the proposed regulations, other comments raised concerns that the definition

of digital asset goes beyond the statutory

definition found in amended section 6045.

For example, one comment recommended

applying the definition only to assets held

for investment and excluding any assets

that are used for other functions, which

include, in their view, nonfungible tokens

(NFTs), stablecoins, tokenized real estate,

and tokenized commodities. Another

comment recommended narrowing the

definition of digital asset to apply only

to blockchain “native” digital assets and

exempting all NFTs and other tokenized

versions of traditional asset classes, such

as tokenized securities, and other digital

assets that don’t function as a medium

of exchange, unit of account, or store of

value. Another comment recommended

that the definition of digital asset distinguish between digital representations of

what the comment referred to as “hard

assets,” such as gold, where the digital

asset is merely a proxy for the underlying asset versus digital assets that are not

backed by hard assets. Another comment

recommended that the definition of digital

asset not include tokenized assets, including financial instruments that have been

tokenized. The final regulations do not

adopt these comments. As discussed more

fully in Parts I.A.1. and A.2. of this Summary of Comments and Explanation of

Revisions, neither the statutory language

nor the legislative history to the Infrastructure Act suggest Congress intended

such a narrow interpretation of the term.

The Infrastructure Act made changes to

the third party information reporting rules

under section 6045. Third party information reporting generally contributes

to lowering the income tax gap, which

is the difference between taxes legally

owed and taxes actually paid. GAO, Tax

Gap: Multiple Strategies Are Needed to

Reduce Noncompliance, GAO-19-558T at

6 (Washington, D.C.: May 9, 2019). It is

anticipated that broker information reporting on digital asset transactions will lead

Bulletin No. 2024–31

to higher levels of taxpayer compliance

because brokers will provide the information necessary for taxpayers to prepare their Federal income tax returns and

reduce the number of inadvertent errors

or intentional omissions or misstatements

shown on those returns. Because digital

assets can easily be held and transferred,

including to offshore destinations, directly

by a taxpayer rather than by an intermediary, digital asset transactions raise tax

compliance concerns that are specific to

digital assets in addition to the more general tax compliance concerns relevant to

securities, commodities, and other assets

that are reportable under section 6045

and to cash payments reportable under

other reporting provisions. The Treasury

Department and the IRS have consequently concluded that the definition of

digital assets in section 6045(g)(3)(D)

provides the appropriate scope for digital assets subject to broker reporting. To

the extent sales of digital assets including NFTs, tokenized securities, and other

digital assets that may not function as a

medium of exchange, unit of account, or

store of value, give rise to taxable gains

and losses, these assets should be included

in the definition of digital assets. See,

however, Part I.D.3. of this Summary of

Comments and Explanation of Revisions

for a description of an optional reporting

rule for many NFTs that would eliminate

reporting on those NFTs when certain

conditions are met, and Part I.A.4.a. of

this Summary of Comments and Explanation of Revisions for a description of a special rule providing that assets that are both

securities and digital assets are reportable

as securities rather than as digital assets

when specified conditions are met.

Some comments asserted that the

statutory definition of digital assets is or

should be limited to assets that are financial instruments. These comments are discussed in Part I.A.2. of this Summary of

Comments and Explanation of Revisions.

Other comments raised a concern that

the definition of digital assets is ambiguous and recommended adding examples

that clarify the types of property that are

and are not digital assets. For reasons discussed more fully in Parts I.A.1., A.2., and

A.3. of this Summary of Comments and

Explanation of Revisions, the final regulations include several additional examples

Bulletin No. 2024–31

that illustrate and further clarify certain

types of digital assets that are included

in the definition, such as qualifying stablecoins, specified nonfungible tokens

(specified NFTs), and other fungible digital assets.

One comment suggested that the term

cryptographically secured distributed ledger be defined in the final regulations as

a type of data storage and transmission

file which uses cryptography to allow for

a decentralized system of verifying transactions. This comment also stated that

the definition should state that the stored

information is an immutable database and

includes an embedded system of operation, and that a blockchain is a type of

distributed ledger. The final regulations do

not adopt this recommendation because

clarification of the term is not necessary

and because the recommended changes

are potentially unduly restrictive to the

extent they operate to restrict future broker reporting obligations should advancements be made in how distributed ledgers

are cryptographically secured.

One comment suggested that the

proposed definition of a digital asset is

overly broad because it includes transactions recorded in the broker’s books and

records (commonly referred to as “offchain” transactions) and not directly on

a distributed ledger. Another comment

specifically supported the decision to not

limit the definition to only those digital

representations for which each transaction is actually recorded or secured on a

cryptographically secured distributed ledger. The Treasury Department and the IRS

have determined that the definition of digital asset is not overly broad in this regard

because eliminating digital assets that are

traded in off-chain transactions from the

definition would fail to provide information reporting on the significant amount

of trading that occurs off-chain on the

internal ledgers of custodial digital asset

trading platforms. Moreover, since the

mechanics of how an asset sale is recorded

does not impact whether there has been a

taxable disposition of that asset, those

mechanics should not impact whether the

underlying asset is or is not a digital asset.

A comment suggested that the definition of a digital asset should eliminate

the phrase “or any similar technology”

because the scope of that phrase is unclear

187

and could negatively impact future technology improvements, such as privacy-preserving technology, cryptography,

distributed database systems, distributed

network systems, or other evolving technology. Another comment requested that

the definition of any similar technology be

limited to instances in which the IRS identifies such future similar technologies in

published guidance. The final regulations

do not adopt this comment. Using the

phrase “any similar technology” is consistent with the Infrastructure Act’s use of

the same term in its definition of digital

assets in section 6045(g)(3)(D). Further,

including any similar technology along

with cryptographically secured ledgers is

necessary to ensure that brokers continue

to report on transactions involving these

assets without regard to advancements in

or changes to the techniques, methods,

and technology, on which these assets are

based. The Treasury Department and the

IRS are not currently aware of any existing technology that would fit within this

“or any similar technology” standard, but

if brokers or other interested parties identify new technological developments and

are uncertain whether they fit within the

definition, they can make the Treasury

Department and the IRS aware of the new

technology and request guidance at that

time.

1. Stablecoins

As explained in the preamble to the

proposed regulations, the definition of

digital assets was intended to apply to all

types of digital assets, including so-called

stablecoins that are designed to have a stable value relative to another asset or assets.

The preamble to the proposed regulations

noted that such stablecoins can take multiple forms, may be backed by several different types of assets that are not limited

to currencies, may not be fully collateralized or supported fully by reserves by the

underlying asset, do not necessarily have a

constant value, are frequently used in connection with transactions involving other

types of digital assets, and are held and

transferred in the same manner as other

digital assets. In addition to fiat currency,

other assets to which so-called stablecoins can be pegged include commodities

or other financial instruments (including

July 29, 2024

other digital assets). No comments were

received that specifically advocated for

the exclusion of a so-called stablecoin that

has a fixed exchange rate with (that is, is

pegged to) a commodity, another financial

instrument, or any other asset other than

a specific convertible currency issued by

a government or a central bank (including the U.S. dollar) (sometimes referred

to in this preamble as fiat currency). The

Treasury Department and the IRS have

determined that it would be inappropriate

to exclude stablecoins that are pegged to

such assets from the definition of digital

assets. Accordingly, this preamble uses the

term stablecoin to refer only to the subset

of so-called stablecoins referred to in the

proposed regulations that are pegged to a

fiat currency.

Numerous comments received specifically advocated for the exclusion from the

definition of digital assets stablecoins that

are pegged to a fiat currency. Numerous

comments stated that failure to exclude

stablecoins from the definition of digital

assets would hinder the adoption of these

stablecoins in the marketplace, deter their

integration into commercial payment systems, and undermine Congressional efforts

to establish a regulatory framework for

stablecoins that can be used to make payments. Additional comments raised concerns about privacy, drew an analogy to

the exemption in the existing regulations

for reporting on shares of money market

funds, or recommended that reporting

on stablecoins be deferred until after the

substantive tax treatment of stablecoins

is clarified with guidance issued by the

Treasury Department and the IRS or until

a legislative framework is established by

Congress. Several other comments recommended that reporting on stablecoins

be required, noting that stablecoins can be

volatile in value and regularly vary from

a one-to-one parity with the fiat currency

they are pegged to, and therefore may give

rise to gain or loss on disposition.

After consideration of the comments,

the final regulations do not exclude stablecoins from the definition of digital assets.

Stablecoins unambiguously fall within

the statutory definition of digital assets

as they are digital representations of the

value of fiat currency that are recorded

on cryptographically secured distributed

ledgers. Moreover, because stablecoins

July 29, 2024

are integral to the digital asset ecosystem,

excluding stablecoins from the definition

of digital assets would eliminate a source

of information about digital asset transactions that the IRS can use in order to

ensure compliance with taxpayers’ reporting obligations.

The Treasury Department and the IRS

are aware that legislation has been proposed that would regulate the issuance

and terms of stablecoins. If legislation is

enacted regulating stablecoins, the Treasury Department and the IRS intend to

take that legislation into account in considering whether to revise the rules for

reporting on stablecoins provided in these

final regulations.

Notwithstanding that the final regulations include stablecoins in the definition

of digital assets, the Secretary has broad

authority under section 6045 to determine

the extent of reporting required by brokers

on transactions involving digital assets. In

response to the request for comments in

the preamble to the proposed regulations

on whether stablecoins, or other coins

whose value is pegged to a specified asset,

should be excluded from reporting under

the final regulations, numerous comments

largely focused on stablecoins, rather than

coins that track a commodity price or the

price of another digital asset. Many of

these comments requested that sales of stablecoins be exempted from broker reporting in whole or in part because reporting

on all transactions involving stablecoins

would result in a very large number of

reports on transactions involving little to

no gain or loss, on the grounds that these

reports would be burdensome for brokers

to provide, potentially confusing to taxpayers and of minimal utility to the IRS.

These comments asserted that most transactions involved little or no gain or loss

because, in their view, stablecoins closely

track the value of the fiat currency to

which they are pegged. Some comments

recommended that certain types of stablecoin transactions be reportable, including

requiring reporting of dispositions of stablecoins for cash or where there is active

trading in the stablecoin that is intended to

give rise to gain (or loss).

The Treasury Department and the

IRS agree that transaction-by-transaction

reporting for stablecoins would result in a

high volume of reports. Indeed, according

188

to a report by Chainalysis on the “Geography of Cryptocurrency” analyzing public blockchain transactions (commonly

referred to as “on-chain” transactions),

stablecoins are the most widely used type

of digital asset, making up more than half

of all on-chain transactions to or from

centralized services between July 2022

and March 2023. Chainalysis, The 2023

Geography of Cryptocurrency Report, p.

14 (October 2023). Given the popularity of stablecoins and the number of stablecoin sales that are unlikely to reflect

significant gains or losses, the Treasury

Department and the IRS have determined

that it is appropriate to provide an alternative reporting method for certain stablecoin transactions to alleviate unnecessary

and burdensome reporting. Accordingly,

the final regulations have added a new

optional alternative reporting method for

sales of certain stablecoins to allow for

aggregate reporting instead of transactional reporting, with a de minimis annual

threshold below which no reporting is

required. See Part I.D.2. of this Summary

of Comments and Explanation of Revisions. Consistent with the proposed regulations, brokers that do not use this alternative reporting method must report sales

of stablecoins under the same rules as for

other digital assets. See Part I.D.2. of this

Summary of Comments and Explanation

of Revisions for the discussion of alternative reporting rules for certain stablecoins.

2. Nonfungible Tokens

As with stablecoins, the definition

of digital assets in the proposed regulations includes NFTs without regard to

the nature of the underlying asset, if any,

referenced by the NFT. Although some

comments expressed agreement that the

definition of digital asset in the statute is

broad enough to include all NFTs, other

comments raised concerns that the Secretary did not have the authority to include

NFTs in broker reporting. That is, the comments argued that while NFTs have value,

they do not constitute “representations of

value” as required by the statutory definition in section 6045(g)(3)(D). Classifying

an NFT as a “representation of value”

merely because it has value, these comments asserted, would fail to give effect

to the word “representation” in the statute.

Bulletin No. 2024–31

As support for this view, one comment

cited to Senator Portman’s floor colloquy reference to the intended application

of the reporting rule to “cryptocurrency.”

167 Cong. Rec. S6095-6 (daily ed. August

9, 2021). Ultimately, these comments recommended excluding sales of NFTs from

the definition of digital assets. The final

regulations do not adopt these comments.

Although NFTs may reference assets with

value, this does not prevent them from

also “representing value.” Moreover, that

interpretation would lead to a result that

would contravene the statutory changes

to the broker reporting rules by the Infrastructure Act. Excluding all NFTs from the

definition of digital assets merely because

NFTs may reference assets with value

rather than “represent value” would result

in the exclusion of NFTs that reference

traditional financial assets. These assets

have been subject to reporting under section 6045 for nearly 40 years, and there

is no reason to exclude them from reporting now based only on the circumstance

of their trades through NFTs, rather than

through other traditional means.

Numerous comments asserted that the

statutory reference to any “representation

of value” should limit the definition of

digital assets to only those digital assets

that reference financial instruments or

otherwise could be used to deliver value

(such as a method of payment). Numerous comments expressed that many NFTs,

such as, digital art and collectibles, are

unique digital assets that are bought and

sold for personal enjoyment rather than

financial gain and therefore should not

be subject to reporting. Similarly, other

comments raised the series-qualifier

canon of statutory construction, which

provides that when a statute contains a

list of closely related, parallel, or overlapping terms followed by a modifier,

that modifier should be applied to all the

terms in the list. Therefore, according to

the comments, because “any digital asset”

is included in the section 6045(g)(3)(B)

list of assets defining specified security

and because that list concludes with “any

other financial instrument,” these comments argue that the definition of “digital

asset” must be limited to assets that are,

or are akin to, “financial instruments.” As

additional support for this suggestion, one

comment cited the rule of last antecedent, which is another canon of statutory

construction and provides that a limiting

clause or phrase should ordinarily be read

as modifying only the noun or phrase that

it immediately follows. That is, because

the “other financial instrument” clause

directly follows “any digital asset” in the

list, the definition of any digital asset must

be limited to only those digital assets that

constitute financial instruments.

