[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, and 301
[TD 10000]
RIN 1545-BP71
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 [INSERT DATE 60 DAYS
AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].
Applicability dates: For dates of applicability, see §§1.1001-7(c); 1.1012-1(h)(5);
1.1012-1(j)(6); 1.6045-1(q); 1.6045-4(s); 1.6045B-1(j); 1.6050W-1(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, 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 tollfree 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 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 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 60day 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 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 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 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 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 “off-chain” 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 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 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 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 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. 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

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
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 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
(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.

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 look-through 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 definition 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 non-tax 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 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 transactions that are less
likely to be used for payment or investment purposes.
3. Closed Loop Assets
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 abovedescribed 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).
4. Coordination with Reporting Rules for Securities, Commodities, and Real Estate
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.
a. Special coordination rules for dual classification assets
Because §1.6045-1(a)(9) of the pre-2024 final regulations (redesignated in the
proposed and final regulations as §1.6045-1(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 1099-DA, 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 commodities.
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 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 securities and commodities (on Form 1099-B). Another
comment requested that, if brokers are required to report these dual classification
assets on the Form 1099-DA, 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 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) and only as a sale of a specified security that is a digital asset under
final §1.6045-1(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 §1.60451(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 §1.6045-1(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 Commission (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 §1.6045-1(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 §1.6045-1(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 §1.6045-1(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 §1.60451(d)(2)(i)(D)(4) (relating to reporting for basis and holding period) for sales of tokenized
securities, except that the broker is not 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 1099-DA 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. Additionally, until the Treasury Department and the
IRS determine which third party information is sufficiently reliable, final §1.60451(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 §1.6045-1(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 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 described in final §1.60451(a)(9)(ii) (reportable on the Form 1099-DA). 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 settlement 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 §1.6045-1(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 to 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 perspective 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 §1.6045-1(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 was issued with respect to digital asset or nondigital 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 §1.60451(c)(5)(i) of the pre-2024 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 §1.6045-1(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 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 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 §1.6045-4. 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 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
contemporaneously with these final regulations that 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-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 laundering. 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 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 §1.60451(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 §1.6045-1(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
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-FullReview.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.
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 §1.60451(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 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 definition of position to know in final §1.6045-1(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 §1.60451(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 §1.6045-1(a)(10). For
example, proposed §1.6045-1(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 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 §1.6045-1(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 §1.6045-1(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 §1.60451(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 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 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 §1.6045-1(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
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 one-time 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 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 not have a contractual relationship with a buyer is not a
broker with respect to that buyer. Another comment suggested the regulations should
not apply to PDAPs at all without a clear congressional mandate. The Treasury
Department and the IRS do not agree that section 6045 requires specific statutory
language with respect to each type of broker that already fits within the definition of
broker under section 6045(c)(1). Section 6045(c)(2) defines the term customer as “any
person for whom the broker has transacted any business.” This definition does not
require that the specific transaction at issue be conducted by the broker for the

customer. Accordingly, if a PDAP transacts some business with the buyer—such as
would be the case if the buyer sets up a payment account with the PDAP—then there is
statutory authority to require that the PDAP report on the buyer’s payments, even
though the activities performed by that PDAP were performed pursuant to a separate
contractual agreement with a merchant.
One comment expressed confusion with the definition of PDAP in the proposed
regulations. Specifically, this comment requested clarification as to why the definition
listed a third party settlement organization separately in proposed §1.6045-1(a)(22)(i)(B)
rather than merely as a subset of the description provided in proposed §1.60451(a)(22)(i)(A), in which the person regularly facilitates payments from one party to a
second party by receiving digital assets from the first payment and exchanging those
digital assets into cash or different digital assets paid the second party. Another
comment expressed confusion over why the processor agreement rules in proposed
§1.6045-1(a)(22)(ii) and (iii) include a provision treating the payment of digital assets to
a second party pursuant to a processor agreement that fixes the exchange rate
(processor agreement arrangement) as a sale effected by the PDAP. This comment
also recommended deleting the processor agreement arrangement paragraphs from the
definition of a PDAP and moving them to the definition of gross proceeds.
The definition of a PDAP in the proposed regulations included descriptions of
ways that a person could facilitate a payment from one party to a second party. Many of
these descriptions involved circumstances in which the buyer transfers the digital asset
payment to the PDAP, followed by the PDAP transferring payment to a second party.
Several of the descriptions involved circumstances in which the PDAP does not take
possession of the payment, but instead instructs the buyer to make a direct transfer of
the digital asset payment to the second party, or otherwise, pursuant to a processor

agreement, temporarily fixes the exchange rate to be applied to the digital assets
received by the second party.
The Treasury Department and the IRS understand that many of the transactions
described in the proposed regulations in which the PDAP does not take possession of
the payment are undertaken today by non-custodial industry participants. In light of the
decision discussed in Part I.B.1. of this Summary of Comments and Explanation of
Revisions to further study the application of the broker reporting rules to non-custodial
industry participants, the Treasury Department and the IRS have determined that the
definition of PDAP and the definition of a sale effected by a PDAP (PDAP sales) in
these final regulations should apply only to transactions in which PDAPs take
possession of the digital asset payment. Additionally, given the complexity of the multipart definition of PDAP in the proposed regulations and in response to the public
comments, the Treasury Department and the IRS have determined that all types of
payment transactions that were included in the various subparagraphs of the definition
should be combined into a single simplified definition. This single definition includes the
requirement that a person must receive the digital assets in order to be a PDAP and
also covers all transactions—and not just those transactions described in proposed
§1.6045-1(a)(22)(i)(B) and (C)—in which the PDAP receives a digital asset and
transfers that same digital asset to the second party.
Accordingly, final §1.6045-1(a)(22) defines a PDAP as a person who in the
ordinary course of a trade or business stands ready to effect sales of digital assets by
regularly facilitating payments from one party to a second party by receiving digital
assets from the first party and paying those digital assets, cash, or different digital
assets to the second party. Correspondingly, final §1.6045-1(a)(9)(ii)(D) revises and
simplifies the proposed regulation’s definition of a sale processed by a PDAP to include
the payment by a party of a digital asset to a PDAP in return for the payment of that

digital asset, cash, or a different digital asset to a second party. Accordingly, if a buyer
uses a stablecoin or other digital asset to make payment to a PDAP that then transfers
the stablecoin, another digital asset, or cash to the merchant, the transaction is a PDAP
sale. Additionally, as discussed in Part I.D.4. of this Summary of Comments and
Explanation of Revisions, the final regulations provide that any PDAP sale that is also a
sale under one of the other definitions of sale under final §1.6045-1(a)(9)(ii)(A) through
(C) (non-PDAP sale) that is subject to reporting due to the broker effecting the sale as a
broker other than as a PDAP must be treated as a non-PDAP sale. Thus, for example,
an exchange of digital assets that a custodial broker executes between customers will
not be treated as a PDAP sale, but instead will be treated as a sale of digital assets in
exchange for different digital assets under final §1.6045-1(a)(9)(ii)(A)(2).
One comment recommended that the regulations be clarified so as not to treat
the PDAP as a broker to the extent it does not have sufficient information about the
transaction to know it is a sale. Another comment stated that PDAPs do, in fact,
maintain detailed records of all transactions for both merchants and buyers. The final
regulations adopt this comment by adding services performed by a PDAP to the
definition of facilitative service provided the PDAP has actual knowledge or ordinarily
would know the nature of the transaction and the gross proceeds therefrom to ensure
that payments made using digital assets are treated as sales effected by a broker. Final
§1.6045-1(a)(21)(iii)(B)(4). Accordingly, in a circumstance in which the PDAP processes
a payment on behalf of a merchant and that payment comes from a buyer with an
account at the PDAP, the PDAP would ordinarily have the information necessary to
know that the transaction constitutes a sale and would know the gross proceeds. As
such, that PDAP will be treated under the final regulations as effecting the sale
transaction under §1.6045-1(a)(10)(i)(D) for the buyer-customer as a digital asset
middleman under §1.6045-1(a)(21). In contrast, in a circumstance in which the PDAP

does not process the payment on behalf of the merchant, the PDAP would ordinarily not
have actual knowledge or other information that would allow the processor to ordinarily
know the nature of the transaction. Accordingly, assuming nothing else about the
transaction provides the PDAP with either actual knowledge or information that would
allow the processor to ordinarily know the nature of the transaction, the payment
processor would not be treated as providing a facilitative service that effects a sale
transaction under these regulations.
One comment stated that PDAPs do not have the infrastructure to collect and
store customer identification information or to report transactions involving buyers who
do not have accounts with the PDAP. Another comment expressed concern about
asking individuals to provide personal identifying information to PDAPs, which could
occur in the middle of a busy store. Another comment requested guidance on how
PDAPs should collect sensitive taxpayer information. Several comments expressed
concern about the increased risk these rules would create with respect to the personal
identifying information collected by PDAPs because that information could be held by
multiple brokers. Several other comments stated that extending information reporting to
PDAPs would create surveillance concerns because it could allow the IRS to collect
data on merchandise or services purchased or provided.
The Treasury Department and the IRS understand that PDAPs that comply with
FinCEN and other regulatory requirements are required to collect and in some cases
report customer identification information, and have concluded that such PDAPs will
likewise be able to implement the systems necessary to, or contract with service
providers who can, protect sensitive information of their customers. It is appropriate to
have PDAPs collect, store, and report customer identification information for Federal tax
purposes because reporting on digital asset payment transactions is important to
closing the income tax gap attributable to digital asset transactions. Indeed, reporting is

particularly helpful to buyers in these payment transactions because they may not
understand that the use of digital assets to make payments is a transaction that may
generate a taxable gain or loss. Finally, the final regulations do not require the reporting
of any information regarding the specific services or products purchased by buyers in
payment transactions. Accordingly, the IRS could not use this information reporting to
track or monitor the types of goods and services a taxpayer purchases using digital
assets.
c. Other PDAP issues
Comments also raised various other policy and practical objections to including
PDAPs in the definition of broker. Specifically, comments suggested that requiring
PDAPs to collect tax documentation information for all purchases may halt the
development of digital assets as an efficient and secure payment system or may drive
customers to not use PDAPs to make their payments, potentially exposing them to more
fraud by unscrupulous merchants. Other comments complained that these rules would
punish buyers who choose to pay with digital assets and confuse buyers paying with
stablecoins, who expect transactions to be no different than cash transactions. Several
comments asserted that the benefits of having PDAPs report on digital asset payments
made by buyers was not worth the cost because most tax software programs are able
to track and report accurately the gains and losses realized in connection with these
payment transactions. These comments asserted that for taxpayers already taking
steps to comply with their Federal income tax obligations, an information reporting
regime that provides only gross proceeds information with respect to these transactions
would not produce particularly useful information. Even for other taxpayers, another
comment suggested that reporting by PDAPs provided only limited utility because
determining a gain or loss on each purchase would still involve a separate search for
cost basis information.

The final regulations do not adopt these comments. Information reporting
facilitates the preparation of Federal income tax returns (and reduces the number of
inadvertent errors or intentional misstatements shown on those returns) by taxpayers
who engage in digital asset transactions. Information reporting is particularly important
in the case of payment transactions involving the disposition of digital assets, which
many taxpayers do not realize must be reported on their Federal income tax returns.
Clear information reporting rules also helps the IRS to identify taxpayers who have
engaged in these transactions, and thereby help to reduce the overall income tax gap.
Moreover, regarding the impact of these regulations on the development of digital
assets as an efficient and secure payment system, the final regulations will assist digital
asset owners who are currently forced to closely monitor and maintain records of all
their digital asset transactions to correctly report their tax liability at the end of the year
because they will receive the necessary information from the processor of the
transactions. Eliminating these high entry costs may allow more potential digital asset
owners with little experience accounting for dispositions of digital assets in payment
transactions to enter the market.
Several comments recommended against having PDAPs report on buyers
disposing of digital assets because these PDAPs already report on merchants who
receive these payments under section 6050W to the extent the payments are for goods
or services. These comments raised concerns that this duplicative reporting for the
same transaction would harm the IRS, create an undue burden for brokers, and cause
confusion for buyers making payments. The final regulations do not adopt these
comments because the reporting is not duplicative. The reporting under section 6050W
reports on payments made to the merchant. That reporting is not provided to the buyers
making those payments, and therefore does not address the gross proceeds that the
buyer must report on the buyer’s Federal income tax returns.

Another comment suggested that the treatment of digital asset payments should
be analogous to that of cash payments. That is, since PDAPs are not required to report
on buyers making cash payments, they should not be required to report on buyers
making payments with digital assets. The final regulations do not adopt this comment
because a buyer making a cash payment does not have a taxable transaction while a
buyer making a payment with digital assets is engaging in a sale or exchange that
requires the buyer to report any gain or loss from the disposition on its Federal income
tax return.
Other comments raised the concern that reporting by PDAPs would result in
duplicative reporting to the buyer because the buyer’s wallet provider or another digital
asset trading platform may report these transactions. See Part I.B.5. of this Summary of
Comments and Explanation of Revisions for a discussion of how the multiple broker
rules provided in these final regulations would apply to PDAPs.
Another comment recommended only subjecting PDAPs to broker reporting if
they exchange digital assets into fiat currency. The final regulations do not adopt this
comment because digital assets are a unique form of property which can be used to
make payments. Accordingly, given that digital assets are becoming a more popular
form of payment, it is important that taxpayers making payments with digital assets be
provided the information they need to report these transactions on their Federal income
tax returns.
Notwithstanding that the final regulations require PDAPs to report on PDAP
sales, as discussed in Part I.D.2. of this Summary of Comments and Explanation of
Revisions, the final regulations provide a $10,000 de minimis threshold for qualifying
stablecoins below which PDAPs will not have to report PDAP sales using qualifying
stablecoins. Additionally, the Treasury Department and the IRS have determined that,
pursuant to discretion under section 6045(a), it is appropriate to provide additional

reporting relief for certain low-value PDAP sales using digital assets other than
qualifying stablecoins that are less likely to give rise to significant gains or losses. As
discussed in Part I.D.4. of this Summary of Comments and Explanation of Revisions,
the final regulations have added a de minimis annual threshold for PDAP sales below
which no reporting is required.
3. Issuers of Digital Assets
Proposed §1.6045-1(a)(1) modified the definition of broker to include persons
that regularly offer to redeem digital assets that were created or issued by that person,
such as in an initial coin offering or redemptions by an issuer of a so-called stablecoin.
One comment focused on stablecoin issuers and recommended against treating such
issuers as brokers because it is unclear how they would be in a position to know the
gain or loss of their customers. Issuers of digital assets that regularly offer to redeem
those digital assets will know the nature of the sale and the gross proceeds from the
sale when they redeem those digital assets. Accordingly, it is appropriate to treat these
issuers as brokers required to report the gross proceeds of the redemption just as
obligors that regularly issue and retire their own debt obligations are treated as brokers
and corporations that regularly redeem their own stock also are treated as brokers
under §1.6045-1(a)(1) of the pre-2024 final regulations. Moreover, since these issuers
do not provide custodial services for their customers redeeming the issued digital
assets, they are not required to report on the customer’s adjusted basis under final
§1.6045-1(d)(2)(i)(D). As such whether they are able to know their customer’s gain or
loss is not relevant to whether they should be treated as brokers under these
regulations.
4. Real Estate Reporting Persons
The proposed regulations provided that a real estate reporting person is a broker
with respect to digital assets used as consideration in a real estate transaction if the

reporting person would generally be required to make an information return with respect
to that transaction under proposed §1.6045-4(a). To ensure that real estate reporting
persons report on real estate buyers making payment in such transactions with digital
assets, the proposed regulations also included these real estate buyers in the definition
of customer and included the services performed with respect to these transactions by
real estate reporting persons in the definition of facilitative services relevant to the
definition of a digital asset middleman.
One comment raised the concern that in some real estate transactions, direct
(peer to peer) payments of digital assets from buyers to sellers may not be reflected in
the contract for sale. In such transactions, the real estate reporting person would not
ordinarily know that the buyers used digital assets to make payment. The Treasury
Department and the IRS have concluded that it is not appropriate at this time to require
real estate reporting persons who do not know or would not ordinarily know that digital
assets were used by the real estate buyer to make payment to report on such
payments. Accordingly, the definition of facilitative service in final §1.60451(a)(21)(iii)(B)(2) has been revised to limit the services provided by real estate reporting
persons that constitute facilitative services to those services for which the real estate
reporting person has actual knowledge or ordinarily would know that digital assets were
used by the real estate buyer to make payment directly to the real estate seller. For this
purpose, a real estate reporting person is considered to have actual knowledge that
digital assets were used by the real estate buyer to make payment if the terms of the
real estate contract provide for payment using digital assets. Thus, for example, if the
contract for sale states that the buyer will make payment using digital assets, either
fixed as to number of units or fixed as to the value, the real estate reporting person
would be treated as having actual knowledge that digital assets were used to make
payment in the transaction notwithstanding that such person might have to query the

buyer and seller regarding the name and number of units used to make payment.
Additionally, a separate communication to the real estate reporting person, for example,
to ensure that the value of the digital asset payment is reflected in any commissions or
taxes due at closing, would constitute actual knowledge by the real estate reporting
person that digital assets were used by the real estate buyer to make payment directly
to the real estate seller.
One comment recommended that to relieve burden on the real estate reporting
person, the form on which the real estate seller’s gross proceeds are reported (Form
1099-S, Proceeds From Real Estate Transactions) be revised with a check box to
indicate that digital assets were paid in the transaction and with a new box for the
buyer’s name, address, and tax identification number (TIN). These revisions would
allow the real estate reporting person to file one Form 1099-S instead of one Form
1099-DA (with respect to the real estate buyer) and one Form 1099-S (with respect to
the real estate seller). The final regulations do not make this suggested change
because it would be inappropriate to include both parties to the transaction on the same
information return. The broker reporting regulations require copies of Form 1099-S to be
furnished to the taxpayer, and it would be inappropriate to require disclosure of either
party’s TIN to the other. For a discussion of how the multiple broker rule would apply to
a real estate transaction involving a real estate reporting person and a PDAP, see Part
I.B.5. of this Summary of Comments and Explanation of Revisions.
Notwithstanding these decisions regarding the appropriateness of reporting
under these regulations by real estate reporting persons, as discussed in Part VII. Of
this Summary of Comments and Explanation of Revisions, the applicability date for
reporting has been delayed and backup withholding relief has been provided for real
estate reporting persons.
5. Exempt Recipients and the Multiple Broker Rule

a. Sales effected for exempt recipients
The proposed regulations left unchanged the exceptions to reporting provided
under §1.6045-1(c)(3)(i) of the pre-2024 final regulations for exempt recipients, such as
certain corporations, financial institutions, tax exempt organizations, or governments or
political subdivisions thereof. Thus, the proposed regulations did not create a reporting
exemption for sales of digital assets effected on behalf of a customer that is a digital
asset broker. Several comments recommended that custodial digital asset brokers be
added to the list of exempt recipients under the final regulations because the comments
asserted that these brokers are subject to rigorous oversight by numerous Federal and
State regulators. In response to the request that custodial digital asset brokers be
added to the list of exempt recipients, final §1.6045-1(c)(3)(i)(B)(12) adds digital asset
brokers to the list of exempt recipients for sales of digital assets, but limits such
application to only U.S. digital asset brokers because brokers that are not U.S. digital
asset brokers (non-U.S. digital asset brokers) are not currently subject to reporting on
digital assets under these final regulations. See Part I.G. of this Summary of Comments
and Explanation of Revisions for the definition of a U.S. digital asset broker and a
discussion of the Treasury Department’s and the IRS’s plans to implement the CARF.
Additionally, the list also does not include U.S. digital asset brokers that are registered
investment advisers that are not otherwise on the list of exempt recipients (§1.60451(c)(3)(i)(B)(1) through (11) of the pre-2024 final regulations) because registered
investment advisers were not previously included in the list of exempt recipients. For
this purpose, a registered investment adviser means a registered investment adviser
registered under the Investment Advisers Act of 1940, 15 U.S.C. 80b-1, et seq., or as a
registered investment adviser with a state securities regulator. See Part I.B.5.b. of this
Summary of Comments and Explanation of Revisions for the documentation that a
broker effecting a sale on behalf of a U.S. digital asset broker (other than a registered

investment adviser) must obtain pursuant to final §1.6045-1(c)(3)(i)(C)(3) to treat such
customer as an exempt recipient under final §1.6045-1(c)(3)(i)(B)(12).
b. The multiple broker rule
The proposed regulations also did not extend the multiple broker rule under
§1.6045-1(c)(3)(iii) of the pre-2024 final regulations to digital asset brokers. Comments
overwhelmingly requested that the final regulations implement a multiple broker rule
applicable to digital asset brokers to avoid burdensome and confusing duplicative
reporting. Several comments recommended that the rule in §1.6045-1(c)(3)(iii) of the
pre-2024 final regulations, which provides that the broker that submits instructions to
another broker, such as a digital asset trading platform, should have the obligation to
report the transaction to the IRS, not the broker that receives the instructions and
executes the transaction, because the brokers that submit instructions are in a position
to provide reporting information to those clients with whom they maintain a direct
relationship, while the latter are not. Another comment recommended requiring only the
digital asset broker that has the final ability to consummate the sale to report the
transaction to the IRS unless that broker has no ability to backup withhold. Another
comment recommended allowing digital asset brokers to enter into contracts for
information reporting to establish who is responsible for reporting the transaction to the
IRS. Finally, several comments recommended that, when two digital asset brokers
would otherwise have a reporting obligation with respect to a sale transaction, that only
the digital asset broker crediting the gross proceeds to the customer’s wallet address or
account have the obligation to report the transaction to the IRS because this is the
broker that has the best ability to backup withhold.
As discussed in Part VI. Of this Summary of Comments and Explanation of
Revisions, backup withholding on these transactions is a necessary and essential tool
to ensure that important information for tax enforcement is reported to the IRS. Because

the broker crediting the gross proceeds to the customer’s wallet address or account is in
the best position to backup withhold on these transactions if the customer does not
provide the broker with the necessary tax documentation, final §1.6045-1(c)(3)(iii)(B)
adopts a multiple broker rule for digital asset brokers that would require the broker
crediting the gross proceeds to the customer’s wallet address or account to report the
transaction to the IRS when more than one digital asset broker would otherwise have a
reporting obligation with respect to a sale transaction. The relief for the broker that is not
the broker crediting the gross proceeds to the customer’s wallet address or account,
however, is conditioned on that broker obtaining proper documentation from the other
broker as discussed in the next paragraph. Additionally, the final regulations do not
adopt the suggested rule that would allow a broker to shift the responsibility to report to
another broker based on an agreement between the brokers because the broker having
the obligation to report in that case may not have the ability to backup withhold. A
broker, of course, is not prohibited from contracting with another broker or with another
third party to file the required returns on its behalf.
Numerous comments provided recommendations in response to the request in
the proposed regulations for suggestions to ensure that a digital asset broker would
know with certainty that the other digital asset broker involved in a transaction is also a
broker with a reporting obligation under these rules. One comment raised a concern
with a rule requiring the broker obligated to report to provide notice to the other broker
that it will make a return of information for each sale because that requirement would be
overly burdensome. Another comment recommended that the broker obtain from the
obligated broker a Form W-9 that has been modified to add an exempt payee code for
digital asset brokers and a unique broker identification number. Another comment
recommended that, absent actual knowledge to the contrary, a broker should be able to
rely on a reasonable determination based on another broker’s name or other publicly

available information it has about the other broker (sometimes referred to as the eyeball test) that the other broker is a U.S. digital asset broker. To avoid any gaps in
reporting, another comment recommended against allowing brokers to treat other
brokers as U.S. digital asset brokers based on actual knowledge or the existing
presumption rules. Finally, another comment recommended that the IRS establish a
registration system and searchable database for digital asset brokers like that used for
foreign financial institutions under the provisions commonly known as the Foreign
Account Tax Compliance Act (FATCA) of the Hiring Incentives to Restore Employment
Act of 2010, Public Law 111–147, 124 Stat. 71 (March 18, 2010).
Because of the risk that the multiple broker rule could result in no reporting, the
final regulations do not adopt the so-called eye-ball test or the existing presumption
rules for determining if another broker is a U.S. digital asset broker. The final regulations
also do not adopt an IRS registration system for U.S. digital asset brokers because the
IRS is still considering the benefits and burdens of a registration system for both the IRS
and brokers. Instead, the final regulations adopt a rule that to be exempt from reporting
under the multiple broker rule, a broker must obtain from another broker a Form W-9
certifying that the other broker is a U.S. digital asset broker (other than a registered
investment adviser that is not otherwise on the list of exempt recipients (§1.60451(c)(3)(i)(B)(1) through (11) of the pre-2024 final regulations). Because the current Form
W-9 does not have this certification, the notice referred to in Part VII. Of this Summary
of Comments and Explanation of Revisions will permit brokers to rely upon a written
statement that is signed by another broker under penalties of perjury that the other
broker is a U.S. digital asset broker until sometime after the Form W-9 is revised to
accommodate this certification. It is contemplated that the instructions to the revised
Form W-9 will give brokers who have obtained private written certifications a reasonable
transition period before needing to obtain a revised Form W-9 from the other broker.

