# Bulletin No. 2024–31

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A28a5d949c6d1ba21

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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 Proc. 2023-25 is superseded.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. Accor

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A28a5d949c6d1ba21. Public record. Not legal advice.