The final regulations do not adopt these

comments. The plain language of the digital asset definition in section 6045(g)(3)

(D) reflects only two specific limitations

on the definition: “[e]xcept as otherwise

provided by the Secretary” and “recorded

on a cryptographically secured distributed

ledger or similar technology as specified

by the Secretary.” The legislative history

to the Infrastructure Act does not support

the conclusion that Congress intended

the “representation of value” phrase to

limit the definition of digital assets to

only those digital assets that are financial

instruments. To the contrary, a report by

the Joint Committee on Taxation published in the Congressional Record prior

to the enactment of the Infrastructure Act

cited to and relied on the Notice 2014-21,

2014-16 I.R.B. 938 (April 14, 2014) definition of virtual currency, which first used

the phrase “representation of value.” 167

Cong. Rec. S5702, 5703 (daily ed. August

3, 2021) (Joint Committee on Taxation,

Technical Explanation of Section 80603

of the Infrastructure Act). That virtual

currency definition specifically limited

the “representation of value” phrase to

those assets that function “as a medium

of exchange, unit of account, and/or store

of value.” This limitation would not have

been necessary had the “representation of

value” phrase been limited to assets that

function as financial instruments. Moreover, Congress’ use of the term “digital

asset” instead of “digital currency” also

supports the broader interpretation of the

term.

The final regulations also do not adopt

the interpretation of the referenced canons

of statutory construction presented by the

comments because those canons should

not be used to limit the definition of digital

assets in a statute that includes an explicit

and unambiguous definition of that term.

Moreover, the referenced canons do not

lead to the result asserted by the comments. The series-qualifier canon is not

applicable here because not all the items

in the list at section 6045(g)(3)(B) are

consistent with the “financial instrument”

language following the list. For example,

section 6045(g)(3)(B)(iii) references any

commodity, which under §1.6045-1(a)(5)

of the final regulations effective before the

effective date of these final regulations1

and these final regulations, specifically

includes physical assets, such as lead,

palm oil, rapeseed, tea, and tin, which are

not financial instruments. The term commodity also includes any type of personal

property that is traded through regulated

futures contracts approved by the U.S.

Commodity Futures Trading Commission

(CFTC), which include live cattle, natural

gas, and wheat. See §1.6045-1(a)(5) of the

pre-2024 final regulations. (These final

regulations also add to the definition of

commodity personal property that is traded

through regulated futures contracts certified to the CFTC.) These assets also are

not financial instruments. Consequently,

the term “any other financial instrument”

in section 6045(g)(3)(B)(v) should not be

read to limit the meaning of the items in

the list that came before it. For similar reasons, the rule of last antecedent also does

not limit the meaning of digital assets.

Prior to the changes made to section 6045

by the Infrastructure Act, the financial

instruments language followed the commodities clause. As such, when enacted

the financial instruments phrase could

Numerous Treasury decisions have been published under §1.6045-1. See T.D. 7873, 48 FR 10302 (Mar. 11, 1983); T.D. 7880, 48 FR 12940 (Mar 28, 1983); T.D. 7932, 48 FR 57485 (Dec.

30, 1983); T.D. 7960, 49 FR 22281 (May 29, 1984); T.D. 8445, 57 FR 53031 (Nov. 6, 1992); T.D. 8452, 57 FR 58983 (Dec. 14, 1992); T.D. 8683, 61 FR 53058 (Oct. 10, 1996); T.D. 8734,

62 FR 53387 (Oct. 14, 1997); T.D. 8772, 63 FR 35517 (Jun. 30, 1998); T.D. 8804, 63 FR 72183 (Dec. 31, 1998); T.D. 8856, 64 FR 73408 (Dec. 30, 1999); T.D. 8881, 65 FR 32152 (May 22,

2000), corrected 66 FR 18187 (April 6, 2001); T.D. 8895, 65 FR 50405 (Aug. 18, 2000); T.D. 9010, 67 FR 48754 (Jul. 26, 2002); T.D. 9241, 71 FR 4002 (Jan. 24, 2006);T.D. 9504, 75 FR

64072 (Oct. 18, 2010); T.D. 9616, 78 FR 23116 (April 18, 2013); T.D. 9658, 79 FR 12726 (Mar. 6, 2014); T.D. 9713, 80 FR 13233 (Mar. 13, 2015); T.D. 9750, 81 FR 8149 (Feb. 18, 2016),

corrected 81 FR 24702 (Apr. 27, 2016); T.D. 9774, 81 FR 44508 (Jul. 8, 2016); T.D. 9808, 82 FR 2046 (Jan. 6, 2017), corrected 82 FR 29719 (Jun. 30, 2017); T.D. 9984, 88 FR 87696 (Dec.

19, 2023). The regulations effective before the effective date of these final regulations will collectively be referred to as the pre-2024 final regulations.

1

Bulletin No. 2024–31

189

July 29, 2024

not have been intended to limit the item

in the list (commodity) that immediately

preceded it. Accordingly, the Treasury

Department and the IRS understand the

inclusion of other financial instruments

as potential specified securities as a grant

of authority to expand the list of specified

securities, not as a provision limiting the

meaning of the other asset types listed as

specified securities.

One comment suggested that the final

regulations should limit the definition of

a digital asset to exclude NFTs not used

as payment or investment instruments to

align the section 6045 reporting rules with

other rules and regulatory frameworks.

One comment recommended limiting the

definition to only digital assets that can

be converted to U.S. dollars, another fiat

currency, or an asset with market value.

Several comments suggested that including all NFTs in the definition of digital

assets would be inconsistent with the

intended guidance announced in Notice

2023-27, Treatment of Certain Nonfungible Tokens as Collectibles, 2023-15 I.R.B.

634 (April 10, 2023), which indicated that

the IRS intends to determine whether an

NFT constitutes a collectible under section 408(m) of the Code by using a lookthrough analysis that looks to the NFT’s

associated right or asset. Other comments

recommended that the final regulations

limit the definition of digital assets to

exclude NFTs not used as payment or

investment instruments to align the section 6045 reporting rules with the reporting rules for digital assets by foreign governments, such as the Council directive

(EU) 2023/2266 of 17 October amending

Directive 2011/16/EU on administrative

cooperation in the field of taxation, which

is popularly known as DAC8. Yet other

comments recommended that the final

regulations conform to guidelines from

the Financial Action Task Force (FATF),

an inter-governmental body that sets

international standards that aim to prevent

money laundering and terrorism financing. FATF guidelines distinguish between

those NFTs that are used “as collectibles”

from those used “as payment or investment instruments.” Finally, one comment

urged the Treasury Department and the

IRS to follow the Financial Accounting

Standards Board (FASB) standards, which

completely exclude NFTs from their defi-

July 29, 2024

nition of digital assets due to their nonfungible nature. FASB, Accounting Standards

Update, Intangibles – Goodwill and Other

– Crypto Assets (Subtopic 350-60), No.

2023-08, December 2023.

These final regulations do not adopt

these comments because they would make

the definition of digital assets unduly

restrictive. The goal behind information

reporting by brokers is to close or significantly reduce the income tax gap from

unreported income and to provide information that assists taxpayers. Information reporting generally can achieve that

objective when brokers report to the IRS

and to their customers the information

necessary for customers to report their

income. The considerations relevant to

a U.S. third party information reporting

regime are not the same as the considerations that are relevant to the definition of

collectibles under section 408(m), which

applies in order to determine assets that

have adverse tax consequences if acquired

by certain retirement accounts and that are

subject to special tax rates. While nontax policies relating to combating money

laundering and terrorism financing or

guidelines for generally accepted accounting standards may have some relevance,

they are not determinative for Federal

tax purposes under the Code. Finally, the

Treasury Department and the IRS understand that DAC8 is intended to apply in the

same manner as a closely related OECD

standard, discussed in the next paragraph. Moreover, NFTs that are actively

traded on trading platforms appear to be

used for investment purposes in addition

to any other purposes. Publicly available

information reports that trading in some

NFT collections has been in the billions

of dollars over time and that 24-hour trading volume in NFTs in 2024 has ranged

from $60-410 million. This trading activity suggests that at least some NFT collections have sufficient volume and liquidity

to facilitate their use as investments rather

than as traditional collectibles.

Another comment suggested that the

final regulations should limit the definition of digital assets to exclude NFTs to

align the section 6045 definition of digital assets with the definition of “Relevant

Crypto-Asset” under the Crypto-Asset

Reporting Framework (CARF), a framework for the automatic exchange of

190

information between countries on crypto-assets developed by the Organisation

for Economic Co-operation and Development (OECD) and to which the United

States is a party. As discussed in Part

I.G.2. of this Summary of Comments and

Explanation of Revisions, once the United

States implements the CARF, U.S. digital

asset brokers will need to file information

returns under both these final regulations

with respect to their U.S. customers, and,

under separate final regulations implementing the CARF reporting requirements, with respect to their non-U.S. customers that are resident in jurisdictions

implementing the CARF. These final regulations generally attempt to align definitions with those used in the CARF to the

extent possible. In this case, however, the

final regulations do not adopt this comment because the CARF’s definition of

Relevant Crypto-Assets is already consistent with a definition of digital assets

that includes NFTs. As noted in paragraph

12 of the CARF’s Commentary on Section IV: Defined terms, although NFTs are

often marketed as collectibles, this function does not prevent an NFT from being

able to be used for payment or investment purposes. “NFTs that are traded on

a marketplace can be used for payment or

investment purposes and are therefore to

be considered Relevant Crypto-Assets.”

See Part I.G.1. of this Summary of Comments and Explanation of Revisions, for

a discussion of the United States’ implementation of the CARF.

Notwithstanding that the final regulations include NFTs in the definition of

digital assets under section 6045(g)(3)(D),

the Treasury Department and the IRS have

determined that, pursuant to discretion

under section 6045(a), it is appropriate to

provide an alternative reporting method

for certain types of NFTs to alleviate burdensome reporting. As discussed in Part

I.D.3. of this Summary of Comments and

Explanation of Revisions, the final regulations have added a new optional alternative reporting method for sales of certain NFTs to allow for aggregate reporting

instead of transactional reporting, with a

de minimis annual threshold below which

no reporting is required. The Treasury

Department and the IRS anticipate that the

de minimis annual threshold will eliminate

reporting on many low-value NFT trans-

Bulletin No. 2024–31

actions that are less likely to be used for

payment or investment purposes.

4. Coordination with Reporting Rules for

Securities, Commodities, and Real Estate

3. Closed Loop Assets

The preamble to the proposed regulations noted that the Treasury Department

and the IRS are aware that many provisions of the Code incorporate references

to the terms security or commodity, and

that questions exist as to whether, and if

so, when, a digital asset may be treated as

a security or a commodity for purposes of

those Code sections. Apart from the rules

under sections 1001 and 1012 discussed in

Part II. of this Summary of Comments and

Explanation of Revisions, these final regulations are information reporting regulations, and are therefore not the appropriate

vehicle for answering those questions.

Accordingly, the treatment of an asset

as reportable as a security, commodity,

digital asset, or otherwise in these rules

applies for purposes of sections 3406,

6045, 6045A, 6045B, 6050W, 6721, and

6722 of the Code, and for certain purposes

of sections 1001 and 1012, and should not

be construed to apply for any other purpose of the Code, including but not limited to determining whether a digital asset

should be classified as a security, commodity, option, securities futures contract,

regulated futures contract, or forward contract.

One comment expressed concern that

promulgation of final regulations requiring brokers to report on digital asset

transactions could be cited by other government agencies to support treating digital assets as securities for purpose of the

securities statutes, rules, and regulations.

This comment requested that these regulations not take any position on whether

digital assets are securities for these other

purposes. The Treasury Department and

the IRS agree with this comment. The

potential characterization of digital assets

as securities, commodities, or derivatives

for purposes of any other legal regime,

such as the Federal securities laws and the

Commodity Exchange Act, is outside the

scope of these final regulations.

The preamble to the proposed regulations stated that the definition of a digital asset was not intended to apply to

the types of virtual assets that exist only

in a closed system and cannot be sold

or exchanged outside that system for fiat

currency. The preamble also stated that

the definition of digital assets was not

intended to cover uses of distributed ledger technology for ordinary commercial

purposes, such as tracking inventory or

processing orders for purchase and sale

transactions, that do not create transferable assets and are therefore not likely

to give rise to sales as defined for purposes of the regulations. Several comments requested that the final regulations be revised to provide an exception

for closed loop uses in the regulatory

text and to add examples illustrating

that these types of virtual assets are not

included in the definition of a digital

asset. Another comment recommended

that the final regulations expressly limit

the definition of digital assets to only

those digital assets that function as currency as described in Notice 2014-21 or

that have the capability of being purchased, sold, or exchanged. The Treasury Department and the IRS agree that

the text of the final regulations should

make clear that transactions involving

digital assets in the above-described

closed loop environments should not

be subject to reporting. The final regulations do not limit the definition of a

digital asset as requested to accommodate these comments, however, because

it is not clear how the definition could

narrowly carve out only these closed

loop digital assets without also carving

out other assets for which reporting is

appropriate. Instead, to address these

comments, the final regulations add

transactions involving these closed loop

digital assets to the list of excepted sales

that are not subject to reporting under

§1.6045-1(c)(3)(ii). See Part I.C. of this

Summary of Comments and Explanation of Revisions, for a discussion of the

closed loop transactions added to the list

of excepted sales at §1.6045-1(c)(3)(ii).

Bulletin No. 2024–31

a. Special coordination rules for dual

classification assets

Because §1.6045-1(a)(9) of the pre2024 final regulations (redesignated in the

proposed and final regulations as §1.6045-

191

1(a)(9)(i)) require reporting with respect

to sales for cash of securities as defined

in §1.6045-1(a)(3) and certain commodities as defined in §1.6045-1(a)(5), the

proposed regulations included coordination rules to provide certainty to brokers with respect to whether a particular

transaction involving securities or certain

commodities is reportable as a securities or commodities sale under proposed

§1.6045-1(a)(9)(i) (sale of securities or

commodities) or as a digital assets sale

under proposed §1.6045-1(a)(9)(ii) (sale

of digital assets) and to avoid duplicate

reporting obligations. Specifically, for

transactions involving the sale of a digital asset that also constitutes the sale of a

commodity or security (other than options

that constitute contracts covered by section 1256(b) of the Code) (dual classification assets), the proposed regulations provided that the broker would report the sale

only as a sale of a digital asset and not as a

sale of a security or commodity.