One comment requested clarification regarding which broker—the real estate
reporting person or the PDAP—is responsible for filing a return with respect to the real
estate buyer in a transaction in which the real estate buyer transfers digital assets to a
PDAP that in turn transfers cash to the real estate seller. The multiple broker rule
included in final §1.6045-1(c)(3)(iii)(B) would apply in this case if the real estate
reporting person is aware that the PDAP was involved to make the payment on behalf
of the real estate buyer and obtains from the PDAP the certification described above
that the PDAP is a U.S. digital asset broker. If the transaction is undertaken in any other
way, it is unclear that the real estate reporting person would know the identity of the
PDAP or whether that PDAP was required to report on the transaction. Accordingly, the
real estate reporting person would be required to report on the transaction without
regard to whether the PDAP also is required to report. It is anticipated that taxpayers
will only rarely receive two statements regarding the same real estate transaction;
however, when they do, taxpayers will be able to inform the IRS should the IRS inquire
that the two statements reflect only one transaction.
Another comment requested guidance on how the information reporting rules
would work with respect to a digital asset hosted wallet provider that contracts with
another business to perform the hosted wallet services for the broker’s customers on
the broker’s behalf. In response to the comment, the final regulations clarify that a
broker should be treated as providing hosted wallet services even if it hires an agent to
perform some or all of those services on behalf of the broker and without regard to
whether that hosted wallet service provider is also in privity with the customer.
Additionally, to ensure this interpretation is incorporated in the final regulations, the final
regulations revise the definition of covered security in final §1.6045-1(a)(15)(i)(J) to
reference brokers that provide custodial services for digital assets, rather than hosted
wallet services for digital assets, to clarify that services provided by the brokers’ agents

will be ascribed to the broker without regard to the specific custodial method utilized. To
the extent a hosted wallet provider acts as an agent of the broker and is in privity with
the customer, the multiple broker rules described herein should avoid duplicative
reporting.
Finally, as discussed in Part I.B.1. of this Summary of Comments and
Explanation of Revisions, the Treasury Department and the IRS are continuing to study
the question of how a multiple broker rule would apply to the non-custodial digital asset
industry.
C. Definition of sales subject to reporting
1. In General
The proposed regulations modified the definition of a sale subject to reporting to
include the disposition of a digital asset in exchange for cash, one or more stored-value
cards, or a different digital asset. In addition, the proposed regulations included in the
definition of sale the disposition of a digital asset by a customer in exchange for
property (including securities and real property) of a type that is subject to reporting
under section 6045 or in consideration for the services of a broker. Finally, the proposed
regulations provided that a sale includes certain digital asset payments by a customer
that are processed by a PDAP.
Several comments recommended that the definition of sale not include
exchanges of digital assets for different digital assets or certain other property because
such reporting would be impractical for brokers, confusing for taxpayers, and not
consistent with the reporting rules for non-digital assets. Another comment
recommended limiting reporting to off-ramp transactions, which signify the taxpayer’s
exit from an investment in digital assets. In contrast, another comment supported the
requirement for information reporting on exchanges of digital assets for different digital

assets because taxpayers must report all taxable gain or loss transactions of this type
that occur within their taxable year.
The final regulations do not adopt the comments to limit the definition of sale to
cash transactions. Digital assets are unique among the types of assets that are subject
to reporting under section 6045 because they are commonly exchanged for different
digital assets in trading transactions, for example an exchange of bitcoin for ether.
Some digital assets can readily function as a payment method and, as such, can also
be exchanged for other property in payment transactions. As explained in Notice 201421, and clarified in Revenue Ruling 2023-14, 2023-33 I.R.B. 484 (August 14, 2023), the
sale or exchange of a digital asset that is property has tax consequence that may result
in a tax liability. Thus, when a taxpayer disposes of a digital asset to make payment in
another transaction, the taxpayer has engaged in two taxable transactions: the first
being the disposition of the digital asset and the second being the payment associated
with the payment transaction. In contrast, when a taxpayer disposes of cash to make
payment, the taxpayer has, at most, only one taxable transaction. Accordingly, these
regulations require reporting on sales and certain exchanges of digital assets because
substantive Federal tax principles do not treat the use of digital assets to make
payments in the same way as the use of cash to make payments.
Unlike digital assets, traditional financial assets subject to broker reporting are
generally disposed of for cash. That is why the definition of sale in §1.6045-1(a)(9)(i)
only requires reporting for cash transactions. In contrast, the barter exchange rules in
§1.6045-1(e) do require reporting on property-for-property exchanges because the
barter industry, by definition, applies to property-for-property exchanges and not only
cash transactions. Accordingly, the modified definition of sale for digital assets
exchanged for other property reflects the differences in the underlying transactions as
compared to traditional financial assets, not the disparate treatment of similarly situated

transactions based solely on technological differences. Moreover, the purpose behind
information reporting is to make taxpayers aware of their taxable transactions so they
can report them accurately on their Federal income tax returns and to make those
transactions more transparent to the IRS to reduce the income tax gap.
Another comment raised a concern that including exchanges of digital assets for
property and services exceeded the authority provided to the Secretary by the
Infrastructure Act. The Treasury Department and the IRS do not agree with this
comment. The term “sale” is not used in section 6045(a), which provides broadly that
the Secretary may publish regulations requiring returns by brokers with details regarding
gross proceeds and other information the Secretary may require by forms or
regulations. Nothing in section 6045 limits “gross proceeds” to the results of a sale
rather than an exchange and the term sale was first defined in the regulations under
section 6045 long before the enactment of the Infrastructure Act. Moreover, the
Infrastructure Act modified the definition of broker to include certain persons who
provide services effectuating transfers of digital assets, which are part of any exchange
of digital assets. Accordingly, the changes made by the Infrastructure Act do not provide
any limitations on how the Secretary can define the term when applied to the digital
asset industry. Another comment suggested that treating the exchange of digital assets
for other digital assets or services as a taxable event is impractical and harmful to
taxpayers, and that digital assets should be subject to tax only when taxpayers sell
those assets for cash. See Part II.A. of this Summary of Comments and Explanation of
Revisions for discussion of that issue.
2. Definition of Dispositions
Several comments raised questions about whether the definition of sale, which
includes any disposition of a digital asset in exchange for a different digital asset,
applies to certain dispositions that may or may not be taxable. For this reason, several

comments recommended that the final regulations not require reporting on certain
transactions until substantive guidance is issued on the tax treatment of those
transactions. One comment specifically mentioned reporting should not be applied to
transactions involving what it referred to as the “wrapping” or “unwrapping” of tokens for
the purpose of obtaining a token that is otherwise like the disposed-of token in order to
use the received token on a particular blockchain. In contrast, another comment
suggested that the final regulations should require reporting wrapping and unwrapping
transactions. One comment suggested that exchanges of digital assets involving
“liquidity pool” tokens should also be subject to reporting under the final regulations.
Another comment suggested that the final regulations provide guidance on whether
reporting is required on exchanges of digital assets for liquidity pool or “staking pool”
tokens because these transactions typically represent contributions of tokens when the
contributor’s economic position has not changed. This comment also suggested, if
these contributions are excluded from reporting, that the Treasury Department and the
IRS study how information reporting rules apply when the contributors are “rewarded”
for these “contributions” or when they receive other digital assets in exchange for the
disposition of these pooling tokens. Another comment recommended, instead, that the
final regulations explicitly address the information reporting requirements associated
with staking rewards and hard forks and recommended that they should be treated like
taxable stock dividends for reporting purposes. Another comment recommended that
the final regulations address whether digital asset loans and short sales of digital assets
will be subject to reporting. The comment expressed the view that the substantive tax
treatment of such loans is unresolved, and further suggested that the initial exchange of
a digital asset for an obligation to return the same or identical digital asset and the
provision of cash, stablecoin, or other digital asset collateral in the future may well

constitute a disposition and, in the absence of a statutory provision like section 1058 of
the Code, may be taxable.
The Treasury Department and the IRS have determined that certain digital asset
transactions require further study to determine how to facilitate appropriate reporting
pursuant to these final regulations under section 6045. Accordingly, in response to
these comments, Notice 2024-57 is being issued with these final regulations that will
provide that until a determination is made as to how the transactions identified in the
notice should be reported, brokers are not required to report on these identified
transactions, and the IRS will not impose penalties for failure to file correct information
returns or failure to furnish correct payee statements with respect to these identified
transactions.
One comment recommended that an exchange of digital assets for governance
tokens or any other exchange for tokens that could be treated as a contribution to an
actively managed partnership or association also be excluded from reporting under
section 6045 until the substantive Federal tax consequences of these contributions are
addressed in guidance. The final regulations do not adopt this recommendation.
Whether exchanges of digital assets for other digital assets could be treated as a
contribution to a partnership or association is outside the scope of these regulations.
Additionally, because the potential for duplicate reporting also exists for non-digital
asset partnership interests, Treasury Department and the IRS have concluded that
different rules should not apply to sales of digital asset partnership interests. Finally, the
more general question of whether reporting on partnership interests (in digital asset
form or otherwise) under section 6045 is appropriate in light of the potential for duplicate
reporting is outside the scope of this regulations project.
The preamble to the proposed regulations requested comments regarding
whether the broker reporting regulations should apply to include initial coin offerings,

simple agreements for future tokens, and similar contracts, but did not propose such
reporting. One comment recommended that initial coin offerings, simple agreements for
future tokens, and similar contracts should be covered by broker reporting under the
final regulations while another comment asserted that this reporting would not be
feasible. Upon consideration of the comments, the Treasury Department and the IRS
have determined that the issues raised by these comments require further study.
Accordingly, the final regulations do not adopt the comment’s recommendations.
However, the Treasury Department and the IRS may consider publishing additional
guidance that could require broker reporting for such transactions.
3. Exceptions for Certain Closed Loop Transactions
As discussed in Part I.A.3. of this Summary of Comments and Explanation of
Revisions with respect to closed loop digital assets, the Treasury Department and the
IRS do not intend the information reporting rules under section 6045 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. Rather than carve these assets out
from the definition of a digital asset, however, the final regulations add these closed
loop transactions to the list of excepted sales that are not subject to reporting under final
§1.6045-1(c)(3)(ii). Inclusion on the list of excepted sales is not intended to create an
inference that the transaction is a sale of a digital asset under current law. Instead,
inclusion on the list merely means that the Treasury Department and the IRS have
determined that information reporting on these transactions is not appropriate at this
time.
One comment recommended that the definition of digital assets be limited to
exclude from reporting transactions involving dispositions of NFTs used by loyalty
programs. The comment explained that these loyalty programs do not permit customers
to transfer their digital asset tokens by sale or gift outside of the program’s closed (that

is, permissioned) distributed ledger. The final regulations add these loyalty program
transactions to the list of excepted sales for which reporting is not required. This
exception is limited, however, to those programs that do not permit customers to
transfer, exchange, or otherwise use, the tokens outside of the program’s closed
distributed ledger network because tokens that have a market outside the program’s
closed network raise Federal tax issues similar to those with other digital assets that are
subject to reporting.
Another comment recommended that video game tokens that owners have only
a limited ability to sell outside the video game environment be excluded from the
definition of digital assets because sales of these tokens represent a low risk of
meaningful Federal tax non-compliance. The final regulations do not treat sales of video
game tokens that can be sold outside the video game’s closed environment as
excepted sales. Instead, as with the loyalty program tokens, the final regulations limit
the excepted sale treatment to only those dispositions of video game tokens that are not
capable of being transferred, exchanged, or otherwise used, outside the closed
distributed ledger environment.
Several comments requested that the final regulations exclude from reporting
transactions involving digital representations of assets that may be transferred only
within a fixed network of banks using permissioned distributed ledgers to communicate
payment instructions or other back-office functions. According to these comments, bank
networks use digital assets as part of a messaging service. The comments noted that
these digital assets have no intrinsic value, function merely as a tool for recordkeeping,
and are not freely transferable for cash or other digital assets outside the system. To
address these transactions, one comment recommended that the definition of digital
asset be limited to only those digital assets that are issued and traded on
permissionless (that is, open to the public) distributed ledgers. Other comments

requested that the exception apply to permissioned interoperable distributed ledgers,
that is, digital assets that can travel from one permissioned distributed ledger (for
example, at one bank) to another permissioned distributed ledger (at another bank).
The Treasury Department and the IRS are concerned that a broadly applicable
restriction on the definition of digital assets could inadvertently create an exception for
other digital assets that could be involved in transactions that give rise to taxable gain or
loss. Accordingly, to address these comments, the final regulations add certain
transactions within a single cryptographically secured distributed ledger, or network of
interoperable distributed ledgers, to the list of excepted sales for which reporting is not
required. Specifically, final §1.6045-1(c)(3)(ii)(G) provides that an excepted sale
includes the disposition of a digital asset representing information with respect to
payment instructions or the management of inventory that does not consist of digital
assets, which in each case does not give rise to sales of other digital assets within a
cryptographically secured distributed ledger (or network of interoperable distributed
ledgers) if access to the distributed ledgers (or network of interoperable distributed
ledgers) is restricted to only users of such information and if the digital assets disposed
of are not capable of being transferred, exchanged, or otherwise used, outside such
distributed ledger or network. No inference is intended that such transactions would
otherwise be treated as sales of digital assets. This exception, however, does not apply
to sales of digital assets that are also sales of securities or commodities that are cleared
or settled on a limited-access regulated network subject to the coordination rule in final
§1.6045-1(c)(8)(iii). See Part I.A.4.a. of this Summary of Comments and Explanation of
Revisions for an explanation of the special coordination rule applicable to securities or
commodities that are cleared or settled on a limited-access regulated network.
The final regulations also include a general exception for closed-loop
transactions in order to address other such transactions not specifically brought to the

attention of the Treasury Department and the IRS. Because the Treasury Department
and the IRS do not have the information available to evaluate those transactions, this
exception applies only to a limited class of digital assets. The digital assets must be
offered by a seller of goods or provider of services to its customers and exchangeable
or redeemable only by those customers for goods or services provided by such seller or
provider, and not by others in a network. In addition, the digital asset may not be
capable of being transferred, exchanged, or otherwise used outside the
cryptographically secured distributed ledger network of the seller or provider and also
may not be sold or exchanged for cash, stored-value cards, or stablecoins at a market
rate inside the seller or provider’s distributed ledger network.
The treatment of closed-loop transactions as excepted sales discussed here is
not intended to be broadly applicable to any digital asset sold within a permissioned
distributed ledger network because such a broad exception could generate incentives
for the creation of distributed ledger networks that are nominally permissioned but are,
in fact, open to the public. If similar digital assets that cannot be sold or exchanged
outside of a controlled, permissioned ledger and that do not raise new tax compliance
concerns are brought to the attention of the Treasury Department and the IRS,
transactions involving those digital assets may also be designated as excepted sales
under final §1.6045-1(c)(3)(ii)(A).
4. Other Exceptions
One comment requested that utility tokens that are limited to a particular
timeframe or event be treated like closed system tokens. The final regulations do not
adopt this suggestion because not enough information was provided for the Treasury
Department and the IRS to determine whether these tokens are capable of being
transferred, exchanged, or otherwise used, outside of the closed distributed ledger
environment. Another comment requested that digital assets used for test purposes be

excluded from the definition of digital assets. According to this comment, test blockchain
networks allow users to receive digital assets for free or for a nominal fee as part of the
creation and testing of software. These networks have sunset dates beyond which the
digital assets created cannot be used. The final regulations do not adopt this comment
because not enough information was provided to know if these networks are closed
distributed ledger environments or if the tokens are capable of being transferred,
exchanged, or otherwise used, prior to the network’s sunset date.
One comment requested that the final regulations be revised to prevent the
application of cascading transaction fees in a sale of digital assets for different digital
assets when the broker withholds the received digital assets to pay for such fees. For
example, a customer exchanges one unit of digital asset AB for 100 units of digital asset
CD (first transaction), and to pay for the customer’s digital asset transaction fees, the
broker withholds 10 percent (or 10 units) of digital asset CD. The comment
recommended that the sale of the 10 units of CD in the second transaction be allocated
to the original transaction and not be separately reported. The Treasury Department
and the IRS have determined that a limited exception from the definition of sale should
apply to cascading digital asset transaction fees. Specifically, final §1.6045-1(c)(3)(ii)(C)
excepts a sale of digital asset units withheld by the broker from digital assets received
by the customer in any underlying digital asset sale to pay for the customer’s digital
asset transaction costs. The special specific identification rule in final §§1.60451(d)(2)(ii)(B)(3) and 1.1012-1(j)(3)(iii) ensures that the sale of the withheld units does
not give rise to gain or loss. See Part VI.B. of this Summary of Comments and
Explanation of Revisions for a discussion of the application of this excepted sales rule
when the sale of such withheld units gives rise to an obligation by the broker under
section 3406 to deduct and withhold a tax.
D. Information to be reported for digital asset sales

1. In General
The proposed regulations required that for each digital asset sale for which a
broker is required to file an information return, the broker report, among other things, the
date and time of such sale set forth in hours, minutes, and seconds using Coordinated
Universal Time (UTC). The proposed regulations requested comments regarding
whether UTC time was appropriate and whether a 12-hour clock or a 24-hour clock
should be used for this reporting. Some comments agreed with reporting the time of
sale based on UTC time; however, other comments suggested using the customer’s
local time zone as configured on the platform or in the wallet. Other comments
suggested that it is not technologically or operationally feasible to use the time zone of
the customer’s domicile. Another comment raised the concern that reporting in different
time zones from the broker’s time zone would make the broker and the IRS unable to
reconcile backup withholding, timely tax deposits, and other annual filings. Still other
comments requested broker flexibility in reporting the time of sale, provided the broker
reported the time of the customer’s purchases and sales consistently. Several other
comments raised the concern that reporting on the time of transaction was excessively
burdensome due to the number of tax lots that the broker’s customers could potentially
acquire and sell in a single day. Another comment suggested that the information
reported with respect to the time of the transaction should be the same as the
information reported on the Form 1099-B for traditional asset sales unless there is a
compelling reason to do otherwise. Additionally, several comments suggested that the
burden of developing or modifying systems to report the time of sale was not warranted
because the time of sale within a date (that is reported) does not generally impact
customer holding periods if the broker treats the time zone of purchases and sales
consistently.

The final regulations adopt the recommendation to remove the requirement to
report the time of the transaction. The Treasury Department and the IRS are concerned
about the burdensome nature of the time reporting requirement and the administrability
of reconciling different times for customer transactions and backup withholding deposits.
Additionally, the issues raised by the time of sale with respect to digital asset year-end
transactions are generally the same as for traditional asset sales. It is expected that
brokers will determine the date of purchase and date of sale of a customer’s digital
assets based on a consistent time zone so that holding periods are reported
consistently, and that brokers will provide customers with the information necessary for
customers to report their year-end sale transactions accurately.
The proposed regulations also required that, for each digital asset sale for which
a broker is required to file an information return and for which the broker effected the
sale on the distributed ledger, the broker report the transaction identification (transaction
ID or transaction hash) associated with the digital asset sale and the digital asset
address (or digital asset addresses if multiple) from which the digital asset was
transferred in connection with the sale. Additionally, for transactions involving sales of
digital assets that were previously transferred into the customer’s hosted wallet with the
broker (transferred-in digital asset), the proposed regulations required the broker to
report the date and time of such transferred-in transaction, the transaction ID of such
transfer-in transaction, the digital asset address (or digital asset addresses if multiple)
from which the transferred-in digital asset was transferred, and the number of units
transferred in by the customer as part of that transfer-in transaction. Numerous
comments raised privacy and surveillance concerns associated with the requirement to
report transaction ID and digital asset address information. These comments noted that
a person or entity who knows the digital asset address of another gains access not only
to that other user’s purchases and exchanges on a blockchain network, but also the

entire transaction history associated with that user’s digital asset address. One
comment expressed concern that reporting transaction ID and digital asset addresses
would link the transaction history of the reported digital asset addresses to the taxpayer,
thus exposing the financial and spending habits of that taxpayer. Other comments
expressed that reporting this information also creates a risk that the information could
be intercepted by criminals who could then attempt to extort or otherwise gain access to
the private keys of identified persons with digital asset wealth. In short, many comments
expressed strongly stated views that requiring this information creates privacy, safety,
and national security concerns and could imperil U.S. citizens.
Other comments suggested that the information reporting rules should balance
the IRS’s need for transparency with the taxpayer’s interest in privacy. Thus, reporting
of transaction IDs and digital asset addresses should not be required because the
information exceeds the information that the IRS needs to confirm the value of reported
gross proceeds and cost basis information. Further, another comment asserted that the
IRS does not need transaction ID and digital asset address information because the IRS
already has powerful tools to audit taxpayers and collect this information on audit. Other
comments raised concerns with the burden of this requirement for custodial brokers.
Citing the estimate of the start-up costs required to put systems in place to comply with
the proposed regulations’ broker reporting requirements, another comment raised the
concern that many industry participants are smaller businesses with limited funding and
resources that cannot afford to build infrastructure to securely store this information.
Another comment raised the concern that reporting of transaction ID and digital asset
address information would make the Form 1099-DA difficult for taxpayers to read.
Another comment noted that this information is not helpful to taxpayers, who should
already know this information. Other comments suggested that the reporting standard
for digital assets should not be any more burdensome than it is for securities, and that

any additional data fields for digital assets would force traditional brokers that also effect
sales of digital assets to modify their systems. Another comment suggested that the
final regulations should not require the reporting of transaction ID and digital asset
address information in order to align the information reported under section 6045 with
the information required under the CARF, a draft of which would have required the
reporting of digital asset addresses but ultimately did not include such a requirement.
Some comments offered alternative solutions for providing the IRS with the
visibility that this information would provide. For example, one comment suggested that
because of the large number of digital asset transactions, brokers should only report the
digital asset addresses (not transaction IDs) associated with transactions. Another
comment recommended the use of impersonal tax ID numbers that would not reveal the
customer’s full identity to address privacy concerns. Another comment suggested it
would be less burdensome to require reporting of account IDs rather than digital asset
addresses. Another comment suggested that the reporting of this information be
optional or otherwise limited to transactions that involve a high risk of tax evasion or
non-compliance or that otherwise exceed a large threshold. Another comment
recommended the use of standardized tax lot identification like the securities industry.
Another comment recommended instructing brokers to retain this information for later
examination. Another comment recommended that brokers not report this information
but, instead, be required to retain this information to align with the CARF reporting
requirements.
The Treasury Department and the IRS considered these comments. Although
transaction ID and digital asset address information would provide uniquely helpful
visibility into a taxpayer’s transaction history, which the IRS could use to verify taxpayer
compliance with past tax reporting obligations, the final regulations remove the
obligation to report transaction ID and digital asset address information. The Treasury