Numerous comments raised the concern that requiring brokers that have been

historically reporting sales of securities

and commodities on Form 1099-B, Proceeds from Broker and Barter Exchange

Transactions to report these transactions

as sales of digital assets on Form 1099DA, Digital Asset Proceeds From Broker

Transactions would force these brokers to

overhaul their existing reporting systems

and potentially cause confusion for taxpayers who are not even aware that their

securities and commodities have been

tokenized. To address this concern, some

comments recommended that the digital asset definition be revised to exclude

some or all securities and commodities.

Other comments recommended revising

the coordination rule so that the reporting

rules for sales of securities and commodities apply to digital assets that are also

securities or commodities. One comment

suggested applying the reporting rules for

sales of securities and commodities to any

digital asset that represents a fund subject

to the Investment Company Act of 1940,

15 U.S.C. 80a-1 et seq. (1940 Act Fund),

or another highly regulated product outside of 1940 Act Funds.

The final regulations do not adopt the

comments recommending that sales of

dual classification assets generally be

reported as sales of securities or commod-

July 29, 2024

ities. One of the benefits of treating dual

classification assets as digital assets is that

it avoids forcing brokers to make determinations about whether the dual classification asset is properly classified as a security or a commodity under current law. For

example, a rule that treats all dual classification assets as securities and commodities would require brokers to determine

whether a digital asset that represents a

governance token is properly classified

as a security under final §1.6045-1(a)

(3) to determine how to report sales of

that digital asset. Moreover, such a rule

would affect reporting on digital assets

commonly referred to as cryptocurrencies

that fit within the definition of a commodity under final §1.6045-1(a)(5)(i) because

the trading of regulated futures contracts

in that digital asset has been certified to

the CFTC. It would be inappropriate for

brokers to report these assets as sales of

commodities rather than as sales of digital

assets because, as is discussed in Part I.F.

of this Summary of Comments and Explanation of Revisions, it is important that

brokers report basis for these sales.

Other comments offered recommendations designed to limit reporting of

dual classification assets under the rules

governing sales of securities and commodities. For example, one comment

recommended that the reporting rules for

sales of securities and commodities apply

to any digital asset representing readily

ascertainable securities or commodities

and not purely blockchain-based digital

assets, such as cryptocurrencies or governance tokens, for which treatment as

securities or commodities may be uncertain. Another comment recommended

that the reporting rules for sales of securities and commodities apply to any digital asset that represents a non-digital

asset security or commodity otherwise

reportable on Form 1099-B under the

reporting rules for sales of securities and

commodities or is otherwise backed by

collateral that represents such non-digital

asset. One comment suggested applying

the reporting rules for sales of securities

and commodities to any digital asset, the

blockchain ledger entry for which solely

serves as a record of legal ownership of an

underlying security or commodity that is

not itself a digital asset. Another comment

recommended applying the reporting rules

July 29, 2024

for sales of securities and commodities to

dual classification assets that are digitally

native to a blockchain that is used simply to record ownership changes. Recognizing that identifying digital assets that

represent securities and commodities that

are not themselves digital assets could be

burdensome, one comment recommended

that when information is not available

for brokers to make these determinations

about dual classification assets, the broker

should report the transaction as a sale of a

digital asset. Another comment requested

that the final regulations include a safe

harbor rule providing that no penalties

will be imposed on a broker who consistently and accurately reports the sale of

dual classification assets under either the

reporting rules for sales of securities and

commodities (on Form 1099-B) or for

sales of digital assets (on Form 1099-DA)

based on the broker’s reasonable determination that the chosen reporting method is

correct because it may be administratively

difficult for brokers to examine every dual

classification asset to make a determination based on the nature of the asset.

Numerous comments also focused on

the circumstances that may give rise to

securities and commodities being treated

as digital assets. For example, one comment indicated that the proposed coordination rule would inadvertently capture

transactions involving securities and commodities for which brokers use distributed ledger technology, shared ledgers,

or similar technology merely to facilitate

the processing, clearing, or settlement of

orders between well-regulated brokers

and other financial institutions. To address

this concern, several comments recommended that the reporting rules for sales

of securities and commodities apply only

to digital assets that are more appropriately categorized within a traditional asset

class (for example, as a security with an

effective registration statement filed under

the Securities Act of 1933) and that are

issued, stored, or transferred through a

distributed ledger that is a regulated clearing agency system in compliance with all

applicable Federal and State securities

laws. Another comment recommended

addressing this problem by making the

information required to be reported for

digital asset sales (on Form 1099-DA)

not more burdensome than that for secu-

192

rities and commodities (on Form 1099B). Another comment requested that, if

brokers are required to report these dual

classification assets on the Form 1099DA, the final regulations allow brokers to

optionally make appropriate basis adjustments for dual classification assets that

are securities. This comment also recommended revising the rules in §1.6045-1(d)

(2)(iv)(B) of the pre-2024 final regulations to permit (but not require) brokers to

take into account information about a covered security other than what is furnished

on a transfer statement or issuer statement

and to provide penalty relief under certain

circumstances to brokers that take such

information into account. Finally, one

comment recommended providing written

clarity that even though wash sale adjustment rules do not apply to digital assets,

they still apply to tokenized securities

such as, for example, 1940 Act Funds.

The Treasury Department and the IRS

have concluded that it is generally not

appropriate to permit optional approaches

to reporting dual classification assets

because the underlying reporting requirements for securities and commodities are

significantly different from those for digital assets due, in large part, to industry

differences and the timing of when the

reporting rules were first implemented.

Although the proposed requirement for

brokers to report transaction identification numbers and digital asset addresses

has been removed in these final regulations (see Part I.D. of this Summary of

Comments and Explanation of Revisions),

there are several remaining differences in

the basis reporting requirements for securities and commodities as compared to

digital assets. For example, unlike brokers

effecting sales of digital assets, brokers

effecting sales of commodities are not

required to report the customer’s adjusted

basis for those commodities because commodities are not included in the definition

of covered securities. Additionally, brokers effecting sales of stock, other than

stock for which the average basis method

is available under §1.1012-1(e), must generally report the adjusted basis of these

shares to the extent they were acquired

for cash in an account on or after January 1, 2011, and generally must report the

adjusted basis on shares of stock for which

the average basis method is available to

Bulletin No. 2024–31

the extent those shares were acquired for

cash in an account on or after January 1,

2012. These brokers of stock that are covered securities under final §1.6045-1(a)

(15)(i)(A) or (B) must also send transfer

statements to other brokers under section

6045A when their customers move that

stock to another broker.

In contrast, as discussed in Part I.F. of

this Summary of Comments and Explanation of Revisions, under the final regulations, brokers effecting sales of digital

assets that are covered securities under

final §1.6045-1(a)(15)(i)(J) are required

to report the adjusted basis of those digital

assets only if they were acquired for cash,

stored-value cards, different digital assets,

or certain other property or services in the

customer’s account by such brokers providing custodial services for such digital

assets on or after January 1, 2026. Additionally, these brokers are not currently

required to send transfer statements to

other brokers under section 6045A when

their customers transfer digital assets that

are specified securities to another broker.

Indeed, the details of how section 6045A

reporting will apply to brokers of digital

assets will not be addressed until a future

notice of proposed rulemaking. Accordingly, whether the sale of a dual classification asset is treated as a sale of a security

or commodity under final §1.6045-1(a)

(9)(i) or as a sale of a digital asset under

final §1.6045-1(a)(9)(ii) has consequences

beyond the particular form that the broker

must use when filing returns with respect

to those sales.

Given these different basis reporting

requirements and transfer statement obligations under section 6045A, the Treasury Department and the IRS have determined that, except in the case of certain

exceptions described in the next several

paragraphs, it is not appropriate to treat

dual classification assets as subject only

to the pre-2024 final regulations (that

is, required to report the transactions

under final §1.6045-1(d)(2)(i)(A) as sales

described in final §1.6045-1(a)(9)(i)) for

securities and commodities if those assets

can be traded on public blockchains and

custodied by customers. Accordingly,

final §1.6045-1(c)(8)(i) provides that

brokers must generally treat sales of dual

classification assets only as a sale of a digital asset under final §1.6045-1(a)(9)(ii)

Bulletin No. 2024–31

and only as a sale of a specified security

that is a digital asset under final §1.60451(a)(14)(v) or (vi). As such, the broker

must apply the digital asset reporting rules

for the information required to be reported

for such sale and file the return on Form

1099-DA. Further, as discussed in Part

IV. of this Summary of Comments and

Explanation of Revisions, brokers are not

required to send transfer statements under

final §1.6045A-1(a)(1)(vi) with respect

to the transfer of these dual classification

assets that are reportable as digital assets.

Additionally, final §1.6045-1(d)(2)(iv)

(B) does not permit brokers to take into

account any other information, including

information received from a customer or

third party, with respect to covered securities that are digital assets, although brokers

may take customer-provided acquisition

information into account for purposes of

identifying which units are sold, disposed

of, or transferred under final §1.6045-1(d)

(2)(ii)(A).

However, to accommodate the comments relating to the application of the

various basis adjustment rules, including the wash sale adjustment rules, and

other important information applicable

to dual classification assets that represent

an interest in a traditional security, final

§1.6045-1(c)(8)(i)(D) requires the broker

to report certain additional information

with respect to any dual classification

asset that is a tokenized security. For this

purpose, any dual classification asset that

provides the holder with an interest in

another asset that is a security under final

§1.6045-1(a)(3), other than a security

that is also a digital asset, is a tokenized

security. This description is intended to

apply when the digital asset represents an

interest in a separate, traditional, financial

asset that is reportable as a security. For

example, a digital asset that represents an

ownership interest in a traditional share of

stock in a 1940 Act Fund or another corporation would be a tokenized security. A

dual classification asset that is an interest

in a trust or partnership that holds assets

that are securities under final §1.60451(a)(3), other than securities that are also

digital assets, also would be a tokenized

security.

In addition, an asset the offer and

sale of which was registered with the

U.S. Securities and Exchange Commis-

193

sion (SEC) (other than an asset treated

as a security for securities law purposes

solely as an investment contract) is also

treated as a tokenized security. This part

of the description of tokenized securities

is intended to refer to a digital asset that is

also a security within the meaning of final

§1.6045-1(a)(3) but does not represent

an interest in a separate financial asset. A

bond that exists solely in tokenized form

would be an example of such a tokenized

security, if the bond was issued pursuant

to a registration statement approved by the

SEC. The reference to whether an asset’s

offer and sale was registered with the SEC,

other than solely as an investment contract, is intended to limit the scope of the

term tokenized security to digital forms of

traditional financial assets, and not to capture assets native to the digital asset ecosystem. The reference to registration of an

asset’s offer and sale with the SEC is not

intended to imply that such assets are necessarily securities for Federal income tax

purposes or for purposes of final §1.60451(a)(3). Additionally, no inference is

intended as to how the Federal securities

laws apply to sales of digital assets within

the meaning of final §1.6045-1(a)(19), as

the interpretation or applicability of those

laws are outside the scope of these final

regulations.

For the avoidance of doubt, final

§1.6045-1(c)(8)(i)(D) provides that a

qualifying stablecoin is not treated as a

tokenized security for purposes of these

special rules. For sales of tokenized securities, final §1.6045-1(c)(8)(i)(D) provides

that the broker must report additional

information required by final §1.60451(d)(2)(i)(B)(6), generally relating to

gross proceeds. Final §1.6045-1(d)(2)(i)

(B)(6) requires that the broker report the

Committee on Uniform Security Identification Procedures (CUSIP) number

of the security sold, any information

related to options required under final

§1.6045-1(m), any information related

to debt instruments under final §1.60451(n), and any other information required

by the form or instructions. In addition,

final §1.6045-1(c)(8)(i)(D) provides that

the broker must report additional information required by final §1.6045-1(d)(2)

(i)(D)(4) (relating to reporting for basis

and holding period) for sales of tokenized

securities, except that the broker is not

July 29, 2024

required to report such information for

a tokenized security that is an interest in

another asset that is a security under final

§1.6045-1(a)(3), other than a security that

is also a digital asset, unless the tokenized

security is also a specified security under

final §1.6045-1(a)(14)(i), (ii), (iii), or (iv).

Accordingly, because a trust or partnership

interest is not a specified security within

the meaning of those paragraphs, a broker

is not required to report basis information

with respect to a tokenized security that

is an interest in a trust or partnership that

holds assets that are securities under final

§1.6045-1(a)(3), other than securities that

are also digital assets.

Final §1.6045-1(d)(2)(i)(D)(4) provides specific rules for reporting basis and

related information for tokenized securities. It cross-references the wash sale rules

in final §1.6045-1(d)(6)(iii)(A)(2) and (d)

(7)(ii)(A)(2), which rules have also been

revised to specifically apply to tokenized

securities. These wash sale reporting rules

apply only to assets treated as stock or

securities within the meaning of section

1091 of the Code. They apply regardless

of whether the taxpayer buys or sells a

tokenized security. For example, if a taxpayer sells a tokenized security (or the

underlying traditional stock or security) at

a loss and buys the same tokenized security (or the underlying traditional stock or

security) within the 30-day period before

or after the sale, and the other conditions

to the wash sale reporting rules are satisfied, the broker would be required to take

the wash sale reporting rules into account

in reporting the loss and the basis of the

newly acquired asset. Final §1.6045-1(d)

(2)(i)(D)(4) also cross-references the average basis rules in final §1.6045-1(d)(6)

(v), which have been revised to apply to

any stock that is also a tokenized security,

and the rules related to options and debt

instruments in final §1.6045-1(m) and (n).