Department and the IRS have concluded, however, that this information will be
important for IRS enforcement efforts, particularly in the event a taxpayer refuses to
provide it during an examination. Accordingly, final §1.6045-1(d)(11) provides a rule that
requires brokers to collect this information with respect to the sale of a digital asset and
retain it for seven years from the due date for the related information return filing. This
collection and retention requirement, however, would not apply to digital assets that are
not subject to reporting due to the special reporting methods discussed in Parts I.D.2.
through I.D.4. of this Summary of Comments and Explanation of Revisions. The sevenyear period was chosen because the due date for electronically filed information under
section 6045 is March 31 of the calendar year following the year of the sale transaction.
Because most taxpayers’ statute of limitations for substantial omissions from gross
income will expire six years from the April 15 filing date for their Federal income tax
return, a six-year retention period from the March 31 filing date would end before the
statute of the limitations expires. Therefore, the final regulations designated a sevenyear period for brokers to retain this information to ensure the IRS will have access to all
the records it needs during the time that the taxpayer’s statute of limitations is open.
The IRS intends to monitor the information reported on digital assets and the extent to
which taxpayers comply with providing this information when requested by IRS
personnel as part of an audit or other enforcement or compliance efforts. If abuses are
detected that hamper the IRS’s ability to enforce the Code, the Treasury Department
and the IRS may reconsider this decision to require brokers to maintain this information
in lieu of reporting it to the IRS.
Another comment raised the concern that custodial brokers may not have
transaction ID and digital asset address information associated with digital assets that
were transferred-in to the broker before the applicability date of these regulations. This
comment recommended that the reporting requirement be made effective only for

assets that were transferred-in to the custodial broker on or after January 1, 2023, to
align with the enactment of the Infrastructure Act. The Treasury Department and the
IRS understand that brokers may not have transaction ID and digital asset address
information associated with digital assets that were transferred-in to the broker before
the applicability date of these regulations. The Treasury Department and the IRS,
however, decline to adopt an applicability date rule with respect to the collection and
retention of this information because some brokers may receive the information on
transferred-in assets and to the extent they do, that information should be produced
when requested under the IRS’s summons authority. Accordingly, brokers should
maintain transaction ID and digital asset address information associated with digital
assets that were transferred-in to the broker before the applicability date of this
regulation to the extent that information was retained in the ordinary course of business.
The proposed regulations also required that for each digital asset sale for which
a broker is required to file an information return, that the broker report whether the
consideration received in that sale was cash, different digital assets, other property, or
services. Numerous comments raised the concern that reporting the specific
consideration received is too intrusive and causes security concerns. The final
regulations do not make any changes in response to these comments because the
language in the proposed (and final) regulations does not require brokers to report the
specific goods or services purchased by the customer, but instead requires the broker
to report on the category type that the consideration falls into. For example, if digital
asset A is used to make a payment using the services of a PDAP for a motor vehicle,
the regulations require the PDAP to report that the consideration received was for
property (as opposed to cash, different digital assets, broker services, or other
property). The purpose of this rule is to allow the IRS to be able to distinguish between
sales involving categories of consideration because sales for cash do not raise the

same valuation concerns as sales for different digital assets, other property, or services.
In cases in which digital assets are exchanged for different digital assets, however, the
Form 1099-DA may request brokers to report that specific digital asset received in
return because of the enhanced valuation concerns that arise in these transactions.
Another comment suggested that providing the gross proceeds amount in a non-cash
transaction would not be helpful or relevant. The final regulations do not adopt this
comment because gross proceeds reporting on non-cash transactions is, in fact, helpful
and relevant to customers who must include gains and losses from these transactions
on their Federal income tax returns.
The proposed regulations would have required the broker to report the name of
the digital asset sold. One comment noted that there is no universal convention or
standard naming convention for digital assets. As a result, many digital assets share the
same name or even the same ticker symbol. This comment recommended that the final
regulations allow brokers the flexibility to provide enough information to reasonably
identify the digital asset at issue. This comment also recommended that brokers be
given the ability to provide the name of the trading platform where the transaction was
executed to ensure that the name of the digital asset is clearly communicated. The final
regulations do not adopt this comment because it is more appropriate to address these
issues on the Form 1099-DA and its instructions.
The proposed regulations also required that, for each digital asset sale for which
a broker is required to file an information return, the broker report the gross proceeds
amount in U.S. dollars regardless of whether the consideration received in that sale was
cash, different digital assets, other property, or services. One comment recommended
that brokers not be required to report gross proceeds in U.S. dollars for transactions
involving the disposition of digital assets in exchange for different digital assets, but
instead be required to report only the name of the digital asset received and the number

of units received in that transaction. Although this suggestion would relieve the broker
from having to determine the fair market value of the received digital assets in that
transaction, the final regulations do not adopt this suggestion because the U.S. dollar
value of the received digital assets is information that taxpayers need to compute their
tax gains or losses and the IRS needs to ensure that taxpayers report their transactions
correctly on their Federal income tax returns.
The proposed regulations required brokers to report sales of digital assets on a
transactional (per-sale) basis. One comment recommended that the final regulations
alleviate burden on brokers and instead provide for aggregate reporting, with a separate
Form 1099-DA filed for each type of digital asset. The final regulations do not adopt this
recommendation. Transactional reporting on sales of digital assets is generally
necessary so that the amount received in a digital asset sale can be compared with the
basis of those digital assets to determine gain or loss. Transactional reporting is most
helpful to taxpayers who must report these transactions on their Federal income tax
returns and to the IRS to ensure taxpayers report these transactions on their Federal
income tax returns.
Several comments recommended that final regulations include a de minimis
threshold for digital asset transactions that would exempt from reporting minor sale
transactions—and in particular payment transactions—falling below that threshold. One
comment suggested that such a de minimis threshold could help to prevent taxpayers
from moving their digital assets to self-custodied locations that may be outside the
scope of broker reporting. One comment recommended that brokers not be required to
obtain tax documentation from customers (and therefore not report on those customers’
tax identification numbers) for taxpayers with annual transactions below a de minimis
threshold. A few comments recommended that separate de minimis thresholds or
reduced reporting requirements be applied to brokers with lower transaction volumes

during a start-up or transitional period. Some comments recommended aggregate
annual thresholds for this purpose, for example based on the customer’s aggregate
gross proceeds or aggregate net gain for the year from these transactions, whereas
other comments recommended per-transaction thresholds based either on gross
proceeds or net gain generated from each transaction. One comment suggested that
whatever threshold is applied, that it only be used for PDAPs.
Except as discussed in Parts I.B.2., I.D.2., and I.D.3. of this Summary of
Comments and Explanation of Revisions (involving payment sale transactions and
certain transactions involving qualifying stablecoins and specified NFTs), the final
regulations do not adopt an additional de minimis threshold for digital asset sales for
several reasons. First, any per-transaction threshold for the types of digital assets not
subject to the de minimis thresholds discussed in Parts I.B.2., I.D.2., and I.D.3. of this
Summary of Comments and Explanation of Revisions would not be easy for brokers to
administer because these thresholds are more easily subject to manipulation and
structuring abuse by taxpayers, and brokers are unlikely to have the information
necessary to prevent these abuses by taxpayers, for example by applying an
aggregation or anti-structuring rule. Second, the de minimis threshold for qualifying
stablecoins will already give brokers the ability to avoid reporting on dispositions of
$10,000 in qualifying stablecoins, which are the types of digital assets that are least
likely to give rise to significant gains or losses, and the de minimis threshold for
payment sale transactions will give PDAPs the ability to avoid reporting on dispositions
of other types of digital assets that do not exceed $600. Third, extending any additional
annual threshold to sales of these other types of digital assets that are more likely to
give rise to tax gains and losses will leave taxpayers without the information they need
to compute those gains and losses and will leave the IRS without the information it
needs to ensure that taxpayers report all transactions required to be reported on their

Federal income tax returns. Fourth, information reporting without taxpayer TINs is
generally of limited utility to the IRS for verifying taxpayer compliance with their
reporting obligations. Finally, a separate de minimis threshold or reduced reporting
requirements for small brokers would be relatively easy for brokers to manipulate and
would leave the customers of such brokers without essential information.
2. Optional Reporting Rules for Certain Qualifying Stablecoins
a. Description of the reporting method
As discussed in Part I.A.1. of this Summary of Comments and Explanation of
Revisions, the Treasury Department and the IRS have determined that it is appropriate
to permit brokers to report certain stablecoin sales under an optional alternative
reporting method to alleviate burdensome reporting for these transactions. This
reporting method was developed after careful consideration of the comments submitted
recommending a tailored exemption from reporting for certain stablecoin sales. These
recommendations took different forms, including requests for exemptions for certain
types of stablecoins and recommendations against granting an exemption for other
types of stablecoins. One comment suggested that reporting relief would not be
appropriate for dispositions of stablecoins for cash or property other than different digital
assets. These so-called “off-ramp transactions” convert the owner’s overall digital asset
investment into a non-digital asset investment and, the comment stated, could provide
taxpayers and the IRS with the opportunity to reconcile and verify the blockchain history
of such stablecoins to ensure that previous digital asset transactions were reported. The
Treasury Department and the IRS agree that reporting is appropriate and important for
off-ramp transactions involving stablecoins because the IRS would be able to use this
information to gain visibility into previously unreported digital asset transactions.
Several comments recommended requiring reporting on stablecoin sales when
the reporting reflects explicit trading activity around fluctuations involving the stablecoin.

Because stablecoins do not always precisely reflect the value of the fiat currencies to
which they are pegged, trading activity associated with fluctuations in stablecoins are
more likely to generate taxable gains and losses. The Treasury Department and the IRS
have concluded that traders seeking to profit from stablecoin fluctuations are likely to
sell these stablecoins for cash (in an off-ramp transaction) or for other stablecoins that
have not deviated from their designated fiat currency pegs. Accordingly, the Treasury
Department and the IRS have concluded that reporting on sales of stablecoins for
different stablecoins is also appropriate to assist in tax administration.
In discussing other types of transactions, several comments noted that a
disposition of a stablecoin for other digital assets often reflects mere momentary
ownership of the stablecoin in transactions that use the stablecoin as a bridge asset in
an exchange of one digital asset for a second digital asset. These comments also noted
that, to the extent that a disposition of a stablecoin for a different digital asset does give
rise to gain or loss, that gain or loss will ultimately be reflected (albeit on a net basis)
when the received digital asset is later sold or exchanged. The Treasury Department
and the IRS agree that, in contrast to sales of stablecoins for cash or other stablecoins,
reports on sales of stablecoins for different digital assets (other than stablecoins) are
less important for tax administration. Accordingly, the Treasury Department and the IRS
have concluded that it is appropriate to allow brokers not to report sales of certain
stablecoins for different digital assets that are not also stablecoins.
Some comments recommended exempting sales of stablecoins from cost basis
reporting given their belief in the low likelihood that these sales would result in gain or
loss. Other comments recommended that the final regulations permit combined or
aggregate reporting for stablecoin sales to lessen the reporting burden for brokers and
the burden of receiving returns on the IRS. The Treasury Department and the IRS agree
that basis reporting for all types of stablecoin sales may not justify the burden of

tracking and reporting those sales. Although taxpayers that trade around stablecoin
fluctuations would benefit from cost basis reporting, the Treasury Department and the
IRS have concluded that these traders are more likely to be more sophisticated traders
that are able to keep basis records on their own. The Treasury Department and the IRS
have also concluded that allowing for reporting of stablecoins sales on an aggregate
basis would strike an appropriate balance between the taxpayer's and IRS’s need for
information and the broker’s interest in a reduced reporting burden.
In addition to an overall aggregate reporting approach, numerous comments also
recommended that the final regulations include a de minimis threshold for these
stablecoin sales that would exempt reporting on a taxpayer’s stablecoin sales to the
extent that taxpayer’s total gross proceeds from all stablecoin sales for the year did not
exceed a specified threshold. Several comments suggested de minimis thresholds
based on the taxpayer’s aggregate net gain from stablecoin sales for the year. Other
comments recommended the use of per-transaction de minimis thresholds, based either
on the gain or loss in the transaction or the gross proceeds from the transaction.
The Treasury Department and the IRS considered these comments to decide
whether to further reduce the overall burden on brokers and the IRS. The final
regulations do not adopt a per-transaction de minimis threshold because any pertransaction threshold for stablecoins would be relatively easy for customers to abuse by
structuring their transactions. Although anti-structuring rules based on the intent of the
taxpayer have been used in other information reporting regimes, such as section 6050I
of the Code, similar rules would be unadministrable here. Under section 6050I, the
person who receives payment is the person who files the information returns and will
know when a payor is making multiple payments as part of the same transaction. For
purposes of section 6045 digital asset transaction reporting, however, brokers may not
have the information necessary to determine the motives behind their customer’s

decisions to engage in numerous smaller stablecoin transactions instead of fewer larger
transactions involving these stablecoins. Moreover, even for transactions exceeding a
de minimis threshold, per-transaction reporting still has the potential to result in a very
large number of information returns, with a correspondingly large burden on brokers and
the IRS. The final regulations also do not adopt an aggregate de minimis threshold
based on gains or losses because many brokers will not have the acquisition
information necessary to determine basis, which would be necessary in order to be able
to take advantage of such a de minimis rule, thus making the threshold less effective at
reducing the number of information returns required to be filed. Instead, the final
regulations adopt an aggregate gross proceeds threshold as striking an appropriate
balance between a threshold that will provide the greatest burden relief for brokers and
still provide the IRS with the information needed for efficient tax enforcement.
Additionally, to avoid manipulation and structuring techniques that could be used to
abuse this threshold, the final regulations require that the overall threshold be applied
as a single threshold applicable to a single customer’s sales of all stablecoins
regardless of how many accounts or wallets that customer may have with the broker.
Numerous comments recommended various de minimis thresholds ranging from
$10 to $50,000. In determining the dollar amount that should be used for this de minimis
threshold, the Treasury Department and the IRS considered that the gross proceeds
reported for these stablecoin transactions are unlikely to reflect ordinary income or
substantial net gain. The Treasury Department and the IRS have concluded that a
larger de minimis threshold would eliminate most of the reporting on customers with
small stablecoin holdings and likely small amounts of gain or loss without allowing more
significant sales of fiat-based stablecoins to evade both information and income tax
reporting. Accordingly, the Treasury Department and the IRS have determined that a
$10,000 threshold is the most appropriate because that threshold aligns with the

reporting threshold under section 6050I, which Congress has adopted as the threshold
for requiring certain payments of cash and cash-like instruments to be reported.
In sum, the final regulations adopt an optional $10,000 overall annual de minimis
threshold for certain qualifying stablecoin sales and permit sales over this amount to be
reported on an aggregate basis rather than on a transactional basis. Specifically, in lieu
of requiring brokers to report gross proceeds and basis on stablecoin sales under the
transactional reporting rules of §1.6045-1(d)(2)(i)(B) and (C), the final regulations at
§1.6045-1(d)(10)(i) permit brokers to report designated sales of certain stablecoins
(termed qualifying stablecoins) under an alternative reporting method described at
§1.6045-1(d)(10)(i)(A) and (B). A designated sale of a qualifying stablecoin is defined in
final §1.6045-1(d)(10)(i)(C) to mean any sale as defined in final §1.6045-1(a)(9)(ii)(A)
through (D) of a qualifying stablecoin other than a sale of a qualifying stablecoin in
exchange for different digital assets that are not qualifying stablecoins. In addition, a
designated sale of a qualifying stablecoin includes any sale of a qualifying stablecoin
that provides for the delivery of a qualifying stablecoin pursuant to the settlement of any
executory contract that would be treated as a designated sale of the qualifying digital
asset under the previous sentence if the contract had not been executory. Final
§1.6045-1(d)(10)(i)(C) also defines the term non-designated sale of a qualifying
stablecoin as any sale of a qualifying stablecoin other than a designated sale of a
qualifying stablecoin. A broker reporting under this optional method is not required to
report sales of qualifying stablecoins that are non-designated sales of qualifying
stablecoins under either this optional method or the transactional reporting rules.
Accordingly, for example, if a customer uses a qualifying stablecoin to buy another
digital asset that is not a qualifying stablecoin, no reporting would be required if the
broker is using the optional reporting method for qualifying stablecoins.

Additionally, if a customer’s aggregate gross proceeds (after reduction for the
allocable digital asset transaction costs) from all designated sales of qualifying
stablecoins do not exceed $10,000 for the year, a broker using the optional reporting
method would not be required to report those sales. The Treasury Department and the
IRS anticipate that the combination of allowing no reporting of non-designated sales of
qualifying stablecoins and the $10,000 annual threshold for all designated sales of
qualifying stablecoins will have the effect of eliminating reporting on qualifying
stablecoin transactions for many customers.
If a customer’s aggregate gross proceeds (after reduction for the allocable digital
asset transaction costs) from all designated sales of qualifying stablecoins exceed
$10,000 for the year, the broker must report on a separate information return for each
qualifying stablecoin for which there are designated sales. Final §1.6045-1(d)(10)(i)(B).
If the aggregate gross proceeds exceed the $10,000 threshold, reporting is required
with respect to each qualifying stablecoin for which there are designated sales even if
the aggregate gross proceeds for that qualifying stablecoin is less than $10,000. This
rule is illustrated in final §1.6045-1(d)(10)(i)(D)(2) (Example 2). A broker reporting under
this method must report on a separate Form 1099-DA or any successor form in the
manner required by the form or instructions the following information with respect to
designated sales of each type of qualifying stablecoin:
(1) The name, address, and taxpayer identification number of the customer;
(2) The name of the qualifying stablecoin sold;
(3) The aggregate gross proceeds for the year from designated sales of the
qualifying stablecoin (after reduction for the allocable digital asset transaction costs);
(4) The total number of units of the qualifying stablecoin sold in designated sales
of the qualifying stablecoin;
(5) The total number of designated sale transactions of the qualifying stablecoin;
and
(6) Any other information required by the form or instructions.

Brokers that want to use this reporting method in place of transactional reporting
are not required to submit any form or otherwise make an election to be eligible to
report in this manner. Additionally, brokers may report sales of qualifying stablecoins
under this optional reporting method for some or all customers, though the method
chosen for a particular customer must be applied for the entire year for that customer’s
sales. A broker may change its reporting method for a customer from year to year.
Because the obligation to file returns under the transactional method in final §1.60451(d)(2)(i)(B) is discharged only when a broker files information returns under the
optional reporting method under §1.6045-1(d)(10)(i), brokers that fail to report a
customer’s sales under either method will be subject to penalties under section 6721 for
failure to file information returns under the transactional method. See Part VI.B. of this
Summary of Comments and Explanation of Revisions for a discussion of how the
backup withholding rules will apply to payments falling below this de minimis threshold
and to the gross proceeds of non-designated sales of qualifying stablecoins.
In the case of a joint account, final §1.6045-1(d)(10)(v) provides a rule for the
broker to determine which joint account holder will be the customer for purposes of
determining whether the customer’s combined gross proceeds for all accounts owned
exceed the $10,000 de minimis threshold. This joint account rule follows the general
rules for determining which joint account holder’s name and TIN should be reported by
the broker on the information return (but for the application of the relevant threshold).
Like the general rules, the joint account holder’s name and TIN that must be reported by
the broker is determined after the application of the backup withholding rules under
§31.3406(h)-2(a). For example, under these rules, if two or more individuals own a joint
account, the account holder that is treated as the customer is generally the first named
individual on the account. See Form W-9 at p.5. If, however, the first named individual
does not supply a certified TIN to the broker (or supplies a Form W-8BEN establishing

exempt foreign status) and if another individual joint account holder supplies a certified
TIN, then the broker must treat that other individual as the customer for this purpose.
See §31.3406(h)-2(a)(3). Alternatively, if the first named individual joint account holder
supplies a Form W-8BEN establishing exempt foreign status and the other individual
joint account holder does not supply a certified TIN (or a Form W-8BEN) to the broker,
then the broker must treat that other individual as the customer for this purpose
because that is the individual that caused the broker to begin the backup withholding
that will be shown on the information return.
b. Qualifying stablecoin
In describing which stablecoins they thought should be afforded reporting relief,
comments recommended many different definitions, and those definitions generally
included several types of requirements. Because the recommended definitions
encompass multiple kinds of digital assets, for ease of description here we will use the
term “purported stablecoin” as a stand-in for the type of asset the comments wanted to
exempt from some or all reporting. First, many comments recommended that the
purported stablecoin must have been designed or structured to track the value of a fiat
currency for use as a means of making payment. Other comments recommended
looking to whether the purported stablecoin is marketed as pegged to the fiat currency
or whether the stablecoin is denominated on a 1:1 basis by reference to the fiat
currency. Second, the comments proposed that the purported stablecoin must, in fact,
function as a means of exchange and be generally accepted as payment by third
parties. Third, the comments generally recommended that the purported stablecoin
have some type of built-in mechanism designed to keep the value of the purported
stablecoin in line with the value of the tracked fiat currency, or at least within designated
narrow bands of variation from value of the fiat currency. Further, these comments

recommended that this stabilization mechanism must actually work in practice to keep
the trading value of the purported stablecoin within those designated narrow bands.
Proposals for how this stabilization mechanism requirement could be met varied.
For example, several comments recommended a requirement that the issuer guarantee
redemption at par or otherwise be represented by a separate claim on the issuer
denominated in fiat currency. Another comment recommended that the issuer meet
collateralization (or reserve) requirements and provide annual third party attestation
reports regarding reserve assets. Another comment proposed that these reserves be
held in segregated, bankruptcy-remote reserve accounts for the benefit of holders.
Another comment proposed that these reserves be held in short-term, liquid assets
denominated in the same fiat currency. Other comments suggested requiring that the
purported stablecoin be issued on receipt of funds for the purpose of making payment
transactions. Several other comments proposed requiring that the purported stablecoin
be regulated by a Federal, State, or local government. One comment suggested
prohibiting any stabilization mechanism that is based on an algorithm that achieves
price stability by managing the supply and demand of the stablecoin against a
secondary token that is not price-pegged. Several comments recommended requiring
that the purported stablecoin not deviate significantly from the fiat currency to which it is
pegged. For example, the comments recommended that the value of the stablecoin not
be permitted to fall outside a specified range (with suggestions ranging from 1 percent
to 10 percent) for a meaningful duration over specified periods (such as for more than
24 hours within any consecutive 10-day period or for any period during a 180-day period
during the previous calendar year).
Because the purpose of the optional reporting method is to minimize reporting on
very high volumes of transactions involving little to no gain or loss, and because the
optional reporting regime will ensure at least some visibility into transactions that in the

aggregate exceed the $10,000 threshold, the Treasury Department and the IRS have
determined that the definition of fiat currency-based stablecoins should be relatively
broad to provide the most reduction of burden on brokers and the IRS. Thus, because
the optional reporting method for stablecoins will provide for aggregate reporting of all
proceeds from sales for cash or other stablecoins exceeding the de minimis threshold, it
is not necessary to limit the definition of qualifying stablecoins to those with specific
stabilization mechanisms such as fiat currency reserve requirements, as long as the
stablecoin, in fact, retains its peg to the fiat currency.
Accordingly, based on these considerations, the final regulations describe
qualifying stablecoins as any digital asset that meets three conditions set forth in final
§1.6045-1(d)(10)(ii)(A) through (C) for the entire calendar year. First the digital asset
must be designed to track on a one-to-one basis a single convertible currency issued by
a government or a central bank (including the U.S. dollar). Final §1.6045-1(d)(10)(ii)(A).
Second, final §1.6045-1(d)(10)(ii)(B) requires that the digital asset use one of two
stabilization mechanisms set forth in final §1.6045-1(d)(10)(ii)(B)(1) and (2), which are
based on the recommendations made by the comments. The first stabilization
mechanism provided in final §1.6045-1(d)(10)(ii)(B)(1) sets forth a results-focused test.
Under this stabilization mechanism, the stabilization requirement is met if the
stabilization mechanism causes the unit value of the digital asset not to fluctuate from
the unit value of the convertible currency it was designed to track by more than 3
percent over any consecutive 10-day period during the calendar year. Final §1.60451(d)(10)(ii)(B)(1) also provides that UTC should be used in determining when each day
within this 10-day period begins and ends. UTC time was chosen so that the same
digital asset will satisfy or not satisfy this test for all brokers regardless of the time zone
in which such broker keeps its books and records. Additionally, this stabilization
mechanism provides design flexibility to stablecoin issuers because it does not turn on

how a digital asset maintains a stable value relative to a fiat currency, so long as it
does. The second stabilization mechanism provided in final §1.6045-1(d)(10)(ii)(B)(2), in
contrast, sets forth a design-focused test that provides more certainty to brokers at the
time of a transaction. Under this stabilization mechanism, the stabilization requirement
is met if regulatory requirements apply to the issuer of the digital asset requiring the
issuer to redeem the digital asset at any time on a one-to-one basis for the same
convertible currency that the stablecoin was designed to track. Because a qualifying
stablecoin that satisfies this second stabilization mechanism includes key requirements
set forth in the specified electronic money product definition under section IV.A.4. of the
CARF, it is anticipated that this definition will be considered when regulations are
drafted to implement the CARF. See Part I.G.2. of this Summary of Comments and
Explanation of Revisions (discussing U.S. implementation of the CARF).
Third, under final §1.6045-1(d)(10)(ii)(C), to be a qualifying stablecoin, the digital
asset must generally be accepted as payment by persons other than the issuer. This
acceptance requirement would be met if the digital asset is accepted by the broker as
payment for other digital assets or is accepted by a second party. An example of this is
acceptance by a merchant pursuant to a sale effected by a PDAP.
To avoid confusion for brokers, customers, and the IRS, the Treasury
Department and the IRS have concluded that the determination of whether a digital
asset is a qualifying stablecoin or not must be consistent throughout the entire year.
Accordingly, the definition of a qualifying stablecoin requires that the digital asset meet
the three conditions for the entire calendar year. For example, if a digital asset loses its
peg and no longer satisfies the stabilization mechanism set forth in final §1.60451(d)(10)(ii)(B)(1), it will not be treated as a qualifying stablecoin for the entire year
unless the digital asset satisfies the stabilization mechanism set forth in final §1.60451(d)(10)(ii)(B)(2). See Part VI.B. of this Summary of Comments and Explanation of

Revisions for a discussion of the backup withholding exception for sales of digital assets
that would have been non-designated sales of a qualifying stablecoin up to and
including the date that digital asset loses its peg and no longer satisfies the stabilization
mechanism set forth in final §1.6045-1(d)(10)(ii)(B)(1).
The Treasury Department and the IRS recognize that brokers will not know at the
beginning of a calendar year whether a digital asset that would be a qualifying
stablecoin solely under the results-focused test will be a qualifying stablecoin for that
year, and therefore will need to be prepared to report and backup withhold on sales of
that asset. However, it is anticipated that the results-focused test will rarely result in a
digital asset losing qualifying stablecoin status unless there is a significant and possibly
permanent loss of parity between the stablecoin and the convertible currency to which it
is pegged. Other alternatives suggested by comments, such as a retrospective test that
is based on whether a digital asset failed a results-based test during a period in the
past, for example the 180 days prior to a sale, could result in different treatment of the
same digital asset depending on when a sale of the digital asset took place during a
calendar year, which would be confusing for both brokers and customers. Basing
qualification on the results for a prior year would alleviate that concern, but could result
in treating a digital asset as a qualifying stablecoin for a year in which it was not stable,
and as not a qualifying stablecoin for a later year in which it is stable, which would not
achieve the purposes of the optional reporting method for qualifying stablecoins.
Accordingly, the Treasury Department and the IRS have concluded that a test that
treats a digital asset as a qualifying stablecoin, or not, for an entire calendar year is the
most administrable way to achieve those purposes.
3. Optional Reporting Rules for Certain Specified Nonfungible Tokens
a. Description of the reporting method

Notwithstanding the conclusion discussed in Part I.A.2. of this Summary of
Comments and Explanation of Revisions that the definition of digital assets includes
NFTs, the Treasury Department and the IRS considered the many comments received
suggesting a modified reporting approach under section 6045 for all or a subset of
NFTs. One comment recommended against requiring reporting for NFTs for which the
owner does not have the expectation that the NFT will return gain. The final regulations
do not adopt this comment because it would be overly burdensome for brokers to
determine each customer’s investment expectation. Other comments recommended
against any reporting on NFT transactions by brokers under section 6045 because
reporting under section 6050W (on Form 1099-K, Payment Card and Third Party
Network Transactions) is more appropriate for NFT sellers. Indeed, these comments
noted, brokers that meet the definition of third party settlement organizations under
section 6050W(b)(3) are already filing Forms 1099-K on their customers’ sales of NFTs.
The final regulations do not adopt these comments because the Treasury Department
and the IRS have concluded that the reporting rules should apply uniformly to NFT
marketplaces, and not all digital asset brokers meet the definition of a third party
settlement organization under section 6050W(b)(3).
Several comments raised valuation considerations, particularly in NFT-for-NFT
exchanges or NFT sales in conjunction with physical goods or events, as a reason to
exempt all NFTs from reporting. The final regulations do not adopt these comments
because taxpayers engaging in these transactions still need to report the transactions
on their Federal income tax returns. Additionally, the final regulations already permit
brokers that cannot determine the value of property customers receive in a transaction
with reasonable accuracy to report that the gross proceeds have an undeterminable
value. Final §1.6045-1(d)(5)(ii)(A).

Other comments recommended against requiring reporting for all NFT
transactions because NFTs, unlike other digital assets, are easier for taxpayers to track
on the relevant blockchain. As a result, these comments suggested, taxpayers do not
need to be reminded of their NFT sales and can more easily determine their bases in
these assets by referencing the public blockchain. The final regulations do not adopt
this comment because to be helpful for closing the income tax gap, information
reporting must not only provide the information necessary for taxpayers to compute their
tax gains, it must also provide the IRS with that information to ensure that taxpayers
report all transactions required to be reported on their Federal income tax returns.
Several comments asserted that the cost of reporting on non-financial NFTs
outweighs the tax administration benefits to taxpayers and the IRS because these
assets generally do not have substantial value, and as such transactions in these
assets do not contribute meaningfully to the income tax gap. For example, several
comments cited to publicly available statistics showing that many NFT transactions
involve small dollar amounts. According to one comment, the average price of an NFT
transaction was only $150 for the third quarter of 2022, and the median NFT transaction
value was only $37.69 over the six-month period ending October 1, 2023.3 Additionally,
the comment stated that the value of approximately 45 percent of all NFT transactions
was less than $25, and 82 percent of all NFT transaction were valued at less than $500,
when compared to total exchange volume on the largest centralized and decentralized
exchanges.4 Given the cost of transactional reporting and the relatively small value of

The comment cited a report from NonFungible.com, which stated that all data included was sourced
from the blockchain via its own dedicated blockchain nodes. The report includes a table showing the
average price for an NFT in the third quarter of 2022 was $154. This was a drop in value from an average
price of $643 from the second quarter of 2022. The data sets underlying these estimates consist of public
blockchain data regarding NFT volume, centralized exchange volume, and decentralized exchange
volume. See Dune Analytics, https://dune.com/browse/dashboards (last visited October 30, 2023); Dune
Analytics, https://github.com/duneanalytics/spellbook/tree/main (last visited October 30, 2023); The Block,
https://www.theblock.co/data/crypto-markets/spot/cryptocurrency-exchange-volume-monthly (last visited
Oct. 30, 2023).
the transactions, several comments suggested that aggregate reporting, in a regime
analogous to that under section 6050W for reporting on payment card and third party
network transactions, would lessen the burden of broker reporting on non-financial
NFTs without a meaningful curtailment of the overall goal of reducing the income tax
gap. Other comments recommended against NFT basis reporting under this aggregate
reporting proposal because, unlike cryptocurrency and other fungible tokens, past
purchase prices for NFTs are trackable on the blockchain through the NFT’s unique
token identification. Another comment recommended against transactional reporting for
creators of non-financial NFTs (primary sales)—as opposed to resellers of non-financial
NFTs (secondary sales)—because transactional reporting for creators would needlessly
result in large numbers of separate reports. Additionally, this comment recommended
that primary sales of non-financial NFTs should be reported under section 6050W
instead of under section 6045 because returns under section 6045 would incorrectly
report gross proceeds income instead of ordinary income.
Transactional reporting under section 6045 is generally necessary to allow
taxpayers and the IRS to compare the gross proceeds taxpayers received in sales of
certain property with the cost basis of that property. Because the cited statistics show
that a substantial portion of non-financial NFT transactions are small dollar transactions
for which taxpayers can more easily track their own cost basis, the Treasury
Department and the IRS agree that the cost of transactional reporting for low-value nonfinancial NFTs may outweigh the benefits to taxpayers and the IRS. Accordingly, the
final regulations have added a new optional alternative reporting method for sales of

This comment cited an article that used data reported in an article published on Medium’s website,
“Most artists are not making money off NFTs and here are some graphs to prove it” from April 19, 2021.
This article stated it was based on blockchain and other marketplace data for the week of March 14
through March 21, 2021. During that timeframe, according to the article, 33.6 percent of primary sales of
NFTs were $100 or less; 20 percent of primary sales were $100 to $200, and 7.7 percent of primary sales
were $200 to $300. While not an exact match to the information provided by the comment, the sales data
in this article are comparable.
certain NFTs to allow for aggregate reporting instead of transactional reporting, with a
de minimis annual threshold below which no reporting is required. Brokers that do not
wish to build a separate system for NFTs eligible for aggregate reporting can report all
NFT transactions under the transactional system. Additionally, brokers do not need to
submit any form or otherwise make an election to report under this method and are not
required to report under this optional method consistently from customer to customer or
from year to year; however, the method chosen for a particular customer must be
applied for the entire year for that customer’s sales. Finally, to address the comment
regarding the distinction between primary sales of NFTs that give rise to ordinary
income and secondary sales of NFTs that give rise to gross proceeds, brokers choosing
to report sales of NFTs under this optional method must report, to the extent ordinarily
known, the portion of the total gross proceeds reported attributable to primary sales
(that is, the first sale of the particular NFT).
Given the statistics cited showing the relatively small average and median values
for non-financial NFT transactions, numerous comments said these small purchases
should not need to be reported and several comments recommended the application of
a de minimis threshold below which reporting would not be required at all to alleviate
reporting on an overwhelming majority of NFT sales. Some comments recommended
the use of a per-transaction threshold with proposed thresholds ranging from $50 to
$50,000, while other comments recommended an aggregate gross proceeds threshold,
similar to the $600 threshold applicable under section 6050W(e), as most appropriate.
Because some of these NFT sales are currently reportable under section 6050W, the
Treasury Department and the IRS have concluded that it would be most appropriate to
follow the same $600 reporting threshold applicable under that provision. Accordingly,
the final regulations adopt an annual $600 de minimis threshold for each customer
below which brokers reporting under the optional aggregate method are not required to

report gross proceeds from these NFTs transactions. If the customer’s total gross
proceeds (after reduction for any allocable digital asset transaction costs) from sales of
specified NFTs exceed $600 for the year, a broker may report those sales on an
aggregate basis in lieu of reporting those sales under the transactional reporting rules.
A broker reporting under this method must report on a Form 1099-DA (or any successor
form) in the manner required by the form or instructions the following information with
respect to the customer’s sales of specified NFTs:
(1) The name, address, and taxpayer identification number of the customer;
(2) The aggregate gross proceeds for the year from all sales of specified NFTs
(after reduction for the allocable digital asset transaction costs);
(3) The total number of specified NFTs sold; and
(4) Any other information required by the form or instructions.
Additionally, a broker reporting under this method must report the aggregate
gross proceeds that are attributable to the first sale by the creator or minter of the
specified NFT to the extent the broker would ordinarily know that the transaction is the
first sale of the specified NFT token by the creator or minter. It is anticipated that a
broker would ordinarily know that the transaction is the first sale of the specified NFT by
the creator or minter if the broker provided services to the creator or minter that enabled
the creator to create (or minter to mint) the specified NFT. It is also anticipated that, to
the extent a broker inquires whether the customer’s sale of the specified NFT will be a
first sale, that the broker would ordinarily know this information based on the customer’s
response. Brokers are not required to seek out such information from third party
sources, such as a public blockchain or through blockchain analytics.
The IRS intends to monitor NFTs reported under this optional aggregate
reporting method to determine whether this reporting hampers its tax enforcement
efforts. If abuses are detected, the IRS will reconsider these special reporting rules for
NFTs. For a discussion of how the backup withholding rules apply to payments falling

below this de minimis threshold, see Part VI.B. of this Summary of Comments and
Explanation of Revisions. See Part I.D.2.a. of this Summary of Comments and
Explanation of Revisions for a discussion of how the de minimis threshold is applied to
joint account holders.
b. Specified nonfungible token
In determining the specific subset of NFTs that should be eligible for this optional
aggregate reporting method, the final regulations considered the comments received in
favor of eliminating reporting on sales of certain types of NFTs. For example, one
comment suggested the final regulations apply a “use test” to distinguish between NFTs
that are used for investment purposes and those that are used for enjoyment purposes.
The final regulations do not adopt this comment to define the subset of NFTs that are
eligible for aggregate reporting because determining how a customer uses an NFTs
would not be administratively feasible for most brokers. Another comment
recommended that reporting should be required for those NFTs which (on a look
through basis) reference assets that were previously subject to reporting under
§1.6045-1 or otherwise could be used to deliver value, such as a method of payment.
The Treasury Department and the IRS generally agree with the distinction made in this
comment because brokers already must determine if an effected sale is that of a
security, commodity, etc. under the definitions provided under the section 6045
regulations. Accordingly, making the determination that an asset referenced by an NFT
fits within those same definitions—or otherwise references a digital asset other than an
NFT— is administrable and should not create significantly more burden for brokers.
Because both types of NFT can result in taxable income, however, the Treasury
Department and the IRS disagree with the comment’s conclusion that only NFTs that
reference assets previously subject to broker reporting or otherwise could be used to
deliver value should be subject to the final regulations. Instead, it is appropriate to

require transactional reporting on sales of NFTs that reference previously reportable
assets or otherwise could be used to deliver value and allow for aggregate reporting on
sales of other NFTs.
Accordingly, the final regulations under §1.6045-1(d)(10)(iii) permit optional
aggregate reporting for specified NFTs that look to the character of the underlying
assets, if any, referenced by the NFT. Under these rules, to constitute a specified NFT,
the digital asset must be of the type that is indivisible (that is, the digital asset cannot be
subdivided into smaller units without losing its intrinsic value or function) and must be
unique as determined by the inclusion in the digital asset itself of a unique digital
identifier, other than a digital asset address, that distinguishes that digital asset from all
other digital assets. Final §1.6045-1(d)(10)(iv)(A) and (B). This means that the unique
digital identifier is inherently part of the token itself and not merely referenced by the
digital asset. Taken together, these requirements would exclude all fungible digital
assets from the definition of specified NFTs, including the smallest units of such digital
assets. The Treasury Department and the IRS considered whether the smallest units of
fungible digital assets should be included in the definition of specified NFTs to the
extent specialized off-chain software catalogs and indexes such units. The final
regulations do not include such units in the definition of specified NFTs because, even if
it was appropriate to include these assets in the definition of specified NFTs based on
the application of off-chain software, the specialized off-chain software that catalogs and
indexes such units, in fact, indexes every such unit regardless of whether the particular
unit is trading separately or as part of a larger denomination of such digital asset. As a
result, including these indexed digital assets in the definition would arguably result in
larger denominations of a fungible digital asset being treated as combinations of
multiple specified NFTs and thus subject to the optional aggregate reporting rule.
Moreover, a definitional distinction that would ask brokers to look to the indexed units to

determine if the indexed unit has any value separate from the fungible asset value
would be difficult for brokers to administer.
In addition to satisfying these two criteria associated with the nonfungibility of the
digital asset itself, to be a specified NFT, the digital asset must not directly (or indirectly
through one or more other digital assets that also satisfy the threshold nonfungibility
tests) provide the holder with an interest in certain excluded property. Excluded property
generally includes assets that were previously subject to reporting under §1.6045-1 of
the pre-2024 final regulations or any digital asset that does not satisfy either of the two
criteria. Specifically, excluded property is defined as any security as defined in final
§1.6045-1(a)(3), commodity as defined in final §1.6045-1(a)(5), regulated futures
contract as defined in final §1.6045-1(a)(6), or forward contract as defined in final
§1.6045-1(a)(7). Finally, excluded property includes any digital asset that does not
satisfy the two threshold nonfungibility tests, such as a qualifying stablecoin or other
non-NFT digital assets.
In contrast, a digital asset that satisfies the two criteria and references or
provides an interest in a work of art, sports memorabilia, music, video, film, fashion
design, or any other property or services (non-excluded property) other than excluded
property is a specified NFT that is eligible for the optional aggregate reporting rule under
the final regulations. An NFT that constitutes a security or commodity or other excluded
property is an interest in excluded property for this purpose. Additionally, by excluding
any NFT that provides the holder with any interest in excluded property from the
definition of specified NFTs, an NFT that provides an interest in both excluded property
and non-excluded property will not be included in the definition of specified NFT. This
result lets brokers avoid having to undertake burdensome valuations with respect to
NFTs that reference more than one type of property.

While several comments indicated that it would be administratively feasible for
brokers to review each NFT to determine the nature of the underlying assets, one
comment requested the adoption of a presumption test that would treat an NFT as an
interest in financial assets unless the broker categorizes it otherwise. The Treasury
Department and the IRS have concluded that a presumption rule for distinguishing
between NFTs that is based on whether a broker chooses to categorize the underlying
assets could potentially lead to abuse. Brokers that find it too difficult to determine the
nature of assets referenced by NFTs can choose not to use the optional aggregate
reporting method for NFTs. Accordingly, the final regulations do not adopt this
presumption rule.
4. Reporting Rules for PDAP Sales
As discussed in Part I.B.2. of this Summary of Comments and Explanation of
Revisions, the Treasury Department and the IRS have determined that it is appropriate
to permit some reporting relief for small PDAP sale transactions. Several comments
offered alternatives to reporting on payment transaction sales to reduce the reporting
burden of PDAPs. For example, several comments suggested exempting PDAPs from
the requirement to report cost basis because PDAPs have no visibility into the
customer’s cost basis. The final regulations do not make any changes to address this
comment because neither the proposed regulations nor the final regulations require
PDAPs to report cost basis precisely because it is the understanding of the Treasury
Department and the IRS that these brokers may not currently have any way to know the
customer’s cost basis.
Numerous comments recommended against any reporting of payments
processed by PDAPs on purchases of common, lower-cost items such as a cup of
coffee or ordinary consumer goods. Other comments recommended that the final
regulations adopt a de minimis threshold for these purchases to reduce the overall

reporting burden for these brokers. Another comment asserted that the changes made
by the Infrastructure Act to section 6050I (requiring trades or businesses to report the
receipt of more than $10,000 in cash including digital assets) shows that Congress did
not intend for section 6045 to capture lower-value digital asset purchase transactions.
Another comment suggested that the potential revenue loss involving most purchases is
extremely low and that using digital assets to make everyday purchases is not a realistic
means of tax avoidance. This comment noted that the digital assets that are used to
purchase daily items are stablecoins that do not ordinarily fluctuate in value. Another
comment suggested a per transaction de minimis threshold for reporting on payments
equal to the $10,000 threshold in section 6050I or the $50,000 threshold in the CARF.
Another comment suggested that the de minimis threshold should match the annual
threshold under section 6050W, though this comment also noted that this $600
threshold amount was too low. Another comment recommended a per-transaction
threshold for purchases over $500 (adjusted for inflation), but also recommended, if this
de minimis rule is adopted, that taxpayers be reminded in the instructions to Forms
1040 and 1099-DA that they still must report the gains and losses from these
unreported payment transactions.
As discussed in Parts I.A.1. and I.D.2. of this Summary of Comments and
Explanation of Revisions, the final regulations adopt an optional $10,000 overall annual
de minimis threshold for qualifying stablecoin sales and permit sales over this amount to
be reported on an aggregate basis rather than on a transactional basis. This $10,000
annual threshold applies to PDAPs who choose to report qualifying stablecoin
transactions under this optional method. Accordingly, given the comment that digital
asset purchase transactions often are made using stablecoins, many purchases made
using the services of PDAPs will not be reported due to the application of that de
minimis threshold for payment transactions. This sizable overall annual threshold for

payments made using qualifying stablecoins is appropriate because taxpayers are
unlikely to have significant (if any) unreported gains or losses from these payment
transactions that fall below the $10,000 threshold. In contrast, as suggested by one
comment, allowing for a de minimis threshold for digital assets other than qualifying
stablecoins that are more likely to give rise to significant gains and losses likely would
not be helpful to taxpayers who use them. This is because they would have to
separately account for their payment transactions below the threshold to accurately
report their gains and losses from these transactions for which they would not receive
an information return. Moreover, because many PDAP transactions involve transactions
in which the digital assets are first exchanged for cash before that cash is transmitted to
the merchant, a high threshold for these transactions could create an incentive for
taxpayers to dispose of their highly appreciated digital assets by way of payments just
to avoid tax reporting. Notwithstanding these concerns, if a given taxpayer engages in
relatively low-value payment transactions involving digital assets other than qualifying
stablecoins, reporting to the IRS may not be as important in overcoming the overall
income tax gap as the burden it would impose on PDAPs.
Accordingly, after balancing these competing concerns, the Treasury Department
and the IRS have concluded that an annual de minimis threshold of $600 would be
appropriate for PDAP sales under final §1.6045-1(a)(9)(ii)(D) because that threshold is
similar to the threshold under sections 6041, 6041A, and 6050W(e) of the Code,
thereby reflecting the balance between accurate tax reporting and information reporting
requirements imposed on brokers that Congress thought appropriate. Additionally, this
overall threshold for PDAP sales should be more administrable because PDAPs would
not have to adopt processes to monitor structuring activities used by customers to
evade reporting. See, e.g., §1.6050I-1(c)(1)(ii)(B)(2) (treating an instrument as cash
where the recipient knows that it is being used to avoid reporting). Under this threshold,

PDAPs would not have to report PDAP sales of digital assets with respect to a customer
if those sales did not exceed $600 for the year. If a customer’s PDAP sales exceed
$600 for the year, all of that customer’s sales would be reportable under the general
transactional reporting rules, because customers need that reporting to identify taxable
dispositions of digital assets. Additionally, to avoid having to apply multiple de minimis
thresholds to the same digital assets, the de minimis threshold for PDAP sales only
applies to digital assets other than qualifying stablecoins or specified NFTs. Thus, for
example, if a customer has PDAP sales of $9,000 using qualifying stablecoins and
PDAP sales of $500 using digital assets other than qualifying stablecoins (or specified
NFTs) for a particular year, the PDAP should apply the $600 threshold for the second
set of PDAP sales to eliminate the reporting obligation on the PDAP sales of $500.
Under these facts, the PDAP would not be required to report any of the customer’s
digital asset transactions for the year.
In the case of a joint account, final §1.6045-1(d)(2)(i)(C) provides a rule (by
cross-reference to final §1.6045-1(d)(10)(v)) for the broker to determine which joint
account holder will be the customer for purposes of determining whether the customer’s
combined gross proceeds for all accounts owned exceed the $600 de minimis
threshold. See Part I.D.3.a. of this Summary of Comments and Explanation of Revisions
for a discussion of how the de minimis threshold is applied to joint account holders.
Finally, because a sale under final §1.6045-1(a)(9)(ii)(A) through (C) that is
effected by brokers holding custody of the customer’s digital assets or acting as the
counterparty to the sale could also be structured to meet the definition of a PDAP sale
effected by that broker, final §1.6045-1(a)(9)(ii)(D) provides that any PDAP sale that is
also a sale under one of the other definitions of sale under final §1.6045-1(a)(9)(ii)(A)
through (C) (non-PDAP sale) that would be subject to reporting due to the broker
effecting the sale as a broker other than as a PDAP must be treated as a non-PDAP

sale. Thus, if a customer instructs a custodial broker to exchange digital asset A for
digital asset B, and that broker executes the transaction by transferring payment (digital
asset A) to a second person that is also a customer of that broker, the sale will be
treated as a sale under §1.6045-1(a)(9)(ii)(A)(2), not as a PDAP sale and not eligible for
the $600 de minimis threshold. Similarly, if a PDAP, acting as an agent to a buyer of
merchandise, receives digital assets from that buyer along with instructions to exchange
those digital assets for cash to be paid to a merchant, the sale will be treated as a sale
under §1.6045-1(a)(9)(ii)(A)(1) and not as a PDAP sale. If, in this last example, the
PDAP exchanges the digital assets received from the buyer for cash as an agent to the
merchant and not the buyer, then the sale will be treated as a PDAP sale because the
sale under §1.6045-1(a)(9)(ii)(A)(1) would not be subject to reporting by the broker, but
for the broker being a PDAP.
E. Determining gross proceeds and adjusted basis
In defining gross proceeds and initial basis in a sale transaction, the proposed
information reporting regulations generally followed the substantive tax rules under
proposed §1.1001-7(b) for computing the amount realized from transactions involving
the sale or other disposition of digital assets and the substantive rules under proposed
§1.1012-1(h) for computing the basis of digital assets received in transactions involving
the purchase or other acquisition of digital assets. In addition, the proposed information
reporting regulations generally followed the substantive tax rules proposed in §§1.10017(b) and 1.1012-1(h)(3) for determining the fair market value of property or services
received or transferred by the customer in an exchange transaction involving digital
assets.
1. Valuation Issues
Under longstanding legal principles, the value of property exchanged for other
property received ordinarily should be equal in value. Under these principles, in an

exchange of property, both the amount realized on the property transferred and the
basis of the property received in an exchange, ordinarily are determined by reference to
the fair market value of the property received. See, e.g., United States v. Davis, 370
U.S. 65 (1962); Philadelphia Park Amusement Co. v. United States, 126 F. Supp. 184
(Ct. Cl. 1954); Rev. Rul. 55–757, 1955–2 C.B. 557.
The proposed rules under proposed §1.6045-1 generally followed these
substantive rules for determining fair market value of property or services received by
the customer in an exchange transaction involving digital assets. Specifically, proposed
§1.6045-1(d)(5)(ii)(A) provided that in determining gross proceeds, the fair market value
should be measured as of the date and time the transaction was effected. Additionally,
except in the case of services giving rise to digital asset transaction costs, to determine
the fair market value of services or property (including different digital assets or real
property) paid to the customer in exchange for digital assets, proposed §1.60451(d)(5)(ii)(A) provided that the broker must use a reasonable valuation method that
looks to contemporaneous evidence of value of the services, stored-value cards, or
other property. In contrast, because the value of digital assets used to pay for digital
asset transaction costs is likely to be significantly easier to determine than any other
measure of the value of services giving rise to those costs, the proposed regulations
provided that brokers must look to the fair market value of the digital assets used to pay
for digital asset transaction costs in determining the fair market value of services
(including the services of any broker or validator involved in executing or validating the
transfer) giving rise to those costs.
In the case of one digital asset exchanged for a different digital asset, proposed
§1.6045-1(d)(5)(ii)(A) provided that the broker may rely on valuations performed by a
digital asset data aggregator using a reasonable valuation method. For this purpose, the
proposed regulations provided that a reasonable valuation method looks to the

exchange rate and the U.S. dollar valuations generally applied by the broker effecting
the exchange as well as other brokers, taking into account the pricing, trading volumes,
market capitalization, and other relevant factors in conducting the valuation. Proposed
§1.6045-1(d)(5)(ii)(C) also provided that a valuation method is not a reasonable method
if the method over-weighs prices from exchangers that have low trading volumes, if the
method under-weighs exchange prices that lie near the median price value, or if it
inappropriately weighs factors associated with a price that would make that price an
unreliable indicator of value. Additionally, proposed §1.6045-1(d)(5)(ii)(B) provided that
the broker must look to the fair market value of the services or property received if there
is a disparity between the value of the services or property received and the value of the
digital asset transferred in a digital asset exchange transaction. However, if the broker
reasonably determines that the value of services or property received cannot be valued
with reasonable accuracy, proposed §1.6045-1(d)(5)(ii)(B) provided that the fair market
value of the received services or property must be determined by reference to the fair
market value of the transferred digital asset. Finally, proposed §1.6045-1(d)(5)(ii)(B)
provided that the broker must report an undeterminable value for gross proceeds from
the transferred digital asset if the broker reasonably determines that neither the digital
asset nor the services or other property exchanged for the digital asset can be valued
with reasonable accuracy.
The Treasury Department and the IRS solicited comments on: (1) whether the
fair market value of services giving rise to digital asset transaction costs (including the
services of any broker or validator involved in executing or validating the transfer)
should be determined by looking to the fair market value of the digital assets used to
pay for the transaction costs, and (2) whether there are circumstances under which an
alternative valuation rule would be more appropriate.