Accordingly, the information reportable

for tokenized securities on Form 1099DA should be similar to the information

reportable for traditional securities on

Form 1099-B, except that under final

§1.6045A-1(a)(1)(vi), no transfer statement is required with respect to the transfer of tokenized securities, though penalty

relief is provided if the broker voluntarily

chooses to provide a transfer statement

with respect to tokenized securities. Addi-

July 29, 2024

tionally, until the Treasury Department

and the IRS determine which third party

information is sufficiently reliable, final

§1.6045-1(d)(2)(iv)(B) provides that brokers are not permitted to take into account

information about covered securities that

are digital assets other than what is furnished on a transfer statement or issuer

statement, although brokers may take customer-provided acquisition information

into account for purposes of identifying

which units are sold, disposed of, or transferred under final §1.6045-1(d)(2)(ii)(A).

The Treasury Department and the IRS

intend to provide additional guidance on

how to report tokenized securities in the

instructions to Form 1099-DA.

Final §1.6045-1(d)(2)(i)(D)(3) requires

that, for purposes of determining the basis

and holding period information required

in final §1.6045-1(d)(2)(i)(D)(1) and

(2), the rules related to options in final

§1.6045-1(m) apply, both with respect to

the option and also with respect to any

asset delivered in settlement of an option.

Accordingly, an option that is itself a digital asset, on an asset that is also a digital

asset, is subject to the same reporting rules

as other options.

Additionally, in response to the comments described above, the Treasury

Department and the IRS have determined

that the final regulations should include

three exceptions to the rules requiring

that dual classification assets be reported

as digital assets, for the reasons described

herein. Those exceptions apply to dual

classification assets cleared or settled on a

limited-access regulated network, to dual

classification assets that are section 1256

contracts, and to dual classification assets

that are shares in money market funds.

First, the Treasury Department and the

IRS agree that it is not appropriate to disrupt reporting on dual classification assets

that are treated as digital assets solely

because distributed ledger technology is

used to facilitate the processing, clearing,

or settlement of orders between regulated

financial entities. Accordingly, in response

to the comments submitted, final §1.60451(c)(8)(iii) adds a new exception to the

coordination rule for any sale of a dual

classification asset that is a digital asset

solely because the sale of such asset is

cleared or settled on a limited-access regulated network. Under this exception, such

194

a sale will be treated as a sale described

in final §1.6045-1(a)(9)(i) (reportable on

the Form 1099-B) and not as a digital

asset sale described in final §1.6045-1(a)

(9)(ii) (reportable on the Form 1099DA). Additionally, such a sale must be

treated as a sale of a specified security

under final §1.6045-1(a)(14)(i), (ii), (iii),

or (iv) to the extent applicable, and not

as a sale of a specified security that is a

digital asset under final §1.6045-1(a)(14)

(v) or (vi). For all other purposes of this

section including transfers, a dual classification asset that is a digital asset solely

because it is cleared or settled on a limited-access regulated network is not treated

as a digital asset and is not reportable as

a digital asset. Accordingly, depending on

the type of the asset, the asset may be a

covered security under final §1.6045-1(a)

(15)(i)(A) through (G) (if purchased in

an account on or after January 1, 2011

through 2016, as applicable) rather than a

digital asset covered security under final

§1.6045-1(a)(15)(i)(H), (J) or (K) (if purchased in an account on or after January

1, 2026). Thus, brokers are required under

section 6045A to provide transfer statements with respect to transfers of these

dual classification assets, and the rules set

forth in final §1.6045-1(d)(2)(iv)(A) and

(B), regarding the broker’s obligation to

take into account the information reported

on those statements and certain other customer provided information also apply.

Final §1.6045-1(c)(8)(iii)(B) sets

forth three different types of limited-access regulated network for which this rule

applies. The first type of limited-access

network is described as a cryptographically secured distributed ledger or network of interoperable distributed ledgers

that provide clearance or settlement services and provide access only to a group

of persons made up of registered dealers

in securities or commodities, banks and

similar financial institutions, common

trust funds, or futures commission merchants. Final §1.6045-1(c)(8)(iii)(B)(1)

(i). As used in this rule, an interoperable

distributed ledger means a group of distributed ledgers that permit digital assets

to travel from one permissioned distributed ledger (for example, at one securities

broker) to another permissioned distributed ledger (at another securities broker).

In such cases, while the clearance or set-

Bulletin No. 2024–31

tlement of the dual classification asset is

on a network of permissioned distributed

ledgers, it is anticipated that the asset will

remain in a traditional securities or commodities account from the perspective of

an investor in the asset and so can readily

be reported as a security or commodity

under existing rules.

The second type of limited-access network is also described as a cryptographically secured distributed ledger or network

of interoperable distributed ledgers that

provide clearance or settlement services,

but this type of limited-access network is

distinguishable from the first type because

it is provided by an entity that has registered with the SEC as a clearing agency,

or has received an exemption order from

the SEC as a clearing agency, under section 17A of the Securities Exchange Act

of 1934. Additionally, the entity must provide access to the network exclusively to

network participants, who are not required

to be registered dealers in securities or

commodities, banks and similar financial institutions, common trust funds, or

futures commission merchants, although

it is anticipated that participants typically

will be securities brokers and other regulated financial institutions. Final §1.60451(c)(8)(iii)(B)(1)(ii). For example, dual

classification assets cleared and settled

through a central clearing agency that

clears and settles high volumes of equity

and debt transactions on a daily basis

through automated systems for participants that are financial market participants

may be reportable as securities under this

exception if the clearance or settlement

takes place on a cryptographically secured

distributed ledger or network of interoperable distributed ledgers.

Finally, the third type of limited-access

regulated network is a cryptographically

secured distributed ledger controlled by a

single person that is a registered dealer in

securities or commodities, a futures commission merchant, a bank or similar financial institution, a real estate investment

trust, a common trust fund, or a 1940 Act

Fund, that permits the ledger to be used

solely by itself and its affiliates (and not

by any customers or investors) to clear or

settle sales of assets. Final §1.6045-1(c)

(8)(iii)(B)(2). As with the other types of

limited-access regulated network, it is

anticipated that from an investor perspec-

Bulletin No. 2024–31

tive the assets will remain in a traditional

securities or commodities account.

This exception in final §1.6045-1(c)(8)

(iii) is limited to dual classification assets

that are digital assets solely because the

sale of such dual classification asset is

cleared or settled on a limited-access regulated network. Accordingly, a digital asset

commonly referred to as a cryptocurrency

that fits within the definition of commodity under final §1.6045-1(a)(5)(i) because

the trading of regulated futures contracts

in that digital asset have been approved by

or certified to the CFTC will not be eligible

for this rule because the cryptocurrency

meets the definition of a digital asset for

reasons other than because it is cleared or

settled on a limited-access regulated network. Given the requirement that the sole

reason that the security or commodity is a

digital asset is that transactions involving

those assets are cleared or settled on a limited-access regulated network, it is anticipated that brokers will have sufficient

information to be able to determine how

to report the assets in question under these

revised rules. Accordingly, the request for

a safe harbor that would allow brokers to

avoid penalties if they consistently and

accurately report sales of dual classification assets under either final §1.60451(d)(2)(i)(A) (on Form 1099-B) or final

§1.6045-1(d)(2)(i)(B) and (D) as a digital

asset (on Form 1099-DA) is not adopted

as it is unnecessary.

The second exception to the general

dual classification asset coordination rule

in final §1.6045-1(c)(8)(i) treating such

assets as digital assets was included in the

proposed regulations. Proposed §1.60451(c)(8)(iii) provided that digital asset

options or other contracts that are also

section 1256 contracts should be reported

under the rules set forth in §1.6045-1(c)

(5) of the pre-2024 final regulations for

contracts that are section 1256 contracts

and not under the proposed rules for digital assets. The final regulations retain

this exception and redesignate it as final

§1.6045-1(c)(8)(ii). Accordingly, under

this rule, for the disposition of a contract

that is a section 1256 contract, reporting is required under §1.6045-1(c)(5) of

the pre-2024 final regulations regardless of whether the contract disposed of

is a non-digital asset contract or a digital asset contract or whether the contract

195

was issued with respect to digital asset

or non-digital asset underlying property.

One comment raised a concern that the

proposed rule did not make it clear that

information reporting for a section 1256

contract subject to information reporting

under section 6045 should be reported on

a Form 1099-B regardless of whether the

contract is or is not a digital asset. The

final regulations respond to this concern

by providing additional clarification to

the text of §1.6045-1(c)(5)(i) of the pre2024 final regulations to make it clear that

reporting for all section 1256 contracts

should be on Form 1099-B. Accordingly,

information reporting for section 1256

contracts in digital asset form will be on

Form 1099-B and not on Form 1099-DA.

The third exception to the general

dual classification asset coordination rule

in final §1.6045-1(c)(8)(i) treating such

assets as digital assets applies to interests

in money market funds. Final §1.60451(c)(8)(iv) provides that brokers must treat

sales of any dual classification asset that is

a share in a regulated investment company

that is permitted to hold itself out to investors as a money market fund under Rule

2a-7 under the Investment Company Act

of 1940 (17 CFR 270.2a-7) only as a sale

under final §1.6045-1(a)(9)(i) and not as a

digital asset sale under final §1.6045-1(a)

(9)(ii). Accordingly, under §1.6045-1(c)

(3)(vi) of the pre-2024 final regulations,

no return of information is required for

these shares. This exception is included

in the final regulations because the reasons for not requiring reporting of money

market shares in traditional form are also

applicable for money market shares in

digital asset form. Notably, in either case,

the disposition of money market shares

by non-exempt recipients like individuals

generally will give rise to no, or de minimis, gain or loss. Moreover, money market funds are a special type of regulated

investment company that provide a highly

regulated product widely used as a surrogate for cash.

In response to a number of comments,

the Treasury Department and the IRS

considered whether an exception should

apply more broadly to tokenized shares

of other 1940 Act Funds. Based on publicly available information, the Treasury

Department and the IRS are aware that

some 1940 Act Funds permit their shares

July 29, 2024

to be bought and sold in secondary market transactions on a cryptographically

secured distributed ledger on a direct

peer-to-peer basis – that is, an investor

may transfer the shares directly to another

investor – and that those shares may be

purchased in exchange for other digital

assets. The Treasury Department and the

IRS have determined that these transactions go beyond the scope of the pre-2024

final regulations, which are applicable to

sales of securities for cash, and that such

assets therefore should be reported as digital assets. However, as described in the

discussion of tokenized securities above,

the information reportable by brokers to

investors with respect to such shares of

1940 Act Funds, including the availability of average basis reporting, generally

should not change, although the information will be reported on Form 1099-DA

rather than Form 1099-B.

Finally, the proposed regulations would

have included one additional exception to

the general coordination rule that would

have treated dual classification assets

as digital assets. Specifically, proposed

§1.6045-1(c)(8)(ii) provided that a digital

asset that also constitutes reportable real

estate would be treated as reportable real

estate to ensure that real estate reporting

persons would only report transactions

involving these sales as sales that are

subject to reporting under §1.6045-4(a)

of the pre-2024 final regulations and not

as sales of digital assets. One comment

noted that currently, there is no State law

that permits legal title to real estate to

be held via a digital asset token. Instead,

this comment explained that to transfer

real estate using digital assets, the digital

asset token must hold an interest in a legal

entity (typically either a limited liability

company (LLC) or a partnership) that in

turn owns the real estate. Thus, according to this comment, each token holder

owns an ownership interest in an entity,

not a claim of ownership to real estate.

This comment also noted that, even if a

legal entity was not required to be formed

to hold title to real estate, these digital

asset interests could potentially constitute an unincorporated association of real

estate co-owners meeting the definition

of a partnership under §301.7701-3(b)(1)

(i). Either way, this comment asserted,

reporting on the sale of these interests

July 29, 2024

is not appropriate as a sale of real estate

under §1.6045-4. No comments received

suggested that blockchain deeds do exist.

The Treasury Department and the IRS are

not aware of any current or proposed State

law that authorizes legal title to real estate

to be held in a digital asset token. Therefore, to address this comment, the final

regulations remove this coordination rule

for digital assets that constitute reportable

real estate. Accordingly, brokers should

report on sales of these interests as sales

of digital assets under §1.6045-1(a)(9)(ii)

(unless the sales are eligible for the special

rule under §1.6045-1(c)(8)(iii) for securities and commodities cleared or settled on

a limited-access regulated network) and

not as sales of real estate under §1.60454. The Treasury Department and the IRS

will continue to track developments in this

area for potential future guidance.

b. Other coordination rule issues

The proposed regulations characterized

assets as either digital assets or securities

based on the nature of the rights held by

the customer. Example 27 in proposed

§1.6045-1(b)(27) demonstrated that rule

as applied to a fund formed to invest

in digital assets, in which the units of

the fund were not recorded using cryptographically secured distributed ledger

technology. The Example concluded that

investments in the units of this fund are

not digital assets because transactions

involving these fund units are not secured

using cryptography and are not digitally

recorded on a ledger, such as a blockchain. One comment requested that the

final regulations clarify that if a unit in a

trust is not itself traded on a distributed

ledger, the unit in the trust should not be

treated as a digital asset merely because

the assets held by the trust are digital

assets. Generally, the holder of an interest

in a trust described in §301.7701-4(c) (a

fixed investment trust or FIT) is treated as

directly holding its pro rata share of each

asset held by the FIT. This comment raised

the concern that this normal look through

treatment could require a broker to report

transactions in FIT units as digital assets

on a Form 1099-DA even if the FIT units

are not themselves digital assets. The

final regulations amend the language of

proposed §1.6045-1(b)(27) (redesignated

196

in these final regulations as Example 20

in §1.6045-1(b)(20)) to clarify that for

purposes of section 6045, if a FIT unit is

not itself tradable on a cryptographically

secured distributed ledger, the broker is

not required to look through to the FIT’s

assets and should report the sale of a FIT

unit under §1.6045-1(d)(2)(i)(A) on Form

1099-B. The Example also provides that

this answer would be the same if the fund

is organized as a C corporation or partnership.

The comment also requested expansion

of §1.6045-1(d)(9) of the pre-2024 final

regulations, which eliminates the need

for widely held fixed investment trusts

(WHFITs) to provide duplicate reporting for sales of securities, so that the rule

would also apply to WHFIT sales of digital assets. The Treasury Department and

the IRS agree that this suggested change

is appropriate and have revised the rule

in final §1.6045-1(d)(9) accordingly. As a

result, if a WHFIT sells a digital asset, and

interests in the WHFIT are held through

a securities broker, the WHFIT would

report the sale information to the broker

pursuant to §1.671-5 and the broker would

in turn send a Form 1099-DA (the appropriate Form 1099) to the IRS and a copy

thereof to any trust interest holder that is

not an exempt recipient.

Under the proposed regulations, a

notional principal contract (NPC) that is

executed in digital asset form is a digital

asset. See proposed §1.6045-1(a)(19).

One comment noted that there is no broker reporting under the pre-2024 final regulations under section 6045 for an NPC

that is not a digital asset. As a result, the

comment recommended that an NPC that

is a digital asset be excluded from reporting under section 6045. After consideration of this recommendation, the Treasury Department and the IRS concluded

that certain payments related to NPCs in

digital asset form should be reportable as

digital asset transactions and therefore

decline to adopt the recommendation in

the final regulations. However, taking into

account that payments on NPCs are generally not reportable under section 6045

under the pre-2024 final regulations, the

Treasury Department and the IRS intend

to continue to study the issues related

to NPC payments. Therefore, Notice

2024-57, which is being issued contem-

Bulletin No. 2024–31

poraneously with these final regulations,

provides that brokers are not required to

report on certain NPCs in digital form,

and that the IRS will not impose penalties

under section 6721 or section 6722 for

failure to file correct information returns

or failure to furnish correct payee statements with respect to these transactions

until further guidance is issued. See Part

I.C.2. of this Summary of Comments and

Explanation of Revisions for a further discussion of Notice 2024-57.

One comment requested that the final

regulations provide examples to address

the proper partnership reporting obligations with respect to digital asset interests

that constitute an unincorporated association meeting the definition of a partnership. The final regulations do not adopt

this comment as it is outside the scope

of these regulations. Another comment

requested that the final regulations exempt

sales of tokenized partnerships investing

in real estate from reporting under section 6045 altogether to avoid duplicative

reporting because these partnerships are

already subject to reporting such sales

under the partnership rules on Form

1065, U.S. Return of Partnership Income,

Schedule K-1, and because accountants

and tax advisors that file Schedules K-1

have more accurate information than

brokers regarding the proceeds and basis

information partners need for preparing

their Federal income tax returns. The

Treasury Department and the IRS have

concluded that partnership interests that

invest in real estate should not be treated

any differently than partnership interests

that invest in other assets. Accordingly, no

exception from reporting is made for digital assets representing partnership interests that invest in real estate.

B. Definition of brokers required to report

1. Custodial Digital Asset Brokers and

Non-Custodial Digital Asset Brokers

a. Custodial industry participants

Prior to the enactment of the Infrastructure Act, section 6045(c)(1) defined a broker to include a dealer, a barter exchange,

and any other person who (for a consideration) regularly acts as a middleman with

respect to property or services. The pre-

Bulletin No. 2024–31

2024 final regulations under section 6045

applied the “middleman” portion of this

definition to treat as a broker effecting a

sale a person that as part of the ordinary

course of a trade or business acts as either

(1) an agent with respect to a sale, if the

nature of the agency is such that the agent

ordinarily would know the gross proceeds

of the sale, or (2) as a principal in the

sale. See §1.6045-1(a)(1), and (a)(10)(i)

and (ii) of the pre-2024 final regulations

(redesignated in these final regs as final

§1.6045-1(a)(1) and (a)(10)(i)(A) and (C),

respectively). Under these rules, certain

digital asset industry participants that take

possession of a customer’s digital assets,

such as operators of custodial digital asset

trading platforms and certain digital asset

hosted wallet providers, as well as persons

that interact as principals and counterparties to transactions with their customers,

such as owners of digital asset kiosks and

certain issuers of digital assets who regularly offer to redeem those digital assets,

would also generally be considered brokers with respect to digital asset sales.

These industry participants that act as

principals and counterparties or as agents

to effect digital asset transactions on behalf

of their customers (custodial industry participants) are generally financial institutions, such as money services businesses

(MSBs), under the Bank Secrecy Act (31

U.S.C. 5311 et seq.). Fin-2019-G001,

“Application of FinCEN’s Regulations to

Certain Business Models Involving Convertible Virtual Currencies,” May 9, 2019

(2019 FinCEN Guidance). Anti-money

laundering (AML) obligations apply to

financial institutions, such as MSBs as

defined by the Financial Crimes Enforcement Network (FinCEN), futures commission merchants and introducing brokers obligated to register with the CFTC,

and broker-dealers and mutual funds obligated to register with the SEC. “Leaders

of CFTC, FinCEN, and SEC Issue Joint

Statement on Activities Involving Digital Assets,” October 11, 2019. For example, MSBs are required under regulations

issued by the Financial Crimes Enforcement Network (FinCEN) of the Treasury

Department to develop, implement, and

maintain an effective AML program that is

reasonably designed to prevent the MSB

from being used to facilitate the financing

of terrorist activities and money launder-

197

ing. See 31 CFR part 1022.210(a). AML

programs for MSBs generally include,

among other things, policies, procedures,

and internal controls reasonably designed

to assure compliance with FinCEN’s regulations, as well as a requirement to verify

customer-related information. MSBs are

also required to register with, and make

certain reports to FinCEN, and maintain certain records about transmittals of

funds. See 31 CFR part 1022; 2019 FinCEN Guidance. Accordingly, operators of

custodial digital asset trading platforms,

digital asset hosted wallet providers, and

digital asset kiosks have information

about their customers and, in many cases,

have already reported digital assets sales

by these customers under either section

6045 or 6050W. Consistent with the statutory and regulatory definitions of broker

that existed prior to the Infrastructure Act

as well as amended section 6045, the final

regulations apply to operators of custodial digital asset trading platforms, digital

asset hosted wallet providers, and digital

asset kiosks.

Numerous comments agreed that custodial digital asset trading platforms were

appropriately treated as brokers under the

proposed regulations, and several comments agreed that digital asset hosted

wallet providers should also be treated as

brokers. One comment requested that the

final regulations exclude from the definition of a broker digital asset hosted wallet

providers that do not have direct access

to the information necessary to know the

nature of the transactions processed or the

identities of the parties to the transaction.

The Treasury Department and the IRS do

not agree that a specific exclusion from the

definition of broker for digital asset hosted

wallet providers is necessary or appropriate. The pre-2024 final regulations defined

broker generally to mean any person that,

in the ordinary course of a trade or business during the calendar year, stands ready

to effect sales to be made by others. The

definition of effect under the pre-2024 final

regulations treats agents as effecting sales

only if the nature of the agency is such that

the agent ordinarily would know the gross

proceeds of the sale. Accordingly, a digital

asset hosted wallet provider that acts as an

agent for its customer would be subject to

reporting under section 6045 with respect

to its customer’s sale of digital assets only

July 29, 2024

to the extent that the digital asset hosted

wallet provider ordinarily would know the

gross proceeds from that sale.

Another comment requested that the

regulations make clear that acting as a

broker with respect to one customer does

not mean that the person has a reporting

obligation with respect to all customers. This requested guidance relates to

§1.6045-1(c)(2) of the pre-2024 final regulations, which was not amended. This

provision makes it clear that a broker is

only required to make a return of information for sales that the broker effects for a

customer (provided the broker effects that

sale in the ordinary course of a trade or

business to effect sales made by others).

Accordingly, the final regulations do not

adopt this comment because the change

it requests is unnecessary. Another comment requested that the regulations be

clarified to state that the determination of

whether a person is a broker is determined

on an annual basis and being a broker in

one year does not mean that the person is

a broker in another year. This requested

guidance relates to a portion of §1.60451(a)(1) from the pre-2024 final regulations

that was not proposed to be amended and

would apply broadly to all brokers under

sections 6045 and 6045A, not just those

who effectuate sales of digital assets.

Accordingly, the final regulations do not

adopt this comment because it is outside

the scope of these regulations.

b. Non-custodial industry participants

Unlike custodial industry participants,

which generally act as principals or as

agents to effect digital asset transactions

on behalf of their customers, industry

participants that do not take possession

of a customer’s digital assets (non-custodial industry participants) 2, such as

operators of non-custodial digital asset

trading platforms (sometimes referred to

as decentralized exchanges or DeFi) and

unhosted digital asset wallet providers,

normally do not act as custodial agents

or principals in effecting their customers’ transactions. Instead, these non-custodial industry participants offer other

services, such as providing interface services enabling their customers to interact

with trading protocols. To resolve any

uncertainty over whether these non-custodial digital asset service providers are

brokers, section 80603(a) of the Infrastructure Act amended the definition of

broker under section 6045 to add “any

person who, for consideration, is responsible for regularly providing any service

effectuating transfers of digital assets on

behalf of another person” (the new digital asset middleman rule). 167 Cong. Rec.

S5702, 5703. To implement this new digital asset middleman rule, the proposed

regulations provided that, subject to certain exclusions, any person that provides

facilitative services that effectuate sales

of digital assets by customers is a broker,

provided the nature of the person’s service

arrangement with customers is such that

the person ordinarily would know or be

in a position to know the identity of the

party that makes the sale and the nature

of the transaction potentially giving rise

to gross proceeds. Proposed §1.6045-1(a)

(21)(iii)(A) provided that a facilitative

service includes the provision of a service that directly or indirectly effectuates

a sale of digital assets, such as providing

a party in the sale with access to an automatically executing contract or protocol,

providing access to digital asset trading

platforms, providing an automated market

maker system, providing order matching

services, providing market making functions, providing services to discover the

most competitive buy and sell prices, or

providing escrow or escrow-like services

to ensure both parties to an exchange act

in accordance with their obligations. The

proposed regulations also carved out certain services from this definition, such as

certain distributed ledger validation services – whether through proof-of-work,

proof-of-stake, or any other similar consensus mechanism – without providing

other functions or services, as well as certain sales of hardware, and certain licensing of software, where the sole function is

to permit persons to control private keys

which are used for accessing digital assets

on a distributed ledger. To ensure that

existing brokers of property already subject to broker reporting would be considered to effect sales of digital assets when

they accept, or otherwise process, certain

digital asset payments and to ensure that

digital asset brokers would be considered

to effect sales of digital assets received

as payment for digital asset transaction

costs, proposed §1.6045-1(a)(21)(iii)(B)

provided that a facilitative service also

includes the services performed by such

brokers in accepting or processing those

digital asset payments.

The Treasury Department and the IRS

received numerous comments directed at

these new digital asset middleman rules.

One comment recommended the adoption

of an IRS-approved central entity service

provider to the digital asset marketplace

that could gather customer tax identification information and receive, aggregate,

and reconcile information from various

custodial and non-custodial industry participants. Another comment recommended

allowing the use of an optional tax attestation token to facilitate tax compliance

by non-custodial industry participants.

Many other comments recommended

that non-custodial industry participants

not be treated as brokers. Comments also

expressed concerns that the proposed definitions of a facilitative service in proposed

§1.6045-1(a)(21)(iii)(A) and position to

know in proposed §1.6045-1(a)(21)(ii) are

overbroad and would, consequently, result

in duplicative reporting of the same transactions. Numerous comments said the

broad definition of a broker would stifle

American innovation and drive the digital

asset industry to move offshore. Additionally, many of the comments indicated that

certain non-custodial industry participants

have not collected customer information

under AML programs, and therefore do

not have systems in place to comply with

the proposed reporting by the applicability

date for transactions on or after January 1,

2025.

The Treasury Department and the IRS

do not agree that non-custodial industry

participants should not be treated as brokers. Prior to the Infrastructure Act, section 6045(c)(1) defined the term broker

Some digital asset trading platforms that do not claim to offer custodial services may be able to exercise effective control over a user’s digital assets. See Treasury Department, Illicit Finance

Risk Assessment of Decentralized Finance (April 2023), https://home.treasury.gov/system/files/136/DeFi-Risk-Full-Review.pdf. No inference is intended as to the meaning or significance of

custody under any other legal regime, including the Bank Secrecy Act and its implementing regulations, which are outside the scope of these regulations.

2

July 29, 2024

198

Bulletin No. 2024–31

to include a dealer, a barter exchange,

and any other person who (for a consideration) regularly acts as a middleman with

respect to property or services. Section

80603(a) of the Infrastructure Act clarified the definition of broker under section 6045 to include any person who, for

consideration, is responsible for regularly

providing any service effectuating transfers of digital assets on behalf of another

person. According to a report by the Joint

Committee on Taxation published in the

Congressional Record prior to the enactment of the Infrastructure Act, the change

clarified prior law “to resolve uncertainty

over whether certain market participants

are brokers.” 167 Cong. Rec. S5702,

5703. However, the Treasury Department

and the IRS would benefit from additional

consideration of issues involving non-custodial industry participants. The Treasury

Department and the IRS have determined

that the issuance of these final regulations

requiring custodial brokers and brokers

acting as principals to report digital asset

transactions should not be delayed until

additional consideration of issues involving non-custodial industry participants is

completed because custodial brokers and

brokers acting as principals carry out a

substantial majority of digital asset transactions. Clarifying information reporting

for the substantial majority of digital asset

transactions, consistent with the applicability dates set forth in the proposed

regulations, will benefit both taxpayers,

who can use the reported information to

prepare their Federal income tax returns,

and the IRS, which can focus its enforcement resources on taxpayers who are

more likely to have underreported their

income from digital asset transactions and

custodial brokers and brokers acting as

principals who may not be meeting their

reporting obligations. Accordingly, the

proposed new digital asset middleman

rules that apply to non-custodial industry participants are not being finalized

with these final regulations. The Treasury

Department and the IRS continue to study

this area and, after full consideration of

all comments received, intend to expeditiously issue separate final regulations

describing information reporting rules for

non-custodial industry participants. Until

this further regulatory guidance is issued,

the final regulations reserve on the defini-

Bulletin No. 2024–31

tion of position to know in final §1.60451(a)(21)(ii) and a portion of the facilitative

service definition in final §1.6045-1(a)(21)

(iii)(A). Additionally, because comments

were received addressing the breadth of

the specific exclusions provided for certain

validation services, certain sales of hardware, and certain licensing of software,

the final regulations also reserve on these

exclusions. The Treasury Department and

the IRS recognize that persons that are

solely engaged in the business of 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, are not digital asset

brokers. Accordingly, notwithstanding

reserving on the underlying rule to provide time to study the comments received,

the final regulations retain the examples in

final §1.6045-1(b)(2)(ix) and (x), which

conclude that persons conducting these

actions do not constitute brokers.