The responses to these inquiries varied. One comment agreed that using the fair
market value of the digital assets used as payment would be the most feasible and
easily attainable means of valuing such services. A few comments stated the proposed
approach would be problematic, because: (1) market prices of digital assets are highly
volatile, not always reflecting the actual economic value of the services rendered, and
(2) the reliance on the fair market value of the digital assets, instead of the services
rendered, would be inconsistent with longstanding legal principles, resulting in
significant compliance costs and recordkeeping burdens. Instead, the comments
recommended that the Treasury Department and the IRS develop and re-propose
alternative valuation metrics. Another comment recommended that the fair market value
of the services giving rise to digital asset transaction costs should be based on the
contracted price agreed to by the parties. Another comment stated that these questions
rested on an improper assumption that transaction fees should be or can be calculated
at a market value. This comment recommended that the final rules provide taxpayers
and brokers with the option of determining the value of such services using the
acquisition cost of the digital assets used as payment. One comment advised that many
digital assets do not have easily ascertainable fair market values, particularly when
involving services, other digital assets, or non-standard forms of consideration.
The final regulations do not adopt the recommendations for alternative valuation
approaches. As noted, except in the case of services giving rise to digital asset
transaction costs, the proposed regulations required that brokers look to the value of
services or property received by the customer in exchange for transferred digital assets
in determining gross proceeds. Only when the services or property received cannot be
valued does the broker need to look to the fair market value of the transferred digital
assets. For broker services giving rise to digital asset transaction costs, the proposed
regulations required brokers to look to the fair market value of the digital assets used to

pay for digital asset transaction costs because it is likely to be significantly easier for
brokers to determine the value of the transferred digital assets than it is to value their
services. These valuation rules are reasonable and appropriate because they are
consistent with United States v. Davis, 370 U.S. 65 (1962); Philadelphia Park
Amusement Co. v. United States, 126 F. Supp. 184 (Ct. Cl. 1954); Rev. Rul. 55–757,
1955–2 C.B. 557, discussed previously in this Part I.E.1. The proposed alternatives do
not conform with these authorities. Additionally, these rules provide practical
approaches for brokers to use that are less burdensome than a rule requiring a casespecific valuation of services or other property, particularly for digital asset brokers who
likely have more experience valuing digital assets transferred.
Several comments stated that brokers would need more detailed guidance on
how to determine fair market value in digital asset transactions, including the
reasonable methods brokers can use for assigning U.S. dollar pricing to each unique
transaction. This comment recommended allowing brokers to choose a reasonable
pricing methodology that is convenient for them. For example, this comment noted that
it is standard industry practice today to use a daily volume weighted average price
(VWAP) to value. Another comment recommended establishing a safe harbor rule that
would allow a digital asset’s price any time during the date of sale to be used to report
gross proceeds. The final regulations do not adopt these comments because the
suggested approaches are not consistent with existing case law and IRS guidance as
the determination of fair market value must generally be determined at the time of the
transaction. See Cottage Savings Association v. Commissioner, 499 U.S. 554 (1991).
2. Allocation of Digital Asset Transaction Costs
Proposed §1.6045-1(d)(5)(iv) and (d)(6)(ii)(C)(2) followed the substantive tax
rules provided under proposed §§1.1001-7(b) and 1.1012-1(h) for allocating amounts
paid to effect the disposition or acquisition of a digital asset (digital asset transaction

costs). Specifically, these rules generally provided that in the case of a sale or
disposition of digital assets, the total digital asset transaction costs paid by the customer
are generally allocable to the disposition of the digital assets. Conversely, in the case of
an acquisition of digital assets, the total digital asset transaction costs paid by the
customer are generally allocable to the acquisition of the digital assets. The rules also
provided an exception in an exchange of one digital asset for another digital asset
differing materially in kind or in extent. In that case, the proposed regulations allocated
one-half of any digital asset transaction cost paid by the customer in cash or property to
effect the exchange to the disposition of the transferred digital asset and the other half
to the acquisition of the received digital asset (the split digital asset transaction cost
rule). As is discussed in Part II.B.1. of this Summary of Comments and Explanation of
Revisions, many comments were received raising several concerns with the split digital
asset transaction cost rule. For the reasons discussed in that Part, the final §§1.10017(b) and 1.1012-1(h) include revised rules to instead allocate 100 percent of the digital
asset transaction costs to the disposition of the transferred digital asset in the case of
an exchange of one digital asset for another digital asset differing materially in kind or in
extent. Correspondingly, the final §1.6045-1(d)(5)(iv)(B) and (d)(6)(ii)(C)(2) include
revised rules to follow the final substantive tax rules and now require 100 percent of the
digital asset transaction costs to be allocated to the disposition of the transferred digital
asset in the case of an exchange of one digital asset for another digital asset differing
materially in kind or in extent.
Comments were also received expressing concern in the case of digital asset
transaction costs imposed on dispositions of digital assets used to pay those costs
(cascading digital asset transaction costs). As discussed in Part II.B.4. of this Summary
of Comments and Explanation of Revisions, the substantive rules have been revised to
respond to these comments, and final §1.6045-1(d)(5)(iv)(C) correspondingly provides

that, in the case of a sale of digital assets in exchange for different digital assets, for
which the acquired digital assets are withheld to pay the digital asset transaction costs
to effect the original transaction, the total digital asset transaction costs paid by the
customer to effect both the original transaction and any dispositions of digital assets to
pay such costs are allocable exclusively to the original transaction. Final §1.10121(h)(2)(ii)(C) includes a similar rule. Additionally, final §1.6045-1(d)(6)(ii)(C)(2) follows
this rule by cross referencing the rules at final §1.6045-1(d)(5)(iv)(C).
3. Ordering Rules
a. Adequate identification of digital assets
The proposed information reporting regulations provided ordering rules for a
broker to determine which units of the same digital asset should be treated as sold
when the customer previously acquired, or had transferred in, multiple units of that
same digital asset on different dates or at different prices by cross referencing the
identification rules in the proposed substantive tax law regulations. Specifically,
proposed §1.1012-1(j)(3)(ii) provided that the taxpayer can make an adequate
identification of the units sold, disposed of, or transferred by specifying to the broker, no
later than the date and time of sale, disposition, or transfer, the particular units of the
digital asset to be sold, disposed of, or transferred by reference to any identifier (such
as purchase date and time or purchase price paid for the units) that the broker
designates as sufficiently specific to allow it to determine the basis and holding period of
those units. The units so identified, under the proposed regulations, are treated as the
units of the digital asset sold, disposed of, or transferred to determine the basis and
holding period of such units. This identification must also be taken into consideration in
identifying the taxpayer’s remaining units of the digital asset for purposes of subsequent
sales, dispositions, or transfers. Identifying the units sold, disposed of, or transferred

solely on the taxpayer’s books or records is not an adequate identification of the digital
assets if the assets are held in the custody of a broker.
To make the final regulations more accessible for brokers, the final regulations
set forth the identification rules in final §1.6045-1(d)(2)(ii)(B) as well as in final §1.10121(j)(3) for taxpayers. A few comments criticized proposed §1.1012-1(j)(3)(i) for requiring
an adequate identification of digital assets held in the custody of brokers to be made no
later than the date and time of the transaction. One comment advised that the proposed
rule would provide less flexibility than currently allowed for making an adequate
identification of stock under §1.1012-1(c)(8). The limited flexibility, the comment warned,
would pose as “a trap for the unwary” for some taxpayers. The final regulations do not
adopt these comments. On the contrary, the volatile nature of digital assets and their
markets makes the timing requirement necessary. The proposed rule is analogous to
§1.1012-1(c)(8) because settlement for securities takes place one or more days after a
trade while the settlement period for digital asset transactions is typically measured in
minutes. In both cases, a specific identification must be made before the relevant asset
is delivered for settlement. Accordingly, the Treasury Department and the IRS have
determined that the timing requirement for adequate identifications does not pose an
undue burden on taxpayers, and the final rules retain the principles set forth in proposed
§1.1012-1(j)(3)(i).
One comment recommended that the final rules adopt a more flexible, principlesbased approach for identifying digital assets held in the custody of brokers that would
allow brokers the flexibility to implement basis identification in a manner that fits their
particular systems and business models, so long as the end result provides sufficient
transparency and accuracy. The Treasury Department and the IRS have determined
that a uniform rule is preferable to the proposed discretionary rule because of

administrability concerns and because it does not result in an undue burden for brokers.
As a result, the Treasury Department and the IRS do not adopt this recommendation.
A few comments recommended the inclusion of a rule allowing taxpayers to
make adequate identifications by standing orders so taxpayers would be able to make
these identifications using a predetermined set of parameters rather than making them
on a per-transaction basis, for example, uniformly identifying the highest cost or closest
cost basis available. The final regulations adopt this recommendation. Accordingly, final
§§1.1012-1(j)(3)(ii) and 1.6045-1(d)(2)(ii)(B)(2) include a rule allowing taxpayers to a
use a standing order or instruction to make adequate identifications.
Another comment requested guidance on whether a taxpayer would be treated
as having made an adequate identification under proposed §1.1012-1(j)(3)(ii) if the
notified broker is only able to offer one method by which identifications can be made for
units of a digital asset held in the broker’s custody. The final regulations adopt a
clarification pursuant to this comment. Accordingly, in the case of a broker who only
offers one method by which a taxpayer may make a specific identification for units of a
digital asset held in the broker’s custody, final §§1.1012-1(j)(3)(ii) and 1.60451(d)(2)(ii)(B)(2) treat such method as a standing order or instruction for the specific
identification of the digital assets, and thus as an adequate identification unless the
special rules in final §§1.1012-1(j)(3)(iii) and 1.6045-1(d)(2)(ii)(B)(3) apply.
Another comment requested clarification on whether an email sent by a taxpayer
would satisfy the broker-notification requirement of proposed §1.1012-1(j)(3)(ii). The
Treasury Department and the IRS have determined that it would be most appropriate to
allow brokers the discretion to determine the forms by which a notification can or must
be made and whether a particular type of notification, by email or otherwise, is
sufficiently specific to identify the basis and holding period of the sold, disposed of, or

transferred units. Accordingly, to provide brokers with maximum flexibility, the final
regulations do not adopt a rule concerning the form of the notification.
A few comments recommended against the proposed regulations’ use of similar
ordering rules for digital assets as apply to stocks because blockchains are uniquely
different from traditional financial systems. The final regulations do not adopt this
comment. Although some digital assets may differ in certain ways from other asset
classes, the Treasury Department and the IRS have concluded that the proposed
ordering rules provide the most accurate methodology to determine basis and holding
period of digital assets.
As discussed in Part VI.C. of this Summary of Comments and Explanation of
Revisions, the final regulations add a default specific identification rule to avoid the need
to separately report and backup withhold on certain units withheld in a transaction to
pay other costs. In particular, in a transaction involving the sale of digital assets in
exchange for different digital assets and for which the broker withholds units of the
digital assets received in the exchange to pay the customer’s digital asset transaction
costs or to satisfy the broker’s obligation under section 3406 to deduct and withhold a
tax with respect to the underlying transaction, final §§1.1012-1(j)(3)(iii) and 1.60451(d)(2)(ii)(B)(3) provide that the withheld units when sold will be treated as coming from
the units received regardless of any other adequate identification (including standing
order) to the contrary.
This special default specific identification rule ensures that the disposition of the
withheld units will not give rise to gain or loss. Final §1.6045-1(c)(3)(ii)(C) provides that
the units that are so withheld for the purpose of paying the customer’s digital asset
transaction costs are exempt from reporting, thus minimizing the burden on brokers who
would have to otherwise report on this low value (and no gain or loss) transaction and
any other further withheld units to pay for cascading transaction fees that do not give

rise to gains or losses. As discussed in Part VI.C. of this Summary of Comments and
Explanation of Revisions, although units that are so withheld for the purpose of
satisfying the broker’s obligation under section 3406 to deduct and withhold a tax with
respect to the underlying transaction also do not give rise to gain or loss, final §1.60451(c)(3)(ii)(D) provides that these units are only exempt from reporting if the broker sells
the withheld units for cash immediately after the underlying sale. The latter limitation
was added to the reporting exemption to decrease the valuation risks of units withheld
for the purpose of satisfying the broker’s backup withholding obligations. See Part VI.B.
of this Summary of Comments and Explanation of Revisions, for a more detailed
discussion of these valuation risks.
b. No identification of units made
In cases where a customer does not provide an adequate identification by the
date and time of sale, proposed §1.6045-1(d)(2)(ii)(B) provided that the broker should
treat the units of the digital asset that are sold as the earliest units of that type of digital
asset that were either purchased within or transferred into the customer’s account with
the broker. The proposed regulations provided that units of a digital asset are treated as
transferred into the customer’s account as of the date and time of the transfer.
Numerous comments raised concerns with the rule requiring brokers to treat
units transferred into the customer’s account as if they were purchased on the transferin date without regard to whether the customer provided the broker with actual purchase
date information because it is inconsistent with the default identification rule, which
requires that the units sold be based on actual purchase dates. As such, these
comments noted, the rule will disrupt the reasonable expectations of brokers and
customers that make a good faith effort to track lots and basis to have lot identifications
align. Additionally, one comment raised the concern that this ordering rule would force
custodial brokers to keep track of multiple acquisition dates for customers, one for

broker ordering purposes and another for the customer’s cost-basis purposes. Another
comment recommended that exceptions to the ordering rule be made to enhance
accuracy, align tax treatment with real-world transactions, and minimize reporting
errors. One comment recommended allowing brokers the option of applying the existing
first-in-first-out (FIFO) rules for securities brokers, provided they do so consistently. For
a discussion of the FIFO rules, see Part II.C.3. of this Summary of Comments and
Explanation of Revisions. That is, until rules under section 6045A rules are in place, this
comment recommended that the final regulations allow brokers to rely upon records
generated in the ordinary course of the broker’s business that evidence the customer’s
actual acquisition date for a digital asset, either because another broker provided that
information or the customer provided it upon transfer, unless the broker knows that
information is incorrect.
The Treasury Department and the IRS solicited comments on whether there
were any alternatives to requiring that the ordering rules for digital assets left in the
custody of a broker be followed on an account-by-account basis, for example, if brokers
have systems that can otherwise account for their customers’ transactions. Several
comments advised against the adoption of account-based ordering rules, viewing such
rules as imposing unnecessary costs and technical challenges, impeding industry
innovation, and ignoring the current industry practice of using omnibus accounting
structures or transaction aggregation. Instead, these comments recommended the
adoption of discretionary ordering rules for digital assets left in the custody of brokers
that would allow brokers to decide how to track and report the basis of these digital
assets. Another comment recommended that the final rules adopt a more flexible,
principles-based approach for digital assets in the custody of a broker that would allow
brokers the flexibility to implement basis identification in a manner that fit their systems
and business models, so long as the result provides sufficient transparency and

accuracy. Another comment recommended that brokers be allowed to apply more
flexible “lot-relief” ordering rules. Another comment recommended that the final rules
require the consistent application of a uniform rule for identifying digital assets in the
custody of a broker. Consistency, the comment advised, would be key to maintaining
the integrity of cost basis for transfers of digital assets in the custody of a broker
between brokers and eliminating the need for taxpayers to reconcile discrepancies. The
final regulations do not adopt the recommendations to provide brokers with the
discretion to implement their preferred ordering rules for digital assets in the custody of
brokers. The Treasury Department and the IRS have determined that a uniform rule is
preferable to the proposed discretionary rule because of administrability concerns and
because having all brokers follow a single, consistent method does not result in an
undue burden for brokers.
Numerous comments requested that the final regulations provide safe harbor
penalty relief to brokers that rely on reasonably reliable outside data that supplies
purchase-date information. In this regard, several comments noted that the aggregation
market offers software solutions to track digital assets as they move through the
blockchain ecosystem, thus enabling these aggregators to keep meticulous records of
taxpayers’ digital asset tax lots. Accordingly, these comments opined that purchase
date information from these aggregators constitutes reasonably reliable purchase-date
information. Although one comment suggested that any information provided by a
customer should be considered reasonably reliable, other comments had more specific
suggestions, such as email purchase/trade confirmations from other brokers or
immutable data on a public distributed ledger. Other comments suggested that brokers
should also be allowed to consider purchase date information received from
independent third parties, such as official platform records from recognized digital asset
trading platforms, because these records are typically subject to regulatory oversight

and verification. Another comment recommended that brokers be allowed to rely upon
records audited by reputable third party firms that undergo rigorous verification
processes as well as information from any government-approved source or tax
authority.
The Treasury Department and the IRS have determined that inconsistencies
between broker records and customer records regarding digital asset lots in the custody
of a broker may give rise to complexities and reporting inaccuracies. Accordingly, final
§1.6045-1(d)(2)(ii)(B)(4) provides that a broker may take into account customerprovided acquisition information for purposes of identifying which units are sold,
disposed of, or transferred under the identification rules. Customer-provided acquisition
information is defined as reasonably reliable information, such as the date and time of
acquisition units of a digital asset, provided to the broker by a customer or the
customer’s agent no later than the date and time of a sale, disposition, or transfer.
Reasonably reliable information for this purpose includes purchase or trade
confirmations at other brokers or immutable data on a public distributed ledger. A broker
that takes into account customer-provided acquisition information for purposes of
identifying which units are sold, disposed of, or transferred is deemed to have relied
upon this information in good faith if the broker neither knows nor has reason to know
that the information is incorrect for purposes of the information reporting penalties under
sections 6721 and 6722. This penalty relief does not apply, however, to a broker who
takes into account customer-provided acquisition information for purposes of voluntarily
reporting the customer’s basis. The Treasury Department and the IRS, notwithstanding,
plan to study further the types of information that could be included in customerprovided acquisition information to determine if certain information is sufficiently reliable
to permit reporting the customer’s basis. Finally, it should be noted that, although
taxpayers may in some cases be entitled to penalty relief from reporting incorrect

amounts on their Federal income tax returns due to reasonable cause reliance on
information included on a Form 1099, this relief would not be permitted to the extent the
information included on that Form is due to incomplete or incorrect customer-provided
acquisition information.
Final §1.6045-1(d)(2)(i)(B)(8) requires brokers to report on whether they relied
upon such customer-provided acquisition information in identifying the unit sold to alert
customers and the IRS that the information supplied on the Form 1099-DA is, in part,
based on customer-provided acquisition information described in final §1.60451(d)(2)(ii)(B)(4). Under this rule, if the broker takes into account customer-provided
acquisition information in determining which unit was sold, the broker must report that it
has done so, regardless of whether information on the particular unit sold was derived
from the broker’s own records or from the customer or its agent. The Treasury
Department and the IRS anticipate that brokers will likely identify all units sold as relying
on customer-provided acquisition information for customers that regularly transfer digital
assets to that broker and provide that broker with customer-provided acquisition
information.
Final §1.6045-1(d)(2)(ii)(B) revises the rule in proposed §1.6045-1(d)(2)(ii)(B) for
the identification of the digital asset unit sold so that it also applies to dispositions and
other transfers as well as sales because brokers need clear identification rules for these
transactions to ensure they have the information they need about the digital assets that
are retained in the customer’s account. Additionally, the final regulations add a rule to
accommodate the unlikely circumstance in which the broker does not have any transferin date information about the units in the broker’s custody—such as could be the case if
the broker’s transfer-in records are destroyed and the broker has not received any
reasonably reliable acquisition date information from the customer or the customer’s
agent. Addressing that circumstance, final §1.6045-1(d)(2)(ii)(B)(1) provides that in

cases in which the broker does not receive an adequate identification of the units sold
from the customer by the date and time of the sale, disposition, or transfer, and in which
the broker does not have adequate transfer-in date records and does not have or take
into account customer-provided acquisition information, the broker must first report the
sale, disposition, or transfer of units that were not acquired by the broker for the
customer. Thereafter, the broker must treat units as sold, disposed of, or transferred in
order of time from the earliest date on which units of the same digital asset were
acquired by the customer. A broker may take into account customer-provided
acquisition information described in final §1.6045-1(d)(2)(ii)(B)(4) to determine when
units of a digital asset were acquired by the customer if the broker neither knows nor
has reason to know that the information is incorrect. For this purpose, unless the broker
takes into account customer-provided acquisition information, the broker must treat
units of a digital asset that are transferred into the customer’s account as acquired as of
the date and time of the transfer. Finally, while it is inevitable that some customers will
fail to provide their brokers with reasonably reliable acquisition information or that
brokers will decline in some circumstances to rely upon customer-provided acquisition
information, customers nonetheless can avoid lot identification inconsistencies by
adopting a fallback standing order to track lots in a manner consistent with the broker’s
tracking requirements.
Finally, one comment requested that the final regulations set forth the procedures
the IRS will follow when a broker’s reported cost basis amount does not match the cost
basis reported by customers due to lot identification inconsistences. The final
regulations do not adopt this comment as being outside the scope of these regulations.
F. Basis reporting rules
Section 6045(g) requires a broker that is otherwise required to make a return
under section 6045(a) with respect to covered securities to report the adjusted basis

with respect to those securities. Under section 6045(g)(3)(A), a covered security is any
specified security acquired on or after the acquisition applicable date if the security was
either acquired through a transaction in the account in which the security is held or was
transferred to that account from an account in which the security was a covered
security, but only if the broker received a transfer statement under section 6045A with
respect to that security. Because rulemaking under section 6045A with respect to digital
assets was not proposed, much less finalized, the proposed regulations limited the
definition of a covered security for purposes of digital asset basis reporting to digital
assets that are acquired in a customer’s account by a broker providing hosted wallet
services (that is, custodial services for such digital assets). Accordingly, under the
proposed regulations, mandatory basis reporting was only required for sales of digital
assets that were previously acquired, held until sale, and then sold by a custodial broker
for the benefit of a customer.
One comment raised the concern that brokers do not have access to cost-basis
information with respect to transactions that are effected by other brokers. This
comment recommended that the final regulations delay requiring brokers to report
adjusted basis until the purchase information sharing mechanism under section 6045A
is implemented. The proposed regulations did not require basis reporting for sale
transactions effected by custodial brokers of digital assets that were not previously
acquired by that broker in the customer’s account. Accordingly, the final regulations do
not adopt this comment. However, a clarification has been made to final §1.60451(d)(2)(i)(D) in order to avoid confusion on this point.
Section 80603(b)(1) of the Infrastructure Act added digital assets to the list of
specified securities for which basis reporting is specifically required and provided that a
digital asset is a covered security if it is acquired on or after January 1, 2023 (the
acquisition applicable date for digital assets). Based on this specific authority provided

by the Infrastructure Act, the proposed regulations provided that for each sale of a
digital asset that is a covered security for which a broker is required to make a return of
information, the broker must also report the adjusted basis of the digital asset sold, the
date and time the digital asset was purchased, and whether any gain or loss with
respect to the digital asset sold is long-term or short-term (within the meaning of section
1222 of the Code). Additionally, proposed §1.6045-1(a)(15)(i)(J) modified the definition
of a covered security for which adjusted basis reporting would be required to include
digital assets acquired in a customer’s account on or after January 1, 2023, by a broker
providing hosted wallet services.
Several comments raised the concern that adjusted basis reporting for digital
assets acquired before the applicability date of the regulations would make accurate
reporting of adjusted basis difficult and, in some cases, impossible. These comments
instructed that, to accurately track the adjusted basis of digital assets in an account,
brokers need not only purchase price information but also clear lot ordering rules to be
sure that the basis of a digital asset sold is removed from the basis pool of the digital
assets remaining in the account. Additionally, these comments noted that, the basis
reported to customers will not be accurate unless customers applied the same lot
ordering rules. The comments also indicated that taxpayers do not have the means to
provide brokers with adequate identification of shares they previously sold. Thus, while
brokers likely have information about digital assets acquired on or after January 1,
2023, because there were no clear ordering rules in place for transactions that took
place on or after January 1, 2023, brokers will not know which lots their customers
previously reported as sold between January 1, 2023 and the January 1, 2026 date their
systems are in place to allow for cost-basis reporting under these final regulations.
Thus, brokers do not have the information necessary to track the basis of the digital
assets that remain in the customer’s account.