The final regulations do not, however,

reserve on the portion of the facilitative

services definition in final §1.6045-1(a)

(21)(iii)(B), which was included to ensure

that sales of digital assets conducted by

certain persons other than non-custodial industry participants are treated as

effected by a broker under final §1.60451(a)(10). For example, proposed §1.60451(a)(21)(iii)(B), which provided that a

facilitative service includes the acceptance of digital assets by a broker in consideration for property reportable under

proposed §1.6045-1(a)(9)(i) and for broker services, was retained and redesignated as final §1.6045-1(a)(21)(iii)(B)(1)

and (3), respectively. Persons that conduct

these actions have complete knowledge

about the underlying transaction because

they are typically acting as the counterparty. Thus, knowledge is not identified

as a specific element of the definition of

facilitative services for these persons to

be treated as conducting facilitative services. Proposed §1.6045-1(a)(21)(iii)

(B) also provided that a facilitative service includes any service provided by a

real estate reporting person with respect

to a real estate transaction in which digital assets are paid by the buyer in full or

199

partial consideration for the real estate.

This rule has been retained with some

modifications to the knowledge requirement which must be met before a real

estate reporting person will be treated as

conducting facilitative services. See Part

I.B.4. of this Summary of Comments and

Explanation of Revisions, for a discussion

of the modified rule, now in final §1.60451(a)(21)(iii)(B)(2), with respect to treating

real estate reporting persons as performing facilitative services and, thereby, as

digital asset middlemen under the final

regulations. Additionally, to ensure that a

digital asset kiosk that does not act as an

agent or dealer in a digital asset transaction will nonetheless be considered a digital asset middleman capable of effecting

sales of digital assets under final §1.60451(a)(10)(i)(D), final §1.6045-1(a)(21)(iii)

(B)(5) provides that the acceptance of digital assets in return for cash, stored-value

cards, or different digital assets by a physical electronic terminal or kiosk is a facilitative service. Like persons that accept

digital assets in consideration for property

reportable under proposed §1.6045-1(a)

(9)(i) and for broker services, knowledge

is not identified as a specific element of

the definition of facilitative services for

these kiosks to be treated as conducting

facilitative services because these kiosks

are typically acting as the counterparty in

the digital asset sale transaction. Finally,

as discussed in Part I.B.2. of this Summary of Comments and Explanation of

Revisions, final §1.6045-1(a)(21)(iii)(B)

(4) treats certain PDAPs that receive digital asset payments from one party (buyer)

and pay those digital assets, cash, or different digital assets to a second party as

performing facilitative services and,

thereby, as digital asset middlemen under

the final regulations.

Taken together, these final regulations

apply only to digital asset industry participants that take possession of the digital

assets being sold by their customers, such

as operators of custodial digital asset trading platforms, certain digital asset hosted

wallet providers, certain PDAPs, and digital asset kiosks, as well as to certain real

estate reporting persons that are already

subject to the broker reporting rules. As a

result, this preamble does not set forth nor

discuss comments received relating to the

application of the proposed regulations to

July 29, 2024

non-custodial industry participants (other

than persons that operate digital asset

kiosks and process payments without taking custody thereof). The Treasury Department and the IRS will continue to consider

comments received addressing non-custodial arrangements and plan to expeditiously publish separate final regulations

addressing information reporting rules for

non-custodial digital asset service providers after issuance of these final regulations.

2. Processors of Digital Asset Payments

PDAPs enable persons (buyers) to

make payments to second parties (typically merchants) using digital assets. In

some cases, the buyer pays digital assets

to the PDAP, and the PDAP in turn pays

those digital assets, U.S. dollars, or different digital assets to the merchant. In other

cases, the PDAP may not take custody of

the digital assets, but instead may instruct

or otherwise give assistance to the buyer

to transfer the digital assets directly to

the merchant. The PDAP may also have a

relationship with the merchant specifically

obligating the PDAP to process payments

on behalf of the merchant.

a. The proposed regulations

The proposed regulations used the term

digital asset payment processors instead

of PDAPs. To avoid confusion associated with the use of the acronym for digital asset payment processors, which may

have a different meaning within the digital

asset industry, and for ease in reading this

preamble, this preamble solely uses the

term PDAP, even when referencing the

proposed regulations and comments made

with respect to the proposed regulations.

The proposed regulations treated

PDAPs as brokers that effect sales of digital assets as agents for the buyer. Proposed

§1.6045-1(a)(22)(i)(A) defined a PDAP as

a person who in the ordinary course of its

business regularly stands ready to effect

digital asset sales by facilitating payments from one party to a second party by

receiving digital assets from the first party

and exchanging them into different digital assets or cash paid to the second party,

such as a merchant. In addition, recognizing that some payment recipients might

be willing to receive payments facilitated

July 29, 2024

by an intermediary in digital assets rather

than cash in a circumstance in which the

PDAP temporarily fixes the exchange

rate on the digital asset payment that is

transferred directly from a customer to

that payment recipient, proposed §1.60451(a)(22)(ii) treated the transfer of digital

assets by a customer directly to a second

person (such as a vendor of goods or services) pursuant to a processor agreement

that provides for the temporary fixing of

the exchange rate to be applied to the digital assets received by the second person

as if the digital assets were transferred by

the customer to the PDAP in exchange for

different digital assets or cash paid to the

second person.

The proposed regulations also included

in the definition of a PDAP certain payment settlement entities and certain entities that make payments to payment settlement entities that are potentially subject

to reporting under section 6050W. Specifically, proposed §1.6045-1(a)(22)(i)

(B) provided that a PDAP includes a third

party settlement organization (as defined

in §1.6050W-1(c)(2)) that makes (or

submits instructions to make) payments

using one or more digital assets in settlement of reportable payment transactions

as described in §1.6050W-1(a)(2). Additionally, proposed §1.6045-1(a)(22)(i)(C)

provided that the definition of a PDAP

includes a payment card issuer that makes

(or submits the instruction to make) payments in one or more digital assets to a

merchant acquiring entity, as defined

under §1.6050W-1(b)(2), in a transaction

that is associated with a reportable payment transaction under §1.6050W-1(a)(2)

that is effected by the merchant acquiring

bank.

Proposed §1.6045-1(a)(9)(ii)(D) provided that a sale includes all these types of

payments processed by PDAPs. Finally,

proposed §1.6045-1(a)(2)(ii)(A) provided

that the customer in a PDAP transaction

includes the person who transfers the digital assets or directs the transfer of the digital assets to the PDAP to make payment to

the second person.

b. Definition of PDAP, PDAP customer,

and PDAP sales

Several comments stated that some

PDAPs contract only with merchants to

200

process and settle digital asset payments

on the behalf of those merchants. That

is, despite the buyer benefitting from the

merchant’s relationship with the PDAP,

the buyer is not the customer of the PDAP

in these transactions. Consequently, these

comments warned, PDAPs are unable to

leverage any customer relationship to collect personal identification information

and other tax documentation—including

Form W-9, Request for Taxpayer Identification Number and Certification, or Form

W-8BEN, Certificate of Foreign Status

of Beneficial Owner for United States

Tax Withholding and Reporting (Individuals)—from buyers. Another comment

asserted that treating PDAPs as brokers

conflicts with or expands the current FinCEN regulatory AML program requirements for regulated entities to perform

due diligence on their customers. Several

comments noted that this lack of customer

relationship would exacerbate the privacy

concerns of the buyers if PDAPs working

for the merchant were required to collect

tax documentation from buyers. Moreover, these comments raised the concern

that collecting this documentation from

buyers is even more challenging for onetime small retail purchases because buyers would be unwilling to comply with

tax documentation requests at the point

of sale. Other comments disagreed with

these comments and stated that there is a

business relationship between PDAPs and

buyers that would make reporting appropriate. Indeed, one comment asserted

that PDAPs are technically money transmitters under FinCEN regulations and,

as such, are already subject to the AML

program obligations, described in Part

I.B.1. of this Summary of Comments and

Explanation of Revisions, with respect to

the person making payments. See 31 CFR

part 1010.100(ff)(5). Other comments recommended that the definition of broker

be aligned with the concepts outlined in

FATF to, in their view, clarify that a broker must be a legal person who exercises

some measure of control or dominion over

digital assets on behalf of another person.

In response to these comments, the

Treasury Department and the IRS have

concluded that the circumstances under

which a person processing digital asset

payments for others should be required

to report information on those payments

Bulletin No. 2024–31

to the IRS under section 6045 should be

narrowed pending additional consideration of the issues and comments received

concerning non-custodial arrangements

discussed in Part I.B.1.b. of this Summary

of Comments and Explanation of Revisions. Under the final regulations, a PDAP

is required to report digital asset payments

by a buyer only if the processor already

may obtain customer identification information from the buyer in order to comply

with AML obligations. In such cases, the

processor has the requisite relationship

with the buyer to collect additional tax

documentation to comply with information reporting requirements. Accordingly,

final §1.6045-1(a)(2)(ii)(A) modifies

the proposed definition of customer as

it applies to PDAPs to limit the circumstances under which a buyer would be

considered the customer of a PDAP. Specifically, under this revised definition, the

buyer will be treated as a customer of the

PDAP only to the extent that the PDAP

has an agreement or other arrangement

with the buyer for the provision of digital

asset payment services and that agreement

or other arrangement provides that the

PDAP may verify such person’s identity

or otherwise comply with AML program

requirements, such as those under 31 CFR

part 1010, applicable to that PDAP or any

other AML program requirements. For

this purpose, an agreement or arrangement

with the PDAP includes any alternative

payment services arrangement such as a

computer or mobile application program

under which, as part of the PDAP’s customary onboarding procedures, the buyer

is treated as having agreed to the PDAP’s

general terms and conditions. The PDAP

may also be required to report information

on the payment to the merchant on whose

behalf the PDAP is acting.

Several comments raised the concern

that, to the extent there is no contractual

relationship between the PDAP and the

buyer, the buyer is not the PDAP’s customer, and that the proposed regulations,

therefore, exceed the Secretary’s authority

under section 6045(a), which requires persons doing business as a broker to “make

a return . . . showing the name and address

of each customer [of the broker], with such

details regarding gross proceeds.” These

comments recommended that the final

regulations provide that a PDAP that does

Bulletin No. 2024–31

not have a contractual relationship with a

buyer is not a broker with respect to that

buyer. Another comment suggested the

regulations should not apply to PDAPs at

all without a clear congressional mandate.

The Treasury Department and the IRS do

not agree that section 6045 requires specific statutory language with respect to

each type of broker that already fits within

the definition of broker under section

6045(c)(1). Section 6045(c)(2) defines the

term customer as “any person for whom

the broker has transacted any business.”

This definition does not require that the

specific transaction at issue be conducted

by the broker for the customer. Accordingly, if a PDAP transacts some business

with the buyer—such as would be the case

if the buyer sets up a payment account

with the PDAP—then there is statutory

authority to require that the PDAP report

on the buyer’s payments, even though the

activities performed by that PDAP were

performed pursuant to a separate contractual agreement with a merchant.

One comment expressed confusion

with the definition of PDAP in the proposed regulations. Specifically, this comment requested clarification as to why

the definition listed a third party settlement organization separately in proposed

§1.6045-1(a)(22)(i)(B) rather than merely

as a subset of the description provided

in proposed §1.6045-1(a)(22)(i)(A), in

which the person regularly facilitates payments from one party to a second party by

receiving digital assets from the first payment and exchanging those digital assets

into cash or different digital assets paid the

second party. Another comment expressed

confusion over why the processor agreement rules in proposed §1.6045-1(a)(22)

(ii) and (iii) include a provision treating

the payment of digital assets to a second

party pursuant to a processor agreement

that fixes the exchange rate (processor

agreement arrangement) as a sale effected

by the PDAP. This comment also recommended deleting the processor agreement

arrangement paragraphs from the definition of a PDAP and moving them to the

definition of gross proceeds.

The definition of a PDAP in the proposed regulations included descriptions

of ways that a person could facilitate a

payment from one party to a second party.

Many of these descriptions involved cir-

201

cumstances in which the buyer transfers

the digital asset payment to the PDAP, followed by the PDAP transferring payment

to a second party. Several of the descriptions involved circumstances in which

the PDAP does not take possession of the

payment, but instead instructs the buyer to

make a direct transfer of the digital asset

payment to the second party, or otherwise,

pursuant to a processor agreement, temporarily fixes the exchange rate to be applied

to the digital assets received by the second

party.

The Treasury Department and the IRS

understand that many of the transactions

described in the proposed regulations in

which the PDAP does not take possession of the payment are undertaken today

by non-custodial industry participants.

In light of the decision discussed in Part

I.B.1. of this Summary of Comments and

Explanation of Revisions to further study

the application of the broker reporting

rules to non-custodial industry participants, the Treasury Department and the

IRS have determined that the definition of

PDAP and the definition of a sale effected

by a PDAP (PDAP sales) in these final regulations should apply only to transactions

in which PDAPs take possession of the

digital asset payment. Additionally, given

the complexity of the multi-part definition of PDAP in the proposed regulations

and in response to the public comments,

the Treasury Department and the IRS

have determined that all types of payment

transactions that were included in the various subparagraphs of the definition should

be combined into a single simplified definition. This single definition includes the

requirement that a person must receive

the digital assets in order to be a PDAP

and also covers all transactions—and not

just those transactions described in proposed §1.6045-1(a)(22)(i)(B) and (C)—in

which the PDAP receives a digital asset

and transfers that same digital asset to the

second party.

Accordingly, final §1.6045-1(a)(22)

defines a PDAP as a person who in the

ordinary course of a trade or business

stands ready to effect sales of digital assets

by regularly facilitating payments from

one party to a second party by receiving

digital assets from the first party and paying those digital assets, cash, or different

digital assets to the second party. Corre-

July 29, 2024

spondingly, final §1.6045-1(a)(9)(ii)(D)

revises and simplifies the proposed regulation’s definition of a sale processed by

a PDAP to include the payment by a party

of a digital asset to a PDAP in return for

the payment of that digital asset, cash, or

a different digital asset to a second party.

Accordingly, if a buyer uses a stablecoin

or other digital asset to make payment

to a PDAP that then transfers the stablecoin, another digital asset, or cash to the

merchant, the transaction is a PDAP sale.

Additionally, as discussed in Part I.D.4. of

this Summary of Comments and Explanation of Revisions, the final regulations provide that any PDAP sale that is also a sale

under one of the other definitions of sale

under final §1.6045-1(a)(9)(ii)(A) through

(C) (non-PDAP sale) that is subject to

reporting due to the broker effecting the

sale as a broker other than as a PDAP must

be treated as a non-PDAP sale. Thus, for

example, an exchange of digital assets

that a custodial broker executes between

customers will not be treated as a PDAP

sale, but instead will be treated as a sale

of digital assets in exchange for different

digital assets under final §1.6045-1(a)(9)

(ii)(A)(2).

One comment recommended that the

regulations be clarified so as not to treat

the PDAP as a broker to the extent it does

not have sufficient information about the

transaction to know it is a sale. Another

comment stated that PDAPs do, in fact,

maintain detailed records of all transactions for both merchants and buyers. The

final regulations adopt this comment by

adding services performed by a PDAP to

the definition of facilitative service provided the PDAP has actual knowledge or

ordinarily would know the nature of the

transaction and the gross proceeds therefrom to ensure that payments made using

digital assets are treated as sales effected

by a broker. Final §1.6045-1(a)(21)(iii)

(B)(4). Accordingly, in a circumstance

in which the PDAP processes a payment

on behalf of a merchant and that payment

comes from a buyer with an account at

the PDAP, the PDAP would ordinarily

have the information necessary to know

that the transaction constitutes a sale and

would know the gross proceeds. As such,

that PDAP will be treated under the final

regulations as effecting the sale transaction under §1.6045-1(a)(10)(i)(D) for the

July 29, 2024

buyer-customer as a digital asset middleman under §1.6045-1(a)(21). In contrast,

in a circumstance in which the PDAP does

not process the payment on behalf of the

merchant, the PDAP would ordinarily not

have actual knowledge or other information that would allow the processor to

ordinarily know the nature of the transaction. Accordingly, assuming nothing else

about the transaction provides the PDAP

with either actual knowledge or information that would allow the processor to

ordinarily know the nature of the transaction, the payment processor would not be

treated as providing a facilitative service

that effects a sale transaction under these

regulations.

One comment stated that PDAPs do

not have the infrastructure to collect and

store customer identification information

or to report transactions involving buyers

who do not have accounts with the PDAP.

Another comment expressed concern

about asking individuals to provide personal identifying information to PDAPs,

which could occur in the middle of a

busy store. Another comment requested

guidance on how PDAPs should collect

sensitive taxpayer information. Several

comments expressed concern about the

increased risk these rules would create

with respect to the personal identifying

information collected by PDAPs because

that information could be held by multiple brokers. Several other comments

stated that extending information reporting to PDAPs would create surveillance

concerns because it could allow the IRS

to collect data on merchandise or services

purchased or provided.

The Treasury Department and the IRS

understand that PDAPs that comply with

FinCEN and other regulatory requirements are required to collect and in some

cases report customer identification information, and have concluded that such

PDAPs will likewise be able to implement

the systems necessary to, or contract with

service providers who can, protect sensitive information of their customers. It is

appropriate to have PDAPs collect, store,

and report customer identification information for Federal tax purposes because

reporting on digital asset payment transactions is important to closing the income

tax gap attributable to digital asset transactions. Indeed, reporting is particularly

202

helpful to buyers in these payment transactions because they may not understand

that the use of digital assets to make payments is a transaction that may generate

a taxable gain or loss. Finally, the final

regulations do not require the reporting

of any information regarding the specific

services or products purchased by buyers

in payment transactions. Accordingly, the

IRS could not use this information reporting to track or monitor the types of goods

and services a taxpayer purchases using

digital assets.

c. Other PDAP issues

Comments also raised various other

policy and practical objections to including PDAPs in the definition of broker.

Specifically, comments suggested that

requiring PDAPs to collect tax documentation information for all purchases may

halt the development of digital assets as

an efficient and secure payment system or

may drive customers to not use PDAPs to

make their payments, potentially exposing them to more fraud by unscrupulous

merchants. Other comments complained

that these rules would punish buyers who

choose to pay with digital assets and confuse buyers paying with stablecoins, who

expect transactions to be no different

than cash transactions. Several comments

asserted that the benefits of having PDAPs

report on digital asset payments made by

buyers was not worth the cost because

most tax software programs are able to

track and report accurately the gains and

losses realized in connection with these

payment transactions. These comments

asserted that for taxpayers already taking

steps to comply with their Federal income

tax obligations, an information reporting

regime that provides only gross proceeds

information with respect to these transactions would not produce particularly useful information. Even for other taxpayers,

another comment suggested that reporting

by PDAPs provided only limited utility

because determining a gain or loss on each

purchase would still involve a separate

search for cost basis information.

The final regulations do not adopt these

comments. Information reporting facilitates the preparation of Federal income tax

returns (and reduces the number of inadvertent errors or intentional misstatements

Bulletin No. 2024–31

shown on those returns) by taxpayers who

engage in digital asset transactions. Information reporting is particularly important in the case of payment transactions

involving the disposition of digital assets,

which many taxpayers do not realize must

be reported on their Federal income tax

returns. Clear information reporting rules

also helps the IRS to identify taxpayers

who have engaged in these transactions,

and thereby help to reduce the overall

income tax gap. Moreover, regarding the

impact of these regulations on the development of digital assets as an efficient and

secure payment system, the final regulations will assist digital asset owners who

are currently forced to closely monitor

and maintain records of all their digital

asset transactions to correctly report their

tax liability at the end of the year because

they will receive the necessary information from the processor of the transactions. Eliminating these high entry costs

may allow more potential digital asset

owners with little experience accounting

for dispositions of digital assets in payment transactions to enter the market.

Several comments recommended

against having PDAPs report on buyers

disposing of digital assets because these

PDAPs already report on merchants who

receive these payments under section

6050W to the extent the payments are for

goods or services. These comments raised

concerns that this duplicative reporting for

the same transaction would harm the IRS,

create an undue burden for brokers, and

cause confusion for buyers making payments. The final regulations do not adopt

these comments because the reporting is

not duplicative. The reporting under section 6050W reports on payments made

to the merchant. That reporting is not

provided to the buyers making those payments, and therefore does not address the

gross proceeds that the buyer must report

on the buyer’s Federal income tax returns.

Another comment suggested that the

treatment of digital asset payments should

be analogous to that of cash payments.

That is, since PDAPs are not required to

report on buyers making cash payments,

they should not be required to report on

buyers making payments with digital

assets. The final regulations do not adopt

this comment because a buyer making a

cash payment does not have a taxable

Bulletin No. 2024–31

transaction while a buyer making a payment with digital assets is engaging in a

sale or exchange that requires the buyer to

report any gain or loss from the disposition on its Federal income tax return.

Other comments raised the concern

that reporting by PDAPs would result in

duplicative reporting to the buyer because

the buyer’s wallet provider or another

digital asset trading platform may report

these transactions. See Part I.B.5. of this

Summary of Comments and Explanation

of Revisions for a discussion of how the

multiple broker rules provided in these

final regulations would apply to PDAPs.

Another comment recommended only

subjecting PDAPs to broker reporting if

they exchange digital assets into fiat currency. The final regulations do not adopt

this comment because digital assets are a

unique form of property which can be used

to make payments. Accordingly, given

that digital assets are becoming a more

popular form of payment, it is important

that taxpayers making payments with digital assets be provided the information

they need to report these transactions on

their Federal income tax returns.

Notwithstanding that the final regulations require PDAPs to report on PDAP

sales, as discussed in Part I.D.2. of this

Summary of Comments and Explanation

of Revisions, the final regulations provide

a $10,000 de minimis threshold for qualifying stablecoins below which PDAPs

will not have to report PDAP sales using

qualifying stablecoins. Additionally, the

Treasury Department and the IRS have

determined that, pursuant to discretion

under section 6045(a), it is appropriate to

provide additional reporting relief for certain low-value PDAP sales using digital

assets other than qualifying stablecoins

that are less likely to give rise to significant gains or losses. As discussed in Part

I.D.4. of this Summary of Comments and

Explanation of Revisions, the final regulations have added a de minimis annual

threshold for PDAP sales below which no

reporting is required.

3. Issuers of Digital Assets

Proposed §1.6045-1(a)(1) modified

the definition of broker to include persons that regularly offer to redeem digital

assets that were created or issued by that

203

person, such as in an initial coin offering

or redemptions by an issuer of a so-called

stablecoin. One comment focused on stablecoin issuers and recommended against

treating such issuers as brokers because it

is unclear how they would be in a position

to know the gain or loss of their customers. Issuers of digital assets that regularly

offer to redeem those digital assets will

know the nature of the sale and the gross

proceeds from the sale when they redeem

those digital assets. Accordingly, it is

appropriate to treat these issuers as brokers required to report the gross proceeds

of the redemption just as obligors that

regularly issue and retire their own debt

obligations are treated as brokers and corporations that regularly redeem their own

stock also are treated as brokers under

§1.6045-1(a)(1) of the pre-2024 final regulations. Moreover, since these issuers do

not provide custodial services for their

customers redeeming the issued digital

assets, they are not required to report on

the customer’s adjusted basis under final

§1.6045-1(d)(2)(i)(D). As such whether

they are able to know their customer’s

gain or loss is not relevant to whether they

should be treated as brokers under these

regulations.

4. Real Estate Reporting Persons

The proposed regulations provided that

a real estate reporting person is a broker

with respect to digital assets used as consideration in a real estate transaction if

the reporting person would generally be

required to make an information return

with respect to that transaction under proposed §1.6045-4(a). To ensure that real

estate reporting persons report on real

estate buyers making payment in such

transactions with digital assets, the proposed regulations also included these real

estate buyers in the definition of customer

and included the services performed with

respect to these transactions by real estate

reporting persons in the definition of facilitative services relevant to the definition

of a digital asset middleman.

One comment raised the concern that

in some real estate transactions, direct

(peer to peer) payments of digital assets

from buyers to sellers may not be reflected

in the contract for sale. In such transactions, the real estate reporting person

July 29, 2024

would not ordinarily know that the buyers

used digital assets to make payment. The

Treasury Department and the IRS have

concluded that it is not appropriate at this

time to require real estate reporting persons who do not know or would not ordinarily know that digital assets were used

by the real estate buyer to make payment

to report on such payments. Accordingly,

the definition of facilitative service in

final §1.6045-1(a)(21)(iii)(B)(2) has been

revised to limit the services provided by

real estate reporting persons that constitute facilitative services to those services

for which the real estate reporting person

has actual knowledge or ordinarily would

know that digital assets were used by the

real estate buyer to make payment directly

to the real estate seller. For this purpose,

a real estate reporting person is considered to have actual knowledge that digital

assets were used by the real estate buyer

to make payment if the terms of the real

estate contract provide for payment using

digital assets. Thus, for example, if the

contract for sale states that the buyer will

make payment using digital assets, either

fixed as to number of units or fixed as to

the value, the real estate reporting person

would be treated as having actual knowledge that digital assets were used to make

payment in the transaction notwithstanding that such person might have to query

the buyer and seller regarding the name

and number of units used to make payment. Additionally, a separate communication to the real estate reporting person,

for example, to ensure that the value of

the digital asset payment is reflected in

any commissions or taxes due at closing,

would constitute actual knowledge by the

real estate reporting person that digital

assets were used by the real estate buyer

to make payment directly to the real estate

seller.

One comment recommended that to

relieve burden on the real estate reporting

person, the form on which the real estate

seller’s gross proceeds are reported (Form

1099-S, Proceeds From Real Estate

Transactions) be revised with a check box

to indicate that digital assets were paid

in the transaction and with a new box for

the buyer’s name, address, and tax identification number (TIN). These revisions

would allow the real estate reporting person to file one Form 1099-S instead of one

July 29, 2024

Form 1099-DA (with respect to the real

estate buyer) and one Form 1099-S (with

respect to the real estate seller). The final

regulations do not make this suggested

change because it would be inappropriate

to include both parties to the transaction

on the same information return. The broker reporting regulations require copies of

Form 1099-S to be furnished to the taxpayer, and it would be inappropriate to

require disclosure of either party’s TIN

to the other. For a discussion of how the

multiple broker rule would apply to a real

estate transaction involving a real estate

reporting person and a PDAP, see Part

I.B.5. of this Summary of Comments and

Explanation of Revisions.

Notwithstanding

these

decisions

regarding the appropriateness of reporting under these regulations by real estate

reporting persons, as discussed in Part VII.

Of this Summary of Comments and Explanation of Revisions, the applicability date

for reporting has been delayed and backup

withholding relief has been provided for

real estate reporting persons.

5. Exempt Recipients and the Multiple

Broker Rule

a. Sales effected for exempt recipients

The

proposed

regulations

left

unchanged the exceptions to reporting

provided under §1.6045-1(c)(3)(i) of the

pre-2024 final regulations for exempt

recipients, such as certain corporations,

financial institutions, tax exempt organizations, or governments or political subdivisions thereof. Thus, the proposed regulations did not create a reporting exemption

for sales of digital assets effected on behalf

of a customer that is a digital asset broker. Several comments recommended that

custodial digital asset brokers be added

to the list of exempt recipients under the

final regulations because the comments

asserted that these brokers are subject to

rigorous oversight by numerous Federal

and State regulators. In response to the

request that custodial digital asset brokers be added to the list of exempt recipients, final §1.6045-1(c)(3)(i)(B)(12) adds

digital asset brokers to the list of exempt

recipients for sales of digital assets, but

limits such application to only U.S. digital asset brokers because brokers that are

204

not U.S. digital asset brokers (non-U.S.

digital asset brokers) are not currently

subject to reporting on digital assets under

these final regulations. See Part I.G. of this

Summary of Comments and Explanation

of Revisions for the definition of a U.S.

digital asset broker and a discussion of

the Treasury Department’s and the IRS’s

plans to implement the CARF. Additionally, the list also does not include U.S.

digital asset brokers that are registered

investment advisers that are not otherwise

on the list of exempt recipients (§1.60451(c)(3)(i)(B)(1) through (11) of the pre2024 final regulations) because registered

investment advisers were not previously

included in the list of exempt recipients.