Several comments also raised the concern that brokers need time, not only to
capture the original cost basis for digital asset lots and to build systems to track
adjusted basis of digital assets consistent with the ordering rules in the final regulations,
but also to build systems capable of performing complex adjustments for gifting and
other blockchain events. While one comment indicated that the earliest that brokers
could implement adjusted basis tracking is January 1, 2025, other comments stated that
brokers should not be required to start building (or revising existing systems) until these
regulations are final. Accordingly, these comments recommended aligning the
acquisition applicable date for digital assets with the proposed January 1, 2026,
applicable date for basis reporting to allow digital asset brokers to build basis reporting
systems and basis tracking systems at the same time.
The Treasury Department and the IRS considered these comments. Despite the
critical value of adjusted basis tracking and reporting to the broker’s customers and to
overall tax administration, the final regulations adopt the recommendation made by
these comments to align the acquisition applicable date for digital assets with the
January 1, 2026, applicability date for adjusted basis reporting. The Treasury
Department and the IRS, however, strongly encourage brokers to work with their
customers who, as described in Part II.C.2. of this Summary of Comments and
Explanation of Revisions, are subject to the new ordering rules for transactions
beginning on or after January 1, 2025, to facilitate an earlier transition to these new
basis tracking rules to the extent possible.
The proposed regulations required adjusted basis reporting for sales of digital
assets treated as covered securities and for non-digital asset options and forward
contracts on digital assets only to the extent the sales are effected on or after January
1, 2026, in order to allow brokers additional time to build appropriate reporting and basis
retrieval systems. Several comments requested a delay in the proposed applicability

date for basis reporting. One comment suggested that further delay was warranted
because the applicability date for digital asset basis reporting is not consistent with the
length of time that stockbrokers were given to implement cost basis reporting rules.
The final regulations do not adopt this request for a delay for several reasons.
First, brokers have been on notice that cost basis reporting in some form would be
required since the Infrastructure Act was enacted in 2021. Second, many brokers
already have systems in place to report cost basis to their customers as a service and
other brokers have contracts with third party service providers to do the same. Third,
cost basis reporting is essential to taxpayers and the IRS to ensure that gains and
losses are accurately reported on taxpayers’ Federal income tax returns. Fourth, the
initial applicability date for cost basis reporting for digital assets—over four years after
the Infrastructure Act was enacted—is not inconsistent with the initial 2011
implementation of the cost basis reporting rules for stockbrokers, which was only three
years after the Energy Improvement and Extension Act of 2008 was enacted.
Notwithstanding this decision, the IRS intends to work closely with stakeholders to
ensure the smooth implementation of the basis reporting rules, including the mitigation
of penalties in the early stages of implementation for all but particularly egregious cases
involving intentionally disregarding these rules.
G. Exceptions to reporting of sales effected by brokers on behalf of exempt foreign
persons and non-U.S. broker reporting
1. In General
The proposed regulations provided the same exceptions to reporting in §1.60451(c) for exempt recipients and excepted sales for brokers effecting sales of digital
assets (digital asset brokers) that are in the final regulations for securities brokers.
Similar to the case of a securities broker effecting a sale of an asset other than a digital
asset, the proposed regulations provided an exception to a broker’s reporting of a sale
of digital assets effected for a customer that is an exempt foreign person and

requirements for applying the exception. See §1.6045-1(g)(1) through (3) (for sales
other than digital assets) and proposed §1.6045-1(g)(4) (for sales of digital assets). For
a broker to treat a customer as an exempt foreign person for a sale of a digital asset,
the proposed regulations provided requirements for valid documentation of foreign
status, standards of knowledge for a broker’s reliance on this documentation, and
presumption rules in the absence of documentation that may be relied upon to
determine a customer’s status as a U.S. or foreign person. Under the proposed
regulations, these requirements differed in certain respects depending on the broker’s
status as a U.S. digital asset broker, a non-U.S. digital asset broker, a controlled foreign
corporation (CFC), a digital asset broker conducting activities as a money services
business (MSB), or as a non-U.S. digital asset broker or a CFC digital asset broker not
conducting activities as an MSB (each as defined in the proposed regulations). See
proposed §1.6045-1(g)(4)(i). A broker’s status within one of the foregoing categories
also dictated whether a sale of digital assets was considered effected at an office either
inside or outside the United States, a determination that in some cases dictated whether
a broker was treated as a broker for a sale of a digital asset under proposed §1.60451(a)(1) and whether the exception to backup withholding under §31.3406(g)-1(e)
applied to a sale that is reportable. See proposed §1.6045-1(a)(1) (defining broker).
Under the proposed regulations, a U.S. digital asset broker is a U.S. payor or
middleman as defined in §1.6049-5(c)(5), other than a CFC, that effects sales of digital
assets on behalf of others. A U.S. payor or middleman includes a U.S. person (including
a foreign branch of a U.S. person), a CFC (as defined in §1.6049-5(c)(5)(i)(C)), certain
U.S. branches that agree to be treated as U.S. persons, a foreign partnership with
controlling U.S. partners or a U.S. trade or business, and a foreign person for which 50
percent or more of its gross income is effectively connected with a U.S. trade or
business. Thus, a U.S. digital asset broker included both U.S. persons and certain

categories of non-U.S. persons (other than CFCs). Because it is a U.S. payor or
middleman, a U.S. digital asset broker is a broker under proposed §1.6045-1(a)(1) with
respect to all sales of digital assets it effects for its customers, such that the broker must
report with respect to a sale absent an applicable exception to reporting. To except
reporting based on a customer’s status as an exempt foreign person, a U.S. digital
asset broker must have obtained a withholding certificate (that is, an applicable Form
W-8) to which it must have applied certain reliance requirements when it was not
permitted to treat the customer as a foreign person under a presumption rule. If a U.S.
digital asset broker was not permitted to treat a customer as an exempt foreign person
and failed to obtain a valid Form W-9 for the customer when required under §1.60451(c), backup withholding under section 3406 applied to proceeds from digital assets
sales made on behalf of the customer.
The proposed regulations also specified requirements for foreign brokers that are
not U.S. digital asset brokers for sales of digital assets. Under the proposed regulations,
a broker effecting sales of digital assets that is not a U.S. digital asset broker is either a
CFC digital asset broker or a non-U.S. digital asset broker, which have different
requirements depending on whether they conduct activities as a MSB. A non-U.S.
digital asset broker or CFC digital asset broker conducts activities as an MSB under the
proposed regulations when it is registered with the Department of the Treasury under 31
CFR part 1022.380 (or any successor guidance) as an MSB, as defined in 31 CFR part
1010.100(ff). The requirements for non-U.S. digital asset brokers and CFC digital asset
brokers conducting activities as MSBs reference the requirements that apply to a U.S.
digital asset broker. In the case of a CFC digital asset broker not conducting activities
as an MSB, the broker is (similar to a U.S. digital asset broker) a U.S. payor or
middleman, such that it is a broker under proposed §1.6045-1(a)(1) with respect to all
sales of digital asset it effects for its customers. Unlike a U.S. digital asset broker,

however, a CFC digital asset broker not conducting activities as an MSB was not
permitted to treat a customer as an exempt foreign person based on certain
documentary evidence supporting the customer’s foreign status (in lieu of a Form W-8),
and, because sales of digital assets it effects for customers are treated as effected at an
office outside the United States, the exception to backup withholding in proposed
§31.3406(g)-1(e) applied to a sale reportable by the broker.
In the case of a non-U.S. digital asset broker not conducting activities as an
MSB, more limited requirements applied than those that applied to other digital asset
brokers. Under the proposed regulations, unless the broker collects certain information
about a customer that shows certain specified “U.S. indicia,” the broker has no reporting
or backup withholding requirements under the proposed regulations. If the broker has
such U.S. indicia for a customer, a sale effected for the customer is treated as effected
at an office of the broker inside the United States. In that case, the broker was required
to report with respect to a sale of a digital asset it effected for the customer when
required under §1.6045-1(c) unless it was permitted to treat the customer as an exempt
foreign person based on certain documentary evidence or a withholding certificate it
was permitted to rely upon, or when the broker was permitted to treat the customer as a
foreign person under a presumption rule. Finally, the exception to backup withholding in
proposed §31.3406(g)-1(e) would have applied to a sale of digital assets reportable by a
non-U.S. digital asset broker not conducting activities as an MSB.
2. Non-U.S. Digital Asset Brokers and the CARF
Several comments on the proposed regulations’ rules requiring non-U.S. brokers
to report information on digital asset transactions recommended that the rules be
revised to provide that non-U.S. brokers that are reporting information on U.S.
customers to other jurisdictions under the CARF should not be required to report
information to the IRS and should not have to obtain a separate U.S. certification from a

customer. Other comments requested that the implementation of rules for non-U.S.
brokers be delayed until they are harmonized with the CARF. Other comments relating
to the proposed regulations’ rules requiring non-U.S. brokers to report information on
digital asset transactions recommended that a single diligence standard apply to all
non-U.S. brokers.
The Treasury Department and the IRS agree that rules requiring non-U.S.
brokers to report information on digital asset transactions should be revised in order to
allow for the implementation of the CARF by the United States. As described in the
preamble to the proposed regulations, under the CARF, the IRS would provide
information on foreign persons for whom U.S. brokers effect sales of digital assets to
other countries that have implemented the CARF and receive information from those
countries about transactions by U.S. persons with non-U.S. digital asset brokers.
Regulations implementing the CARF would exempt non-U.S. brokers that are reporting
information on U.S. customers to jurisdictions that exchange information with the IRS
pursuant to an automatic exchange of information mechanism from reporting
information on such U.S. customers to the IRS under section 6045. This would mean
that such non-U.S. brokers would not be required to report information on U.S.
customers to both the IRS and a foreign tax administration that is exchanging
information with the IRS. The rules provided in the proposed regulations, when finalized
and as revised to take into account comments received on diligence standards and
other issues, therefore would be expected to apply only to a limited set of non-U.S.
brokers in jurisdictions that do not implement the CARF and exchange digital asset
information with the United States. Accordingly, the final regulations reserve on the
rules requiring non-U.S. brokers to report information on U.S. customers to the IRS, in
order to coordinate the rules for non-U.S. brokers under section 6045 with new rules
that will implement the CARF.

The Treasury Department and the IRS intend to propose regulations that would,
if finalized, implement CARF in sufficient time for the United States to begin exchanges
of information with appropriate partner jurisdictions in 2028 with respect to transactions
effected in the 2027 calendar year. It is anticipated that those proposed regulations also
would require U.S. digital asset brokers to report information on their foreign customers
resident in such jurisdictions, so that the IRS could provide that information to those
jurisdictions pursuant to automatic exchange of information mechanisms. Since the
proposed CARF regulations would require additional reporting by U.S. digital asset
brokers, the final regulations have been drafted taking the CARF definitions into account
where feasible in order to minimize differences between the types of information that
U.S. digital asset brokers are required to report under the final regulations and under
forthcoming proposed CARF regulations. It is anticipated, however, that the information
required to be reported by U.S. digital asset brokers under the forthcoming proposed
CARF regulations would differ from the information required to be reported under the
final regulations in significant ways. For example, the CARF requires reporting of
acquisitions and transfers of digital assets, requires all reporting to take place on an
aggregate basis, and has different rules for reporting of stablecoins than the final
regulations.
As the final regulations reserve on the rules of §1.6045-1(g)(4) relating to nonU.S. brokers, the final regulations limit the definition of a U.S. digital asset broker for
purposes of applying the provisions of §1.6045-1(g)(4). For these brokers, these
provisions include documentation, reliance, and presumption rules to determine whether
they may treat customers as exempt foreign persons. The final regulations indicate as
reserved those paragraphs of the proposed regulations that addressed definitions or
requirements specific to brokers that are not U.S. digital asset brokers. For example, the
final regulations reserve the rules for CFC digital asset brokers, non-U.S. digital asset

brokers conducting activities as money service businesses and other non-U.S. digital
asset brokers that were described in proposed §1.6045-1(g)(4). As a result, the
remainder of this Part I.G. discusses those comments relevant to U.S. digital asset
brokers (or digital asset brokers generally) and excludes discussion of comments
specific to only non-U.S. brokers. Comments specific to non-U.S. brokers will be
addressed as part of future regulations.
3. Revised U.S. Indicia for Brokers to Rely on Documentation
As referenced in Part I.G.1. of this Summary of Comments and Explanation of
Revisions, under the proposed regulations a digital asset broker is subject to specified
requirements for relying on a Form W-8 to treat a customer as an exempt foreign
person. With respect to a Form W-8 that is a beneficial owner withholding certificate, the
proposed regulations provided that a digital asset broker may rely on the certificate
unless the broker has actual knowledge or reason to know that the certificate is
unreliable or incorrect. Similar to a securities broker effecting a sale, a digital asset
broker is treated as having “reason to know” that a beneficial owner withholding
certificate for a customer is unreliable or incorrect based on certain indicia of the
customer’s U.S. status (U.S. indicia), which are for this purpose cross-referenced in
proposed §1.6045-1(g)(4)(vi)(B) to the U.S. indicia in proposed §1.6045-1(g)(4)(iv)(B)(1)
through (5) (setting forth the U.S. indicia relevant to a non-U.S. digital asset broker’s
requirements under the proposed regulations).
The U.S. indicia in proposed §1.6045-1(g)(4)(iv)(B)(1) through (5) included the
U.S. indicia in §1.1441-7(b)(5), which generally apply to determine when a U.S.
withholding agent is treated as having “reason to know” that a beneficial owner
withholding certificate is unreliable or incorrect and which are also applied for that
purpose to a securities broker effecting a sale. See §1.6045-1(g)(1)(ii). Proposed
§1.6045-1(g)(4)(iv) further includes as U.S. indicia the following: (1) a customer’s

communication with the broker using a device (such as a computer, smart phone,
router, server or similar device) that the broker has associated with an Internet Protocol
(IP) address or other electronic address indicating a location within the United States;
(2) cash paid to the customer by a transfer of funds into an account maintained by the
customer at a bank or financial institution in the United States, cash deposited with the
broker by a transfer of funds from such an account, or if the customer’s account is
linked to a bank or financial account maintained within the United States; or (3) one or
more digital asset deposits into the customer’s account at the broker were transferred
from, or digital asset withdrawals from the customer’s account were transferred to, a
digital asset broker that the broker knows or has reason to know to be organized within
the United States, or the customer’s account is linked to a digital asset broker that the
broker knows or has reason to know to be organized within the United States. As noted
in the preamble to the proposed regulations, the additional U.S. indicia were included to
account for the digital nature of the activities of digital asset brokers, including that they
do not typically have physical offices and communicate with customers by digital means
rather than by mail.
Many comments were received that raised issues with the proposed new U.S.
indicia. Some comments noted coordination issues that could arise from the new indicia
for brokers effecting sales of both securities and digital assets. These comments
requested that the U.S. indicia for digital asset brokers be aligned with the U.S. indicia
applicable to traditional financial brokers so that brokers effecting sales in both
capacities could avoid maintaining parallel systems to monitor differing U.S. indicia
depending on the type of sale. A comment noted that some securities brokers may
transact only digitally with customers, such that the stated reasoning for the new U.S.
indicia is not limited to digital asset brokers.

Other comments objected to one or more of the specified new U.S. indicia,
questioning the usefulness of certain of the indicia for identifying potential U.S.
customers and noting excessive burdens on brokers in tracking the required
information. They noted that IP addresses are not reliable indicators of a customer’s
residence given that the location indicated by an IP address will change when
customers travel outside of their countries of residence and can be masked by the use
of a virtual private network (VPN) so that a customer’s actual location cannot be
determined. A comment noted that the proposed regulations do not describe whether an
IP address would be required to be checked for all contacts with the customer as they
do not define a “customer contact” for this purpose.
Some comments raised concerns with the U.S. indicia relating to transfers
effected for customers to and from U.S. bank accounts and U.S. digital asset brokers.
Certain of those comments noted that the proposed regulations do not specify how a
broker should determine that a customer’s transfer is to or from a U.S. digital asset
broker, with one comment suggesting an actual knowledge standard be permitted, and
another comment suggesting that the IRS publish a list of U.S. digital asset brokers.
Another comment noted that a customer’s dealings with U.S. digital asset brokers or
U.S. banks is not a good indication of a customer’s U.S. status. Finally, some comments
noted that requiring determinations of U.S. status for every transfer would add burdens
on digital asset brokers that exceed those resulting from the static forms of U.S. indicia
that apply to securities brokers (such as for standing instructions to pay amounts to a
U.S. account) and may be read to require documentation cures at multiple times.
Because the comments raise concerns sufficient for the Treasury Department and the
IRS to reconsider the additional U.S. indicia, the final regulations do not include any of
the additional U.S. indicia that are in the proposed regulations for U.S. digital asset
brokers. Thus, for purposes of the reliance requirements of U.S. digital asset brokers,

the final regulations include only the U.S. indicia generally applicable to U.S. securities
brokers. The Treasury Department and the IRS intend to consider whether additional
U.S. indicia should be part of the proposed requirements that would be applicable to
non-U.S. digital asset brokers (as referenced in Part I.G.2. of this Summary of
Comments and Explanation of Revisions).
4. Transitional Determination of Exempt Foreign Status
To provide additional time for digital asset brokers to collect the necessary
documentation to treat existing customers as exempt foreign persons, the proposed
regulations provided a transitional rule for a broker to treat a customer as an exempt
foreign person for sales of digital assets effected before January 1, 2026, that were held
in a preexisting account established with a broker before January 1, 2025. A broker may
apply this transitional rule if the customer has not been previously classified as a U.S.
person by the broker, and information the broker has for the customer includes a
residence address that is not a U.S. address. See proposed §1.6045-1(g)(4)(vi)(F).
No comments were received in response to this proposed rule. The final
regulations include this transitional relief. The dates for which relief will apply have been
modified to apply to sales effected before January 1, 2027, that were held in an account
established with a broker before January 1, 2026.
5. Certification of Individual Customer’s Presence in U.S.
With respect to the requirements for a valid beneficial owner withholding
certificate provided by a customer to a broker to treat the customer as an exempt
foreign person, the proposed regulations stated that a beneficial owner withholding
certificate provided by an individual (that is, a Form W-8BEN) must include a
certification that the beneficial owner has not been, and at the time the certificate is
furnished reasonably expects not to be, present in the United States for 183 days or
more during each calendar year to which the certificate pertains. See proposed

§1.6045-1(g)(4)(ii)(B). This certification is based on the same requirement applicable to
a securities broker in §1.6045-1(g)(1)(i) to allow the broker to rely on a beneficial owner
withholding certificate to treat an individual as an exempt foreign person. One comment
stated that this certification requirement would not add sufficient value or reliability to a
standard or substitute Form W-8BEN and further noted that language relating to the
substantial presence test is included only in the instructions for Form W-8BEN, with a
cross-reference in the form’s jurat. The comment thereby asserted that an individual
may be unaware they are attesting to this standard when they sign a Form W-8BEN.
The comment suggested that this language be removed in the final regulations.
As referenced in the comment, this certification relates to a customer’s potential
classification as a U.S. individual under the substantial presence test in §301.7701(b)1(c). It also relates to whether an individual customer is subject to tax on capital gains
from sales or exchanges under section 871(a)(2) of the Code when the individual
remains a resident alien under section 7701(b)(3)(B) of the Code despite being present
in the United States for 183 days or more during a year. As indicated in the preamble to
the proposed regulations, Form W-8BEN specifically requires that an individual certify to
the individual’s status as an exempt foreign person in accordance with the instructions
to the form, which include this requirement (relating to broker and barter transactions
associated with the form). Thus, this certification is both sufficiently described in the
proposed regulations with respect to its reference to Form W-8BEN and relevant to an
individual’s claim of exempt foreign person status. Moreover, this certification is required
today for Forms W-8BEN collected by securities brokers and the Treasury Department
and the IRS have determined that the same certification should be required for Forms
W-8BEN collected by digital asset brokers. Thus, this comment is not adopted, and this
certification requirement is included in the final regulations for a beneficial owner
withholding certification provided to a U.S. digital asset broker. In response to this

comment, the IRS may consider revising Form W-8BEN or its instructions to highlight
this requirement more prominently for individuals completing the form.
6. Substitute Forms W-8
As described in Part I.G.1. of this Summary of Comments and Explanation of
Revisions, the proposed regulations provided that a digital asset broker may treat a
customer as an exempt foreign person if the broker receives a valid Form W-8 upon
which it may rely. They also permit a broker to rely upon a substitute Form W-8 that
meets the requirements of §1.1441-1(e)(4). See proposed §1.6045-1(g)(4)(ii)(B) and
(g)(4)(vi)(A)(1). Some comments requested that the final regulations be amended to
allow substitute certification forms based on other reporting regimes to reduce broker
compliance burdens, reduce customer confusion, and streamline global information
reporting. Some comments specially suggested that FATCA or Common Reporting
Standard (CRS) self-certifications (adjusted to account for digital assets) be permitted
as qualifying substitute forms. A comment supported the use of the type of substitute
form described in Notice 2011-71, 2011 I.R.B. 233 (August 19, 2011), to establish a
payee’s status as a foreign person for section 6050W reporting purposes.
The Treasury Department and the IRS agree that a broker’s ability to leverage a
certification form already in use for other purposes may reduce compliance burdens
associated with documenting customers. As stated in the preceding paragraph,
however, the proposed regulations already permitted brokers to rely on substitute
certification forms that meet the standard that applies for purposes of section 1441 of
the Code. Under this standard, a substitute form must include information substantially
similar to that required on an official certification form and the certifications relevant to
the transactions associated with the form. This standard is similar to the standard for the
substitute form specified in Notice 2011-71 (in reference to the comment to use that
substitute form). Additionally, as the comments referencing the use of self-certifications

pertaining to foreign reporting regimes presumably were made with respect to their use
by non-U.S. brokers, and as the requirements for non-U.S. brokers are reserved, these
comments are not further considered for the final regulations. See Part I.G.2. of this
Summary of Comments and Explanation of Revisions. As under the proposed
regulations, the final regulations provide that a U.S. digital asset broker may rely on a
substitute Form W-8 that meets the standard for purposes of section 1441 to establish a
customer’s foreign status.
H. Definitions and other comments
The proposed regulations defined a hosted wallet as a custodial service provided
to a user that electronically stores the private keys to digital assets held on behalf of
others and an unhosted wallet as a non-custodial means of storing, electronically or
otherwise, a user’s private keys to digital assets held by or for the user. Included in the
definition of unhosted wallets was a statement that unhosted wallets can be provided
through software that is connected to the Internet (a hot wallet) or through hardware or
physical media that is disconnected from the Internet (a cold wallet). Several comments
noted that these definitions were confusing because the proposed regulations failed to
define a wallet more generally. The final regulations adopt this comment and define a
wallet as a means of storing, electronically or otherwise, a user’s private keys to digital
assets held by or for the user. Final §1.6045-1(a)(25)(i).
The proposed regulations also provided that “a digital asset is considered held in
a wallet or account if the wallet, whether hosted or unhosted, or account stores the
private keys necessary to transfer access to, or control of, the digital asset.” Several
comments expressed confusion with this definition. One comment suggested that this
definition was not consistent with how distributed ledgers work because digital assets
themselves are not held in wallets but rather exist on the blockchain. The Treasury
Department and the IRS recognize that digital assets are not actually stored in wallets.

Indeed, the preamble to the proposed regulations explained that references to an owner
“holding” digital assets generally or “holding” digital assets in a wallet or account were
meant to refer to holding or controlling, whether directly or indirectly through a
custodian, the keys to the digital assets. To address the comment, however, the final
regulations conform the definition in the text to the preamble’s explanation. Accordingly,
under the final §1.6045-1(a)(25)(iv), “[a] digital asset is referred to in this section as held
in a wallet or account if the wallet, whether hosted or unhosted, or account stores the
private keys necessary to transfer control of the digital asset.” Additionally, the final
definition provides that a digital asset associated with a digital asset address that is
generated by a wallet, and a digital asset associated with a sub-ledger account of a
hosted wallet, are similarly referred to as held in a wallet. The same concept applies to
references to “held at a broker,” “held by the user of a wallet,” “acquired in a wallet or
account,” or “transferred into a wallet or account.” Holding, acquiring, or transferring, in
these cases, refer to holding, acquiring, or transferring the ability to control, whether
directly or indirectly through a custodian, the keys to the digital assets.
Another comment suggested references to “wallet or account” in this definition
and elsewhere in the proposed regulations failed to recognize the difference between
those terms in the digital asset industry. The final regulations do not adopt this
comment. Although many terms in the digital asset industry may have their own unique
meaning, the terms wallet and account, in these final regulations, are used
synonymously.
Another comment indicated that there were several additional unclear definitions,
including “software”, “platform”, and “ledger.” The regulations do not adopt this
comment. Standard rules of construction apply to give undefined terms, such as
software, ledger, and platform, their usual meaning. These terms are sufficiently basic
to not warrant additional definitions.

I. Comments based on constitutional concerns
1. First Amendment
Multiple comments alleged that the proposed regulations, if finalized, would
violate the First Amendment to the U.S. Constitution on a variety of asserted bases.
Some comments viewed the proposed regulations as requiring developers to include
code in their products that would reveal customer data, while others asserted that the
proposed regulations would require persons who fit the definition of broker to write their
software in a manner that goes directly against their closely held political, moral, and
social beliefs. Comments also said the proposed regulations would infringe on a
taxpayer’s freedom of association under the First Amendment because the IRS could
use the taxpayer identification information and wallet data reported by brokers to
monitor their financial associations.
The Department of the Treasury and the IRS do not agree that the regulations as
proposed or as finalized infringe upon rights guaranteed by the First Amendment. The
First Amendment provides, among other things, that “Congress shall make no law . . .
abridging the freedom of speech.” U.S. CONST. Amend. I. Protected speech includes
the right to utter, print, distribute, receive, read, inquire about, contemplate, and teach
ideas. Griswold v. Connecticut, 381 U.S. 479, 482 (1965). It also includes the right to
freely associate with others for expressive purposes. Freeman v. City of Santa Ana, 68
F.9d 1180, 1188 (9th Cir. 1995). Protected speech includes conduct designed to
express and convey ideas. New Orleans S.S. Ass’n v. General Longshore Workers, 626
F.2d 455, 462 (5th Cir. 1980), aff’d. Jacksonville Bulk Terminals, Inc. v. International
Longshoremen’s Ass’n, 457 U.S. 702 (1982). The rights protected by the First
Amendment include both the right to speak freely and the right to refrain from speaking
at all. Wooley v. Maynard, 430 U.S. 705, 714 (1977). A First Amendment protection
against compelled speech, however, has been found only in the context of

governmental compulsion to disseminate a particular political or ideological message.
See, e.g., Miami Herald Publ'g Co. v. Tornillo, 418 U.S. 241 (1974) (holding
unconstitutional a state statute requiring newspapers to publish the replies of political
candidates whom they had criticized); Wooley v. Maynard, 430 U.S. 705 (1977) (holding
that a state may not require a citizen to display the state motto on his license plate).
Challenges to government-compelled disclosures that are based on the freedom of
association are determined on an “exacting scrutiny” standard, which requires a
“substantial relation between the disclosure requirement and a sufficiently important
governmental interest.” Americans for Prosperity Foundation v. Bonta, 594 U.S. 595
(2021) (quoting Doe v. Reed, 561 U.S. 186, 196 (2010) (internal quotation marks
omitted)).
The final regulations do not compel political or ideological speech. Although they
do require disclosure of certain information, they do not infringe on a taxpayer’s right to
free association. Instead, the final regulations merely require information reporting for
tax compliance purposes, a sufficiently important governmental interest. See Collett v.
United States, 781 F.2d 53, 55 (6th Cir. 1985) (rejecting a taxpayer’s First Amendment
challenge to the imposition of a frivolous return penalty under section 6702 and holding
that “the maintenance and viability of the tax system is a sufficiently important
governmental interest to justify incidental regulation upon speech and non-speech
communication”) (citing United States v. Lee, 455 U.S. 252, 260 (1982)). The
information required from brokers with respect to digital asset sales is similar to the
information required to be reported by brokers with respect to other transactions
required to be reported, and the IRS has an important interest in receiving this
information. The IRS gathers third-party information about income received and taxes
withheld to verify self-reported income and tax liability reported on Federal income tax
returns. The use of reliable and objective third-party verification of income increases the

probability of tax evasion being detected and increases the cost of evasion to the
taxpayers, thereby decreasing the overall level of tax evasion by taxpayers. Information
reporting also assists taxpayers receiving such reports to prepare their Federal income
tax returns and helps the IRS determine whether such returns are correct and complete.
Accordingly, the Treasury Department and the IRS have concluded the final regulations
would pass muster under First Amendment scrutiny.
2. Fourth Amendment
Multiple comments contended the proposed regulations, if finalized, would violate
the Fourth Amendment’s prohibition on warrantless searches and seizures of a person’s
papers and effects because they do not currently provide their brokers with their
personal information when they transact in digital assets. Comments asserted the
proposed regulations would violate the Fourth Amendment because reporting
information that would link an individual’s identity to transaction ID numbers and their
digital asset addresses would allow the government to see historical and prospective
information about the individual’s activities. Although the Treasury Department and the
IRS do not agree that requiring the reporting of this information would violate the Fourth
Amendment, the final regulations do not require this information to be reported. Instead,
the final regulations require this information to be retained by the broker to ensure the
IRS will have access to all the records it needs if requested by IRS personnel as part of
an audit or other enforcement or compliance effort.
The Fourth Amendment protects against “unreasonable searches and seizures.”
U.S. CONST. Amend IV. The Fourth Amendment’s protections extend only to items or
places in which a person has a constitutionally protected reasonable expectation of
privacy. See California v. Ciraolo, 476 U.S. 207, 211 (1986). Customers of digital asset
brokers do not have a reasonable expectation of privacy with respect to the details of
digital asset sale transactions effectuated by brokers. See United States v. Gratkowski,

964 F.3d 307, 311-12 (5th Cir. 2020) (rejecting the defendant’s Fourth Amendment
claim of a reasonable expectation of privacy in transactions recorded in a publicly
available blockchain and in the records maintained by the virtual currency exchange
documenting those transactions, noting that “the nature of the information and the
voluntariness of the exposure weigh heavily against finding a privacy interest.”). See
also, Goldberger & Dublin, P.C., 935 F.2d 501, 503 (2nd Cir. 1991) (citing United States
v. Miller, 425 U.S. 435, 444 (1976); Cal. Bankers Ass’n v. Shultz, 416 U.S. 21, 59-60
(1974)) (summarily rejecting a Fourth and Fifth Amendment challenge to information
reporting requirements under section 6050I and noting that similar “contentions relative
to the Fourth and Fifth Amendments have been rejected consistently in cases under the
Bank Secrecy Act by both the Supreme Court and this Court.”) (additional citations
omitted). Gains or losses from these sale transactions must be reflected on a Federal
income tax return. Customers of digital asset brokers do not have a privacy interest in
shielding from the IRS the information that the IRS needs to determine tax compliance.
Moreover, these taxable transactions will be reported to the IRS in due course anyway.
To the extent the digital asset sale transactions are recorded on public ledgers, those
transactions are not private. Just because customers might choose not to exchange
identifying information with brokers when engaging in digital assets transactions does
not render the underlying transactions private, particularly when the customers choose
to engage in such transactions in a public forum, such as a public blockchain.
Therefore, the Treasury Department and the IRS have concluded that the final
regulations do not violate the Fourth Amendment.
3. Fifth Amendment and Assertions of Vagueness
Some comments stated that the proposed regulations, if finalized, would violate
the Fifth Amendment’s prohibition on depriving any person of life, liberty, or property
without due process of law. These comments based this assertion on a variety of views,

including that the proposed regulations are unconstitutionally vague and impossible to
apply in practice, particularly rules relating to customer identification and
documentation. Other comments stated the proposed regulations violate the Fifth
Amendment due process clause because the definitions of broker, effect, and digital
asset middleman are too vague to be applied fairly. Some comments stated the
proposed regulations violate the Fifth Amendment’s protections against compelled selfincrimination.
The Due Process Clause of the Fifth Amendment provides that “no person shall
. . . be deprived of life, liberty, or property, without due process of law.” This provision
has been interpreted to require that statutes, regulations, and agency pronouncements
define conduct subject to penalty “with sufficient definiteness that ordinary people can
understand what conduct is prohibited.” See Kolender v. Lawson, 461 U.S. 352, 357
(1983). Although some comments stated that digital asset users have not routinely
exchanged identifying information with their brokers in the past, this does not mean the
requirement that brokers obtain customers’ identifying information going forward is
vague – much less unconstitutionally so. “The ‘void for vagueness’ doctrine is a
procedural due process concept,” United States v. Professional Air Traffic Controllers
Organization, 678 F.2d 1, 3 (1st Cir. 1982), but “’[a]bsent a protectible liberty or property
interest, the protections of procedural due process do not attach.” United States v.
Schutterle, 586 F.2d 1201, 1204-05 (8th Cir. 1978). There is no protectible liberty or
property interest in the information required to be disclosed under the regulation. In any
event, the relevant test is that a “regulation is impermissibly vague under the Due
Process Clause of the Fifth Amendment if it ‘fails to provide a person of ordinary
intelligence fair notice of what is prohibited, or is so standardless that it authorizes or
encourages seriously discriminatory enforcement.’” United States v. Szabo, 760 F.3d
997, 1003 (9th Cir. 2014) (quoting Holder v. Humanitarian Law Project, 561 U.S. 1, 18

(2010)). The regulation is not unconstitutionally vague by this measure. To be sure,
brokers will have to obtain the identifying information of users they may not have met in
person. However, online brokers have successfully navigated this issue in other
contexts.
The Fifth Amendment also provides that “[n]o person . . . shall be compelled in
any criminal case to be a witness against himself.” U.S. CONST. Am. V. The U.S.
Supreme Court has held that this right, properly understood, only prevents the
Government from “compel[ing] incriminating communications . . . that are ‘testimonial’ in
character.” United States v. Hubbell, 530 U.S. 27, 34 (2000). The Supreme Court has
held that “the fact that incriminating evidence may be the byproduct of obedience to a
regulatory requirement, such as filing an income tax return . . . [or] maintaining required
records . . . does not clothe such required conduct with the testimonial privilege.”
Hubbell, 530 U.S. at 35.
Some comments specifically stated that the definitions of broker, effect, and
digital asset middleman are unconstitutionally vague. As discussed in Part I.B.1. of this
Summary of Comments and Explanation of Revisions, the final regulations apply only to
digital asset industry participants that hold custody of their customers’ digital assets and
the final regulations revise and simplify the definition of a PDAP. The Treasury
Department and the IRS continue to study the non-custodial industry and intend to issue
separate final regulations describing information reporting rules for non-custodial
industry participants. Therefore, any concerns regarding the perceived vagueness of the
definitions as they apply to custodial industry participants have been addressed in these
final regulations.
4. Privacy and Security Concerns
Comments expressed a variety of concerns related to the privacy and safety
implications of requiring brokers to collect financial data and social security numbers.

The Treasury Department and the IRS considered the privacy and security implications
of the proposed regulations. Section 80603 of the Infrastructure Act made several
changes to the broker reporting provisions under section 6045 to clarify the rules
regarding how digital asset transactions should be reported by brokers. The purpose
behind information reporting under section 6045 is to provide information to assist
taxpayers receiving the reports in preparing their Federal income tax returns and to help
the IRS determine whether such returns are correct and complete. The customer’s
name and TIN are necessary to match information on Federal income tax returns with
section 6045 reporting. Although this is personally identifiable information that
customers may wish to keep private and secure, the IRS interest in receiving this
information outweighs any privacy concerns about requiring brokers to collect and retain
this information. The final regulations do not require brokers to report the transaction ID
numbers or digital asset addresses. If brokers do not believe their existing security
measures are sufficient to keep personally identifiable information and tax information
private and secure, they can choose to implement new security measures or choose to
contract with third parties with expertise in securing confidential data.
Comments said they were concerned about brokers, especially smaller brokers,
being able to securely store customer data and one comment requested that the final
regulations include requirements for the IRS to monitor broker compliance with security
measures. Other comments requested a reporting exception for small digital asset
brokers that would be based on the value of assets traded during a calendar year or a
valuation of the broker’s business. These comments were not adopted for the final
regulations. Traditional brokers, including smaller brokers, have operated online for
many years and have implemented their own online security policies and protocols
without specific security regulations under section 6045. The final regulations do not
include a general de minimis threshold that would exempt small brokers from reporting;

however, the Treasury Department and the IRS are providing penalty relief under
certain circumstances for transactions occurring during calendar year 2025 and brokers
can use this time to improve existing security practices or put a security system in place
for the first time.
Some comments expressed concerns about numerous third parties, such as
multiple brokers, having access to customer data and questioned the ability of brokers
to securely transfer customer data to third parties. Comments also included concerns
about the IRS’s ability to securely store customer data. The final regulations do not
require the information reported to be disseminated to third parties, but as with many
other information returns, require filing the complete information with the IRS and
furnishing a statement to the taxpayer which can include a truncated TIN rather than the
entire TIN. The final regulations also provide a multiple broker rule, which require only
one broker to be responsible for obtaining and reporting the financial and identifying
information of a person who participated in a digital asset transaction. Furthermore, and
as more fully explained in Part I.B.2. of this Summary of Comments and Explanation of
Revisions, the final regulations require PDAPs to file information returns with respect to
a buyer’s disposition of digital assets only if the processor already may obtain customer
identification information from the buyer to comply with AML obligations pursuant to an
agreement or arrangement with the buyer. The Treasury Department and the IRS
acknowledge the concerns raised regarding the IRS’s ability to securely store customer
data and the information reported on digital asset transactions. The information on
Forms 1099-DA will be subject to the same security measures as other information
reported to the IRS. Generally, tax returns and return information are confidential, as
required by section 6103 of the Code. Additionally, the Privacy Act of 1974 (Public Law
93-679) affords individuals certain rights with respect to records contained in the IRS’s
systems of records. One customer asserted that any information collected on the

blockchain is public information, not “return information” under section 6103 and is
therefore subject to the Freedom of Information Act (FOIA). Although the blockchain
itself is public, all information reported on a Form 1099-DA and filed with the IRS
becomes protected in the hands of the IRS under section 6103(b)(2) and is not subject
to FOIA.
Some comments express concerns about TIN certification and predicted that
individuals would be confused when digital asset brokers requested their TINs. Some
comments expressed fear that malicious actors who were not brokers would try to trick
individuals into providing their personal information. Some comments said that as
potential brokers, they were concerned about having customer data and that data being
accessed by unauthorized individuals or entities. Concerns about malicious actors
tricking customers into providing their personal information through online scams such
as phishing attacks, while unfortunate, are not unique to digital asset reporting. Digital
asset brokers who have a legitimate need for the TIN and other personal information of
customers should provide their customers with an explanation for their requests to
ensure their customers will not be confused or concerned. Additionally, brokers should
act responsibly to safely store any information required to be reported on Form 1099DA, Form 1099-S, Form 1099-B, and Form 1099-K including personal information of
customers.
5. Authority for and Timing of Regulations
Multiple comments expressed concerns that the Treasury Department and the
IRS lacked authority to promulgate the digital asset broker regulations or asserted that
the proposed regulations were published too soon or without sufficient development.
For example, some comments said the IRS should wait to regulate digital assets until
after consulting with other Federal agencies or that the proposed regulations addressed
issues that should first be addressed by Congress or other agencies. Congress enacted

the Infrastructure Act in 2021 and section 80603 made several changes to the broker
reporting provisions under section 6045 to clarify the rules regarding how certain digital
asset transactions should be reported by brokers, and to expand the categories of
assets for which basis reporting is required to include all digital assets. Congress’s
power to lay and collect taxes extends to the requirement that brokers report information
on taxable digital asset transactions. The proposed regulations were published on
August 29, 2023, and the final regulations are intended to implement the Infrastructure
Act; therefore, the IRS is not attempting to regulate digital assets without prior
Congressional approval. No inference is intended as to when a sale of a digital asset
occurs under any other legal regime, including the Federal securities laws and the
Commodities Exchange Act, or to otherwise impact the interpretation or applicability of
those or any other laws, which are outside the scope of these final regulations.
Comments said the proposed regulations exceeded the authority granted by
Congress. Section 80603 of the Infrastructure Act clarifies and expands the rules
regarding how digital assets should be reported by brokers under sections 6045 and
6045A to improve IRS and taxpayer access to gross proceeds and adjusted basis
information when taxpayers dispose of digital assets in transactions involving brokers.
The Treasury Department and the IRS are issuing these final regulations to implement
these statutory provisions. The Treasury Department and the IRS disagree that these
final regulations preempt Congressional action because as discussed in Parts I.A.2. and
I.B.1.b. of this Summary of Comments and Explanation of Revisions, the final
regulations are consistent with statutory language.
Comments said the proposed regulations are hostile and aggressively opposed
to digital asset technology and are not technologically neutral. Third-party information
reporting addresses numerous types of payments, regardless of whether or not these
payments are made online. Section 6045(a) requires brokers to file information returns,

regardless of whether or not the brokerage operates online. The Infrastructure Act
clarifies and expands the rules regarding how digital assets should be reported by
brokers under sections 6045 and 6045A to improve IRS and taxpayer access to gross
proceeds and adjusted basis information when taxpayers dispose of digital assets in
transactions involving brokers. The final regulations implement the Infrastructure Act
and require brokers to file information returns that contain information similar to the
existing Form 1099-B. The Infrastructure Act defines a digital asset broadly to mean any
digital representation of value which is recorded on a cryptographically secured
distributed ledger or any similar technology as specified by the Secretary; therefore, the
final regulations that require this additional reporting do not exceed statutory authority.
Other comments raised a variety of policy considerations including that the
proposed regulations could negatively impact the growth of the digital asset industry
which offers a variety of benefits. Information reporting assists taxpayers receiving such
reports to prepare their Federal income tax returns and helps the IRS determine
whether such returns are correct and complete. The legislation enacted by Congress
confirming that information reporting by digital asset brokers is required represents a
judgment that tax administration concerns should prevail over the policy considerations
raised by the comments. Furthermore, information reporting from these regulations may
result in reduced costs for taxpayers to monitor and track their digital asset portfolios.
These reduced costs and the increased confidence potential digital asset owners will
gain as a result of brokers being compliant with Federal tax laws may increase the
number of digital asset owners and may increase existing owners’ digital asset trade
volume. Digital asset owners currently must closely monitor and maintain records of all
their transactions to correctly report their tax liability at the end of the year. This is a
complicated and time-consuming task that is prone to error. Those potential digital asset
owners who have little experience with accounting for digital assets may have been

unwilling to enter the market due to the high learning and record maintenance costs.
Eliminating these high entry costs will allow more potential digital asset owners to enter
the market. In addition, these regulations may ultimately mitigate some compliance
costs for brokers by providing clarity, certainty, and consistency on which types of
transactions and information are, and are not, subject to reporting.
II. Final §§1.1001-7, 1.1012-1(h), and 1.1012-1(j)
A. Comments on the taxability of digital asset-for-digital asset exchanges
A few comments questioned the treatment, under the rules in proposed §1.10017(b)(1) and (b)(1)(iii)(C), of an exchange of one digital asset for another digital asset,
differing materially in kind or in extent, as a taxable disposition. Such treatment, a
comment advised, would be detrimental to taxpayers, because it would ignore the
virtual nature of digital assets and volatile and drastic price swings in this market and
the potential adverse tax consequences of having to recognize capital gains
immediately but with allowable capital losses being limited in some instances. Another
comment stated the proposed treatment would be administratively impractical, because
such a rule, the comment argued, rests on the false presumption that an exchange of
digital assets is akin to an exchange of stocks/securities and that, unlike those
exchanges, taxpayers have opportunities to engage in digital asset exchanges in a
manner that may go unnoticed by the IRS, and therefore, untaxed. Another comment
challenged the proposed treatment, because digital assets, the comment opined, are
software that do not encompass legal rights within the meaning of Cottage Savings
Association v. Commissioner, 499 U.S. 554 (1991).
The final regulations do not adopt these comments. The Treasury Department
and the IRS have determined that treating an exchange of digital assets for digital
assets is a realization event, within the meaning of section 1001(a) and existing
precedents. See, e.g., Cottage Savings Ass’n, 499 U.S. at 566 (“Under [the Court’s]

interpretation of [section] 1001(a), an exchange of property gives rise to a realization
event so long as the exchanged properties are ‘materially different’—that is, so long as
they embody legally distinct entitlements”). Moreover, the Treasury Department and the
IRS have determined that the treatment is consistent with longstanding legal principles.
Nor do the Treasury Department and the IRS agree with the comment’s assessment
that digital assets are only software that do not represent legally distinct entitlements.
Accordingly, final §1.1001-7(b)(1) and (b)(1)(iii)(C) retain the rules in proposed §1.10017(b)(1) and (b)(1)(iii)(C) treating such an exchange as a realization event.
Alternatively, one comment criticized treating an exchange of digital assets for
digital assets, differing materially either in kind or in extent, as a taxable disposition,
without also providing guidance defining the factors necessary for determining what are
material differences. The absence of such guidance, the comment believed, would
require taxpayers and brokers to rely on decades-old case law to make such
determinations and would result in discrepancies in information reporting for the same
types of transactions. Accordingly, the comment recommended the final rules include
guidance on these factors. The final regulations do not adopt this recommendation. The
Treasury Department and the IRS have concluded that a determination of whether
property is materially different in kind or in extent is a factual one, and, thus, beyond the
scope of these regulations.
B. Digital asset transaction costs
Proposed §1.1001-7(b)(2)(i) defined the term digital asset transaction costs as
the amount in cash, or property (including digital assets), to effect the disposition or
acquisition of a digital asset and includes transaction fees, transfer taxes, and any other
commissions. By cross-reference to proposed §1.1001-7(b)(2)(i), proposed §1.10121(h)(2)(i) adopted the same meaning for this term.

Proposed §1.1001-7(b)(2)(ii) provided rules for allocating digital asset transaction
costs to the disposition or acquisition of a digital asset. Proposed §1.1001-7(b)(2)(ii)(A)
set forth the general rule for allocating digital asset transaction costs for purposes of
determining the amount realized. Proposed §1.1001-7(b)(2)(ii)(B) included a special
rule, in the case of digital assets received in exchange for other digital assets that differ
materially in kind or extent, allocating one-half of the total digital asset transaction costs
paid by the taxpayer to the disposition of the transferred digital asset for purposes of
determining the amount realized.
Proposed §1.1012-1(h)(2)(ii) provided rules for allocating digital asset transaction
costs to acquired digital assets. Proposed §1.1012-1(h)(2)(ii)(A) included a general rule
requiring such costs to be allocated to the basis of the digital assets received. As a
corollary to proposed §1.1001-7(b)(2)(ii)(B), proposed §1.1012-1(h)(2)(ii)(B) included a
special rule in the case of digital assets received in exchange for other digital assets
that differ materially in kind or extent, allocating one-half of the total digital asset
transaction costs paid by the taxpayer to the acquisition of the received digital assets for
purposes of determining the basis of those received digital assets.
1. Proposed Split Digital Asset Transaction Cost Rule
The Treasury Department and the IRS solicited comments on whether the
proposed split digital asset transaction cost rule, as described in proposed §§1.10017(b)(2)(ii)(B) and 1.1012-1(h)(2)(ii)(B), would be administrable. The responses to this
inquiry varied widely. One comment viewed the split digital asset transaction cost rule
as administrable but only if the digital assets used to pay the digital asset transaction
costs can be reasonably valued and recognized at their acquisition cost. The final
regulations do not adopt this comment. The determination of whether digital assets can
be reasonably valued could be made differently by different brokers and give rise to
inconsistent reporting. The sale or disposition of digital assets giving rise to digital asset

transaction costs is subject to the rules of final §§1.1001-7 and 1.1012-1(h), which
provide consistent rules for all digital asset-for-digital asset transactions.
Another comment opined that the proposed split digital asset transaction cost
rule would be administrable, but that its application would pose an increased risk of
error and would not reflect current industry practice. In contrast, several comments
expressed the view that the proposed split digital asset transaction cost rule, in fact,
would not be administrable. These comments cited a variety of reasons, including that
the rule’s application would be too burdensome, complicated, or confusing for brokers
and taxpayers and would render oversimplified allocations not reflective of the diverse
and complex nature of digital asset transactions. Other comments opined that the lack
of administrability would derive, in part, from the disparity of having a different allocation
rule for exchanged digital assets than the allocation rules applied to other asset classes,
which, in their view, would result in disparate tax treatment for the latter type of costs. A
few comments advised that the administrability issues would be caused in part, from the
difficulties the rule would create when later seeking to reconcile transaction accounting
and transaction validation. One comment shared the view that the proposed rule would
be difficult for decentralized digital asset trading platforms to administer because it
would require coordination of multiple parties providing facilitative services, and no such
coordination currently exists in the form of technological infrastructure and standardized
processes for tracking and communicating cost-basis information across these
platforms.
Several comments noted that digital asset transaction costs paid for effecting an
exchange of digital assets were generally low, with one comment opining that such
costs were generally less than 1 percent of a transaction’s total value. These comments
often noted that the resulting allocations from applying the proposed split digital asset
transaction cost rule would result in no or minimal timing differences in the associated

income. Other comments questioned whether the benefits derived from having
taxpayers and brokers apply the proposed split digital asset transaction cost rule would
be commensurate with the additional administrative burdens that would be placed on
the parties. A few comments shared the concern that the proposed split digital asset
transaction cost rule would impose additional burdens and complexity, because such a
rule would require brokers to implement or modify their existing accounting systems,
develop new software, and retain additional professional service providers in order to
comply. One comment also noted the resulting allocations from the proposed split digital
asset transaction cost rule would be inconsistent with the allocations required by
Generally Accepted Accounting Principles and would produce unnecessary book-tax
differences. Some comments expressed the concern that the proposed split digital
asset transaction cost rule would produce arbitrary approximations not necessarily
reflecting the economic reality of the particular transactions. Additionally, one comment
stated that the proposed split digital asset transaction cost rule would pose litigation
risks for the IRS because such a rule would override the parties’ contracted cost
allocations and thus impede their rights under contract law. Another comment argued
that the proposed split digital asset transaction cost rule would impede the right of
taxpayers and brokers to determine which party bears the economic burden of digital
asset transaction costs. The Treasury Department and the IRS have concluded that the
proposed split digital asset transaction cost rule would be overly burdensome for
taxpayers and brokers to administer. Accordingly, the final regulations do not adopt the
proposed rule.
2. Recommended Alternatives for the Split Digital Asset Transaction Cost Rule
A few comments recommended the adoption of a rule allocating digital asset
transaction costs based on the actual amounts paid for the specific disposition or
acquisition, which some viewed as promoting taxpayer equity. One comment also

recommended that this rule be coupled with flexibility sufficient to accommodate
different types of transactions and technological solutions for ease of administration.
Several comments recommended that the final regulations adopt a discretionary rule
allowing brokers to decide how to allocate these costs (discretionary allocation rule).
Most of these comments also recommended that brokers be required to notify taxpayers
of the cost allocations and to apply the allocations in a consistent manner. The cited
benefits for this recommendation included that the resulting allocations would be more
consistent with the economics of the actual fees charged by brokers, and that the
recommended rule would create symmetry with the rules applied to transactions
involving other asset classes. In addition to recommending adoption of a discretionary
allocation rule, a few comments also recommended the inclusion of safe harbors for
brokers. In urging the inclusion of safe harbors, one comment suggested limiting their
availability to those brokers who maintain records documenting the actual cost
allocations. Of the comments recommending a discretionary allocation rule, most
viewed such a rule as comparable with the current rules for allocating transactional
costs incurred in transactions with other asset classes. One comment also
recommended that the discretionary allocation rule be extended to cover taxpayers’
allocations of digital asset transaction costs.
In addition to recommending a discretionary allocation rule, many comments also
recommended that the final rules provide an option, allowing brokers or taxpayers to
allocate digital asset transaction costs on a per-transaction basis. This approach, in
their view, was necessary because of the diverse types of digital asset transactions.
Comments claimed that a “one-size-fits-all” approach would not account for the
inevitable variability, and that the recommended approach would promote fairness and
administrability. One comment recommended that the final regulations include a de
minimis rule excluding digital asset transaction costs under a specified threshold.