For this purpose, a registered investment

adviser means a registered investment

adviser registered under the Investment

Advisers Act of 1940, 15 U.S.C. 80b-1, et

seq., or as a registered investment adviser

with a state securities regulator. See Part

I.B.5.b. of this Summary of Comments and

Explanation of Revisions for the documentation that a broker effecting a sale on

behalf of a U.S. digital asset broker (other

than a registered investment adviser) must

obtain pursuant to final §1.6045-1(c)(3)(i)

(C)(3) to treat such customer as an exempt

recipient under final §1.6045-1(c)(3)(i)(B)

(12).

b. The multiple broker rule

The proposed regulations also did not

extend the multiple broker rule under

§1.6045-1(c)(3)(iii) of the pre-2024 final

regulations to digital asset brokers. Comments overwhelmingly requested that the

final regulations implement a multiple

broker rule applicable to digital asset brokers to avoid burdensome and confusing

duplicative reporting. Several comments

recommended that the rule in §1.60451(c)(3)(iii) of the pre-2024 final regulations, which provides that the broker that

submits instructions to another broker,

such as a digital asset trading platform,

should have the obligation to report the

transaction to the IRS, not the broker that

receives the instructions and executes the

transaction, because the brokers that submit instructions are in a position to provide reporting information to those clients

with whom they maintain a direct relationship, while the latter are not. Another

Bulletin No. 2024–31

comment recommended requiring only

the digital asset broker that has the final

ability to consummate the sale to report

the transaction to the IRS unless that broker has no ability to backup withhold.

Another comment recommended allowing

digital asset brokers to enter into contracts

for information reporting to establish who

is responsible for reporting the transaction

to the IRS. Finally, several comments recommended that, when two digital asset

brokers would otherwise have a reporting

obligation with respect to a sale transaction, that only the digital asset broker

crediting the gross proceeds to the customer’s wallet address or account have the

obligation to report the transaction to the

IRS because this is the broker that has the

best ability to backup withhold.

As discussed in Part VI. of this Summary of Comments and Explanation of

Revisions, backup withholding on these

transactions is a necessary and essential

tool to ensure that important information for tax enforcement is reported to

the IRS. Because the broker crediting the

gross proceeds to the customer’s wallet

address or account is in the best position

to backup withhold on these transactions

if the customer does not provide the broker with the necessary tax documentation,

final §1.6045-1(c)(3)(iii)(B) adopts a multiple broker rule for digital asset brokers

that would require the broker crediting the

gross proceeds to the customer’s wallet

address or account to report the transaction to the IRS when more than one digital asset broker would otherwise have a

reporting obligation with respect to a sale

transaction. The relief for the broker that

is not the broker crediting the gross proceeds to the customer’s wallet address or

account, however, is conditioned on that

broker obtaining proper documentation

from the other broker as discussed in the

next paragraph. Additionally, the final

regulations do not adopt the suggested

rule that would allow a broker to shift the

responsibility to report to another broker

based on an agreement between the brokers because the broker having the obligation to report in that case may not have

the ability to backup withhold. A broker,

of course, is not prohibited from contracting with another broker or with another

third party to file the required returns on

its behalf.

Bulletin No. 2024–31

Numerous comments provided recommendations in response to the request in

the proposed regulations for suggestions

to ensure that a digital asset broker would

know with certainty that the other digital

asset broker involved in a transaction is

also a broker with a reporting obligation

under these rules. One comment raised a

concern with a rule requiring the broker

obligated to report to provide notice to

the other broker that it will make a return

of information for each sale because that

requirement would be overly burdensome.

Another comment recommended that the

broker obtain from the obligated broker a

Form W-9 that has been modified to add

an exempt payee code for digital asset

brokers and a unique broker identification

number. Another comment recommended

that, absent actual knowledge to the contrary, a broker should be able to rely on a

reasonable determination based on another

broker’s name or other publicly available

information it has about the other broker

(sometimes referred to as the eye-ball test)

that the other broker is a U.S. digital asset

broker. To avoid any gaps in reporting,

another comment recommended against

allowing brokers to treat other brokers as

U.S. digital asset brokers based on actual

knowledge or the existing presumption

rules. Finally, another comment recommended that the IRS establish a registration system and searchable database for

digital asset brokers like that used for foreign financial institutions under the provisions commonly known as the Foreign

Account Tax Compliance Act (FATCA) of

the Hiring Incentives to Restore Employment Act of 2010, Public Law 111–147,

124 Stat. 71 (March 18, 2010).

Because of the risk that the multiple

broker rule could result in no reporting,

the final regulations do not adopt the

so-called eye-ball test or the existing presumption rules for determining if another

broker is a U.S. digital asset broker. The

final regulations also do not adopt an IRS

registration system for U.S. digital asset

brokers because the IRS is still considering the benefits and burdens of a registration system for both the IRS and brokers.

Instead, the final regulations adopt a rule

that to be exempt from reporting under the

multiple broker rule, a broker must obtain

from another broker a Form W-9 certifying

that the other broker is a U.S. digital asset

205

broker (other than a registered investment

adviser that is not otherwise on the list of

exempt recipients (§1.6045-1(c)(3)(i)(B)

(1) through (11)) of the pre-2024 final regulations). Because the current Form W-9

does not have this certification, the notice

referred to in Part VII. of this Summary of

Comments and Explanation of Revisions

will permit brokers to rely upon a written

statement that is signed by another broker

under penalties of perjury that the other

broker is a U.S. digital asset broker until

sometime after the Form W-9 is revised

to accommodate this certification. It is

contemplated that the instructions to the

revised Form W-9 will give brokers who

have obtained private written certifications a reasonable transition period before

needing to obtain a revised Form W-9

from the other broker.

One comment requested clarification

regarding which broker—the real estate

reporting person or the PDAP—is responsible for filing a return with respect to

the real estate buyer in a transaction in

which the real estate buyer transfers digital assets to a PDAP that in turn transfers

cash to the real estate seller. The multiple

broker rule included in final §1.6045-1(c)

(3)(iii)(B) would apply in this case if the

real estate reporting person is aware that

the PDAP was involved to make the payment on behalf of the real estate buyer and

obtains from the PDAP the certification

described above that the PDAP is a U.S.

digital asset broker. If the transaction is

undertaken in any other way, it is unclear

that the real estate reporting person would

know the identity of the PDAP or whether

that PDAP was required to report on the

transaction. Accordingly, the real estate

reporting person would be required to

report on the transaction without regard

to whether the PDAP also is required to

report. It is anticipated that taxpayers will

only rarely receive two statements regarding the same real estate transaction; however, when they do, taxpayers will be able

to inform the IRS should the IRS inquire

that the two statements reflect only one

transaction.

Another comment requested guidance

on how the information reporting rules

would work with respect to a digital asset

hosted wallet provider that contracts with

another business to perform the hosted

wallet services for the broker’s custom-

July 29, 2024

ers on the broker’s behalf. In response to

the comment, the final regulations clarify

that a broker should be treated as providing hosted wallet services even if it hires

an agent to perform some or all of those

services on behalf of the broker and without regard to whether that hosted wallet

service provider is also in privity with

the customer. Additionally, to ensure this

interpretation is incorporated in the final

regulations, the final regulations revise

the definition of covered security in final

§1.6045-1(a)(15)(i)(J) to reference brokers that provide custodial services for

digital assets, rather than hosted wallet

services for digital assets, to clarify that

services provided by the brokers’ agents

will be ascribed to the broker without

regard to the specific custodial method

utilized. To the extent a hosted wallet provider acts as an agent of the broker and is

in privity with the customer, the multiple

broker rules described herein should avoid

duplicative reporting.

Finally, as discussed in Part I.B.1. of

this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS are continuing to study

the question of how a multiple broker rule

would apply to the non-custodial digital

asset industry.

C. Definition of sales subject to reporting

1. In General

The proposed regulations modified

the definition of a sale subject to reporting to include the disposition of a digital

asset in exchange for cash, one or more

stored-value cards, or a different digital

asset. In addition, the proposed regulations included in the definition of sale the

disposition of a digital asset by a customer

in exchange for property (including securities and real property) of a type that is

subject to reporting under section 6045

or in consideration for the services of a

broker. Finally, the proposed regulations

provided that a sale includes certain digital asset payments by a customer that are

processed by a PDAP.

Several comments recommended

that the definition of sale not include

exchanges of digital assets for different

digital assets or certain other property

because such reporting would be imprac-

July 29, 2024

tical for brokers, confusing for taxpayers,

and not consistent with the reporting rules

for non-digital assets. Another comment

recommended limiting reporting to offramp transactions, which signify the taxpayer’s exit from an investment in digital

assets. In contrast, another comment supported the requirement for information

reporting on exchanges of digital assets

for different digital assets because taxpayers must report all taxable gain or loss

transactions of this type that occur within

their taxable year.

The final regulations do not adopt the

comments to limit the definition of sale to

cash transactions. Digital assets are unique

among the types of assets that are subject

to reporting under section 6045 because

they are commonly exchanged for different digital assets in trading transactions,

for example an exchange of bitcoin for

ether. Some digital assets can readily function as a payment method and, as such,

can also be exchanged for other property

in payment transactions. As explained in

Notice 2014-21, and clarified in Revenue Ruling 2023-14, 2023-33 I.R.B. 484

(August 14, 2023), the sale or exchange

of a digital asset that is property has tax

consequences that may result in a tax liability. Thus, when a taxpayer disposes of

a digital asset to make payment in another

transaction, the taxpayer has engaged in

two taxable transactions: the first being

the disposition of the digital asset and the

second being the payment associated with

the payment transaction. In contrast, when

a taxpayer disposes of cash to make payment, the taxpayer has, at most, only one

taxable transaction. Accordingly, these

regulations require reporting on sales and

certain exchanges of digital assets because

substantive Federal tax principles do not

treat the use of digital assets to make payments in the same way as the use of cash

to make payments.

Unlike digital assets, traditional financial assets subject to broker reporting

are generally disposed of for cash. That

is why the definition of sale in §1.60451(a)(9)(i) only requires reporting for

cash transactions. In contrast, the barter exchange rules in §1.6045-1(e) do

require reporting on property-for-property

exchanges because the barter industry, by

definition, applies to property-for-property exchanges and not only cash transac-

206

tions. Accordingly, the modified definition

of sale for digital assets exchanged for

other property reflects the differences in

the underlying transactions as compared

to traditional financial assets, not the

disparate treatment of similarly situated

transactions based solely on technological

differences. Moreover, the purpose behind

information reporting is to make taxpayers aware of their taxable transactions so

they can report them accurately on their

Federal income tax returns and to make

those transactions more transparent to the

IRS to reduce the income tax gap.

Another comment raised a concern

that including exchanges of digital assets

for property and services exceeded the

authority provided to the Secretary by the

Infrastructure Act. The Treasury Department and the IRS do not agree with this

comment. The term “sale” is not used in

section 6045(a), which provides broadly

that the Secretary may publish regulations requiring returns by brokers with

details regarding gross proceeds and other

information the Secretary may require by

forms or regulations. Nothing in section

6045 limits “gross proceeds” to the results

of a sale rather than an exchange and the

term sale was first defined in the regulations under section 6045 long before

the enactment of the Infrastructure Act.

Moreover, the Infrastructure Act modified

the definition of broker to include certain

persons who provide services effectuating

transfers of digital assets, which are part

of any exchange of digital assets. Accordingly, the changes made by the Infrastructure Act do not provide any limitations

on how the Secretary can define the term

when applied to the digital asset industry.

Another comment suggested that treating

the exchange of digital assets for other

digital assets or services as a taxable event

is impractical and harmful to taxpayers,

and that digital assets should be subject to

tax only when taxpayers sell those assets

for cash. See Part II.A. of this Summary of

Comments and Explanation of Revisions

for discussion of that issue.

2. Definition of Dispositions

Several comments raised questions

about whether the definition of sale,

which includes any disposition of a digital asset in exchange for a different digital

Bulletin No. 2024–31

asset, applies to certain dispositions that

may or may not be taxable. For this reason, several comments recommended that

the final regulations not require reporting

on certain transactions until substantive

guidance is issued on the tax treatment of

those transactions. One comment specifically mentioned reporting should not be

applied to transactions involving what it

referred to as the “wrapping” or “unwrapping” of tokens for the purpose of obtaining a token that is otherwise like the disposed-of token in order to use the received

token on a particular blockchain. In contrast, another comment suggested that the

final regulations should require reporting

wrapping and unwrapping transactions.

One comment suggested that exchanges

of digital assets involving “liquidity pool”

tokens should also be subject to reporting

under the final regulations. Another comment suggested that the final regulations

provide guidance on whether reporting

is required on exchanges of digital assets

for liquidity pool or “staking pool” tokens

because these transactions typically represent contributions of tokens when the

contributor’s economic position has not

changed. This comment also suggested,

if these contributions are excluded from

reporting, that the Treasury Department

and the IRS study how information reporting rules apply when the contributors are

“rewarded” for these “contributions” or

when they receive other digital assets

in exchange for the disposition of these

pooling tokens. Another comment recommended, instead, that the final regulations

explicitly address the information reporting requirements associated with staking

rewards and hard forks and recommended

that they should be treated like taxable

stock dividends for reporting purposes.

Another comment recommended that the

final regulations address whether digital

asset loans and short sales of digital assets

will be subject to reporting. The comment

expressed the view that the substantive tax

treatment of such loans is unresolved, and

further suggested that the initial exchange

of a digital asse

This text is long and has been trimmed here. Open the source document for the complete record.