Another comment recommended that the split digital asset transaction cost rule be
replaced with rules requiring taxpayers to account for digital asset transaction costs in
accordance with the principles of section 263(a) of the Code, while permitting brokers to
allocate and report digital asset transaction costs either as a reduction in the amount
realized on the disposed digital assets or as an additional amount paid for the acquired
digital assets so long as the brokers’ reporting is consistently applied. One comment
recommended the inclusion of a simplified reporting rule with less emphasis on precise
allocations of digital asset transaction costs for smaller transactions. The comment did
not offer parameters for defining smaller transactions in this context. The final
regulations do not adopt these recommendations. The Treasury Department and the
IRS have determined that the adoption of discretionary allocation rules would place
additional administrative burdens on taxpayers, brokers, and the IRS. Such rules would
render disparate treatment of such costs among brokers and/or taxpayers with multiple
wallet or broker accounts, thus necessitating the need for additional tracking and
coordination to avoid discrepancies. In contrast, a uniform rule is less susceptible to
manipulation and avoids administrative complexities.
3. Proposed 100 Percent Digital Asset Transaction Cost Rule
The Treasury Department and the IRS also solicited comments on whether a rule
requiring a 100 percent allocation of digital asset transaction costs to the disposed-of
digital asset in an exchange of one digital asset for a different digital asset (100 percent
digital asset transaction cost rule) would be less burdensome.
Several comments agreed that the proposed 100 percent digital asset
transaction cost rule would be less burdensome. Other comments, however, did not
share this view for a variety of reasons. Some comments stated that the resulting
allocations would not accurately reflect the economic realities of the transactions,
although one comment expressed the view that these allocations would more closely

reflect economic realities than the allocations resulting from the proposed split digital
asset transaction cost rule. One comment cited the rule’s rigidity, which the comment
concluded would lead to increased potential disputes between the IRS and taxpayers
and expose both parties to additional litigation and administrative burdens. One
comment cited the oversimplifying effect the rule would have on diverse and complex
digital asset transactions, which would, in the comment’s view, result in inaccurate
reporting of gains and losses and other unintended tax consequences, pose a potential
disincentive for taxpayers to engage in smaller transactions, and disproportionately
impact investors engaged in certain investment strategies. The Treasury Department
and the IRS do not agree that the resulting allocations rendered by the 100 percent
digital asset transaction cost rule are inconsistent with the economic realities of some
digital asset transactions. The 100 percent digital asset transaction cost rule likely
creates minor timing differences, but such differences do not outweigh the benefits, in
the form of clarity and certainty in determining the allocated costs. Further, the Treasury
Department and the IRS have concluded that the 100 percent digital asset transaction
cost rule appropriately balances concerns about administrability, compliance burdens,
manipulability, and accuracy. Specifically, it alleviates the burdens placed on brokers
and taxpayers from having to track the allocated costs separately to ensure the
amounts are accurate. Additionally, the 100 percent digital asset transaction cost rule,
applied to both unhosted wallets and accounts held in the custody of a broker, is less
burdensome than the proposed split digital asset transaction cost rule and the
recommended discretionary allocation rule.
One comment cited the current industry consensus to treat an exchange of one
digital asset for another digital asset as two separate transactions consisting of: a sale
of the disposed digital asset followed by a purchase of the received digital asset.
Because of this industry consensus, the comment recommended that these costs be

treated as selling expenses reducing the amount realized on the disposed digital assets.
The final regulations adopt this comment. Final §1.1001-7(b)(2)(ii) sets forth rules for
allocating digital asset transaction costs, as defined in final §1.1001-7(b)(2)(i), by
retaining the general rule in proposed §1.1001-7(b)(2)(ii)(A), and revising proposed
§1.1001-7(b)(2)(ii)(B). Final §1.1001-7(b)(2)(ii)(A) replaces the split digital asset
transaction cost rule with the 100 percent digital asset transaction cost rule. Under final
§1.1001-7(b)(2)(ii)(A), the total digital asset transaction costs, other than in the case of
certain cascading digital asset transaction costs described in final §1.1001-7(b)(2)(ii)(B),
are allocable to the disposed digital assets.
Final §1.1012-1(h)(2)(ii) also includes corresponding rules to those in final
§1.1001-7(b)(2)(ii), for allocating digital asset transaction costs, as defined in final
§1.1012-1(h)(2)(i). Final §1.1012-1(h)(2)(ii) retains the general rule in proposed
§1.1012-1(h)(2)(ii)(A), and revises the special rule in proposed §1.1012-1(h)(2)(ii)(B),
removing the split digital asset transaction cost rule and allocating digital asset
transaction costs paid to effect an exchange of digital assets for other digital assets,
differing materially in kind or in extent, exclusively to the disposition of digital assets.
Under final §1.1012-1(h)(2)(ii)(A), digital asset transaction costs, other than those
described in final §1.1012-1(h)(2)(ii)(B) and (C), are allocable to the digital assets
received. Under final §1.1012-1(h)(2)(ii)(B), if digital asset transaction costs are paid to
effect the exchange of digital assets for other digital assets, differing materially in kind or
in extent, then such costs are allocable exclusively to the disposed digital assets. Final
§1.1012-1(h)(2)(ii) also adds special rules in final §1.1012-1(h)(2)(ii)(C) for allocating
certain cascading digital asset transaction costs, which are discussed in Part II.B.4. of
this Summary of Comments and Explanation of Revisions. Final §1.1012-1(h)(2)(ii) also
states that any allocations or specific assignments, other than those in accordance with
final §1.1012-1(h)(2)(ii)(A) through (C), are disregarded.

Finally, final §1.1001-7(b)(2)(ii)(B) adds a new special rule for cascading digital
asset transaction costs. See Part II.B.4. of this Summary of Comments and Explanation
of Revisions for a discussion of the special rule in final §1.1001-7(b)(2)(ii)(C) for
allocating certain cascading digital asset transaction costs and the Treasury
Department’s and the IRS’s reasons for adopting that rule.
4. Cascading Digital Asset Transaction Costs
The Treasury Department and the IRS solicited comments on whether cascading
digital asset transaction costs, that is, a digital asset transaction cost paid with respect
to the use of a digital asset to pay for a digital asset transaction cost, should be treated
as digital asset transaction costs associated with the original transaction.
A few comments agreed that cascading digital asset transaction costs should be
allocated to the original transaction. Most comments, however, opposed allocating such
costs exclusively to the original transaction, citing an array of reasons. A few comments
advised that such an approach would improperly aggregate economically distinct
transactions and would fail to accurately measure cost basis and any gains or losses on
the disposed digital assets used to pay the subsequent digital asset transaction costs.
These comments expressed the position that the proposed approach would conflict with
existing tax jurisprudence and fail to reflect economic reality. One comment cited the
oversimplifying effect of such a rule, which would, in the comment’s view, lead to
inequitable tax treatment and imposition of undue operational burdens.
A few comments cited the significant operational burdens placed on both
taxpayers and brokers to implement such a rule. One of these comments also cited the
complicating and potentially inequitable effect such a rule would have on making the
allocation and tax calculations. Comments recommended a variety of alternatives for
allocating cascading digital asset transaction costs. Some comments recommended
that these costs be allocated to each specific transaction giving rise to the costs. In

recommending this approach, one comment noted that it would offer a more nuanced
and accurate reflection of the financial realities of digital asset transactions, thus
ensuring “fairer” tax treatment, “clearer” records, and “easier” audit trails, while also
acknowledging that it may impose increased administrative burdens. In addition to
making the above recommendation, one comment also offered an alternative approach
suggesting that such costs be allocated proportionally based on the significance of each
transaction in the cascading chain. This alternative recommendation, the comment
noted, would balance the needs for accurate cost reporting and accounting, and would
reduce disproportionately high tax burdens arising from minor transaction costs, while
the comment acknowledged that it may be complex to implement. Another comment
recommended allocating cascading digital asset transaction costs based on some other
factors, such as the complexity or difficulty of each transaction and market conditions.
The final regulations do not adopt these comments for allocating cascading digital asset
transaction costs. The Treasury Department and the IRS have determined that these
costs should be allocated in the same manner provided in the general allocation rules
with a limited exception because this framework is less burdensome, produces accurate
tax determinations, and reduces the potential for errors and inconsistencies.
A few comments included a description of network fees, exchange fees, one time
access fees, and other service charges and recommended that the final rules treat
these types of fees as cascading digital asset transaction costs. Final §§1.1001-7 and
1.1012-1(h) do not adopt these recommendations. The Treasury Department and the
IRS have determined that whether a type of transaction fee fits within the definition of
cascading digital asset transaction costs is a factual determination and is beyond the
scope of these regulations.
Final §1.1001-7(b)(2)(ii)(B) adopts a modified special rule for allocating certain
cascading digital asset transaction costs for an exchange described in final §1.1001-

7(b)(1)(iii)(C) (an exchange of digital assets for other digital assets differing materially in
kind or in extent) and for which digital assets acquired in the exchange are withheld
from digital assets acquired in the original transaction to pay the digital asset transaction
costs to effect the original transaction. For such transactions, the total digital asset
transaction costs paid by the taxpayer, to effect the original exchange and any
dispositions of the withheld digital assets, are allocable exclusively to the disposition of
digital assets from the original exchange. For all other transactions not otherwise
described in final §1.1001-7(b)(2)(ii)(B), digital asset transaction costs are allocable in
accordance with the general allocation rule set forth in final §1.1001-7(b)(2)(ii)(A), that
is, digital asset transaction costs are allocable to the specific transaction from which
they arise.
Final §1.1012-1(h)(2)(ii) adds corresponding special allocation rules for certain
cascading digital asset transaction costs paid to effect an exchange of one digital asset
for another digital asset and for which digital assets are withheld from those received in
the exchange to pay the digital asset transaction costs to effect such an exchange. For
such transactions, the total digital asset transaction costs paid by the taxpayer to effect
the exchange and any dispositions of the withheld digital assets are allocable
exclusively to the digital assets disposed of in the original exchange.
C. Basis
Final §1.1012-1(j) clarifies the scope of the lot identification rules for digital
assets defined by cross-reference to §1.6045-1(a)(19), except for digital assets the sale
of which is not reported by a broker as the sale of a digital asset because the sale is a
sale of a dual classification asset described in Part I.A.4.a. of this Summary of
Comments and Explanation of Revisions that is cleared or settled on a limited-access
regulated network subject to the coordination rule in final §1.6045-1(c)(8)(iii), a
disposition of contracts covered by section 1256(b) subject to the coordination rule in

final §1.6045-1(c)(8)(ii), or is a sale of a dual classification asset that is an interest in a
money market fund subject to the coordination rule in final §1.6045-1(c)(8)(iv). Final
§1.1012-1(j)(3) applies to digital assets held in the custody of a broker, whereas the
final rules in §1.1012-1(j)(1) and (2) apply to digital assets not held in the custody of a
broker. Final §1.1012-1(j) also defines the terms wallet, hosted wallet, unhosted wallet,
and held in a wallet by cross-reference to the definitions for these terms in §1.60451(a)(25)(i) through (iv).
1. Digital Assets Not Held in The Custody of a Broker
For units not held in the custody of a broker, such as in an unhosted wallet,
proposed §1.1012-1(j)(1) provided that if a taxpayer sells, disposes of, or transfers less
than all the units of the same digital asset held within a single wallet or account, the
units disposed of for purposes of determining basis and holding period are determined
by a specific identification of the units of the particular digital asset in the wallet or
account that the taxpayer intends to sell, dispose of, or transfer. Under the proposed
regulations, for a taxpayer that does not specifically identify the units to be sold,
disposed of, or transferred, the units in the wallet or account disposed of are determined
in order of time from the earliest purchase date of the units of that same digital asset.
For purposes of making this determination, the dates the units were transferred into the
taxpayer’s wallet or account are disregarded. Proposed §1.1012-1(j)(2) provided that a
specific identification of the units of a digital asset sold, disposed of, or transferred is
made if, no later than the date and time of sale, disposition, or transfer, the taxpayer
identifies on its books and records the particular units to be sold, disposed of, or
transferred by reference to any identifier, such as purchase date and time or the
purchase price for the unit, that is sufficient to identify the basis and holding period of
the units sold, disposed of, or transferred. A specific identification could be made only if
adequate records are maintained for all units of a specific digital asset held in a single

wallet or account to establish that a unit is removed from the wallet or account for
purposes of subsequent transactions.
a. Methods and functionalities of unhosted wallets
The Treasury Department and the IRS solicited comments on whether there are
methods or functionalities that unhosted wallets can provide to assist taxpayers with the
tracking of a digital asset upon the transfer of some or all units between custodial
brokers and unhosted wallets. In response, one comment stated that unhosted wallets
currently lack the functionalities to allow taxpayers to make specific identifications, as
provided in proposed §1.1012-1(j)(2), of their basis and holding periods by the date and
time of a sale, disposition, or transfer from an unhosted wallet even if taxpayers were to
employ transaction-aggregation tools. In contrast, another comment advised that
existing transaction-aggregation tools could provide the needed assistance for tracking
digital assets held in unhosted wallets. The remaining comments suggested that no
methods or functionalities are currently available or feasible that would allow unhosted
wallets to track purchase dates, times, and/or the basis of specific units. Noting that
unhosted wallets are open-source software created by developers with limited
resources, one comment opined that any expectation that such functionalities can be
added to these wallets before 2030 would be unreasonable. Creating such
functionalities, some comments also stated, would require the adoption of universal
industry-wide standards or methods for reliably tracking cost basis information across
wallets and transactions, yet existing technology challenges and the complexity of some
transactions would serve as impediments to their adoption. These comments also
stated that the addition of comprehensive cost-basis tracking to unhosted wallets would
make such wallets prohibitively risky for taxpayers, thus depriving them of their privacy,
security, and control benefits.

The Treasury Department and the IRS have determined that the final ordering
rules for digital assets not held in the custody of a broker should strike a balance
between the compliance burdens placed on taxpayers and the necessity for rules that
will comply with the statutory requirements of section 1012(c)(1) to render accurate tax
results. Accordingly, notwithstanding existing technology limitations, final §1.1012-1(j)(2)
provides that specific identification of the units of a digital asset sold, disposed of, or
transferred is made if, no later than the date and time of the sale, disposition, or
transfer, the taxpayer identifies on its books and records the particular units to be sold,
disposed of, or transferred by reference to any identifier, such as purchase date and
time or the purchase price for the unit, that is sufficient to identify the units sold,
disposed of, or transferred in order to determine the basis and holding period of such
units. Taxpayers can comply with these rules by keeping books and records separate
from the data in the unhosted wallet. A specific identification can be made only if
adequate records are maintained for the unit of a specific digital asset not held in the
custody of a broker to establish that a unit sold, disposed of, or transferred is removed
from the wallet. Taxpayers that wish to simplify their record maintenance tasks may
adopt a standing rule in their books and records that specifically identifies a unit
selected by an unhosted wallet for sale, disposition or transfer as the unit sold, disposed
of or transferred, if that would be sufficient to establish which unit is removed from the
wallet.
b. Ordering rule for digital assets not held in the custody of a broker
The Treasury Department and the IRS also solicited comments on whether the
ordering rules of proposed §1.1012-1(j)(1) and (2) for digital assets not held in the
custody of a broker should be applied on a wallet-by-wallet basis, as proposed, on a
digital asset address-by-digital asset address basis, or on some other basis. The
Treasury Department and the IRS received a variety of responses to this inquiry.

A few comments recommended the adoption of a universal or multi-wallet rule for
all digital assets held in unhosted wallets, with one such comment opining that there is
not a strong policy reason for prohibiting this approach. The final regulations do not
adopt this recommendation because a wallet-by-wallet approach is more consistent with
the statutory requirements in section 1012(c)(1), which requires that regulations
prescribe an account-by-account approach for determining the basis of specified
securities that are sold, exchanged, or otherwise disposed of.
One comment recommended that proposed §1.1012-1(j)(1) be modified to
require taxpayers to determine the basis of identical digital assets by averaging the
acquisition cost of each identical digital asset if it is acquired at separate times during
the same calendar day in executing a single trade order and the executing broker
provides a single confirmation that reports an aggregate total cost or an average cost
per share. The comment also suggested that taxpayers be provided an option to
override the mandatory rule and determine their basis by the actual cost on a per-unit
basis if the taxpayer notifies the broker in writing of this intent by the earlier of: the date
of the sale of any of such digital assets for which the taxpayer received the confirmation
or one year after the date of the confirmation (with the receiving broker having the
option to extend the one-year notification period, so long as the extended period would
end no later than the date of sale of any of the digital assets). The comment noted a
similar rule exists for certain stock acquisitions, citing §1.1012-1(c)(1)(ii). This comment
is not adopted. A key feature of the rules provided in §1.1012-1(c)(1)(ii) is the
confirmation required by U.S. securities laws to be sent from a security broker to the
customer shortly after the settlement of a securities trade, which may report the use of
average basis for a single trade order that is executed in multiple tranches. Digital asset
industry participants do not necessarily issue equivalent confirmations for digital asset
purchases. As a result, a customer would not know whether the broker used average

basis until the customer received an information return from the broker, even though the
customer may need to know whether the broker used average basis sooner, such as
when the customer decides which units to dispose of in a transaction.
One comment recommended that the final rules adopt an address-based rule for
all digital assets held in unhosted wallets, viewing this approach as posing less of a
compliance burden on taxpayers. The statutory requirements of section 1012(c)(1)
require that in the case of the sale, exchange, or other disposition of a specified security
on or after the applicable date for that security, the conventions prescribed by the
regulations must be applied on an account-by-account basis. Accordingly, the final
regulations do not adopt this recommendation.
A few comments expressed general concerns about applying the proposed
ordering rules to digital assets held in unhosted wallets, with one comment stating that
the rules (1) would not align with how taxpayers currently use unhosted wallets; (2)
would require complex tracing, making accurate basis reporting infeasible and
unnecessarily complex; and (3) would drive digital asset transactions to offshore
exchanges, recommending instead that the ordering rules be applied on a pertransaction basis. Another comment recommended a uniform wallet-based rule for all
digital assets held in unhosted wallets. In contrast, a few comments viewed such a rule
as imposing administrative difficulties because of technological differences in how
different blockchains record and track units, explaining that current blockchains employ
one of two types of technology for this purpose: the unspent transaction output (UTXO)
model and the account model. The UTXO model, comments described, is similar to a
collection of transaction receipts or gift cards with the inputs to a transaction being
marked as spent and any outputs remaining under the control of the wallet after a
transaction’s execution as “unspent outputs” or “UTXOs.” In contrast, comments
described the account model as aggregating the taxpayer’s unspent units into a

cumulative balance. A relevant difference between the two models, these comments
noted, is that units recorded/tracked by a UTXO model are not divisible, whereas those
recorded/tracked by an account model are divisible.
In light of these differences, a comment recommended that the final rules include
separate ordering rules based on the type of model used to record the particular units.
This comment recommended that units of a digital asset recorded/tracked with the
UTXO model should be identified by taxpayers using the specific identification rule and
applied on a wallet-by-wallet basis, defining wallet for this purpose as a collection of
logically related digital asset addresses for which the wallet may form transactions
involving more than a single address. This comment also recommended that units
recorded by the account model should be identified by taxpayers using the FIFO
ordering rule and applied on a digital asset address-by-digital asset address basis. The
final regulations do not adopt these recommendations. As explained later in this
preamble, the final rules adopt uniform basis identification rules not tied to a specific
technology. The Treasury Department and the IRS have concluded that the use of
different rules based on existing recording models would limit the rules’ utility and
render disparate timing results of the associated gains or losses. The final rules offer
flexibility to accommodate evolving recording models. Moreover, as discussed earlier in
this preamble, the recommended address-based rule for units recorded by the account
model would not conform to the statutory requirements of section 1012(c)(1).
One comment assessed the benefits and drawbacks of both the wallet-based
rule and the address-based rule. This comment viewed the wallet-based rule as offering
taxpayer simplicity and audit efficiency but posing added complexity and audit burdens
in some instances, and the address-based rule as providing more granular tracking
results, more accurately reflecting a taxpayer’s intentions for a particular transaction but
adding additional administrative burdens and increasing the risk of reporting errors. This

comment recommended that the final rules adopt a discretionary rule allowing a
taxpayer to choose either rule based on the taxpayer’s circumstances. The final
regulations do not adopt this recommendation because the Treasury Department and
the IRS have determined that such a rule would increase the possibility of manipulation
and errors in taxpayers’ calculations.
One comment rejected both a wallet-based rule and an address-based rule. This
comment stated that a wallet-based rule would add complexity and administrative
burdens to tracking basis and would pose an increased risk for reporting errors. This
comment also stated that an address-based rule would produce excessive granular
data, raise privacy concerns, and present technical challenges. Instead, this comment
recommended two alternatives, the first of which would be to apply the ordering rules for
unhosted wallets by grouping digital asset addresses or wallets, and the second of
which would be to allow taxpayers to identify or report only transactions above a
minimum balance or transactional volume. The Treasury Department and the IRS have
determined that both approaches would create undue administrative burden.
Additionally, the Treasury Department and the IRS have determined that the de minimis
approach would create an unnecessary disparity between the ordering rules for digital
assets in unhosted wallets and the ordering rules for digital assets held in the custody of
a broker as well as the ordering rules applicable to other assets. Accordingly, the final
regulations do not adopt either of these recommendations.
A few comments expressed concerns that technology limitations would make the
proposed specific identification rule unfeasible for all digital assets held in unhosted
wallets regardless of the model used by the blockchain to record and track units.
Alternatively, a comment recommended, if a uniform ordering rule is desired for UTXO
and account models, then the address-based rule should be adopted but with an option
allowing taxpayers to identify related digital asset addresses, subject to a burden-of-

proof showing of the relatedness. The comment suggested that this alternative would be
easy to administer, provide a verifiable audit trail and flexibility, and avoid potential tax
reporting discrepancies. The final regulations do not adopt these suggestions. The
Treasury Department and the IRS have concluded that the suggested approaches tied
to current technology would have limited usefulness since technology can be expected
to change in the future. Accordingly, the final regulations adopt a uniform ordering rule
for digital assets not held in the custody of a broker because this rule reduces the risk of
errors and simplifies taxpayers’ gain or loss calculations.
One comment recommended, as an alternative to the proposed ordering rules for
digital assets held in unhosted wallets, that taxpayers be required to determine their
cost basis of a unit of a digital asset by averaging their costs for all units of the identical
digital asset irrespective of their holding periods. This comment suggested that this
approach would simplify determination of the basis of individual units because it would
eliminate the need to track the acquisition details of each digital asset. This comment
noted that certain other countries employ variations of this approach, suggesting, for
example, that its adoption would align future information exchanges with other countries
under the CARF. The final regulations do not adopt this recommendation because it is
inconsistent with sections 1222 and 1223 of the Code, which require taxpayers to
determine whether gains or losses with respect disposed digital assets are long term or
short term, within the meaning of section 1222, based on the taxpayer’s holding period
for the disposed asset as determined under section 1223.
One comment recommended that the proposed ordering rules be revised to
adopt the meaning of “substantially similar or related” as the term is used in IRS Tax
Publication 550, Investment Income and Expenses. The final regulations do not adopt
this recommendation. The Treasury Department and the IRS have determined that this
term refers to special rules not covered by these regulations. Accordingly, the term

would not serve as a relevant benchmark by which to apply the ordering rules for digital
assets held in unhosted wallets.
A comment requested guidance on how taxpayers should comply with the
proposed specific identification rules for digital assets held in unhosted wallets when
using tracking software that neither provides a way to mark the units sold nor
incorporates these sold units into gain and loss calculations. The final regulations do not
adopt this comment. The Treasury Department and the IRS have determined that
additional guidance on how taxpayers maintain their books and records to meet their
substantiation obligations is not needed and is beyond the scope of this project. The
specific identification rules should not apply differently simply because currently
available basis tracking software may not have the ability to mark specific units as sold
or otherwise track basis in a manner consistent with the specific identification rules.
The Treasury Department and the IRS have determined that the final regulations
should include a uniform wallet-based ordering rule for all digital assets held in
unhosted wallets rather than separate rules based on existing technological differences.
The Treasury Department and the IRS have determined that such a rule best facilitates
accurate tax determinations. Moreover, such a rule satisfies the statutory requirements
of section 1012(c)(1), which requires that the conventions prescribed by regulations be
applied on an account-by-account basis in the case of a sale, exchange, or other
disposition of a specified security, on or after the applicable date as defined in section
6045(g). Additionally, to conform with this decision, final §1.1012-1(j)(1) and (2) retain
the term held in a wallet as defined in final §1.6045-1(a)(25), but no longer incorporate
the term “account” to avoid confusion with industry usage of the term to refer to the
account-based models used by blockchains to record and track units of a digital asset.
The Treasury Department and the IRS have determined that the term wallet, as defined

by §1.6045-1(a)(25), is sufficiently broad to incorporate both wallets and accounts and
the removal of the latter term avoids confusion.
Finally, as discussed in Part VII. of this Summary of Comments and Explanation
of Revisions, the final regulations under §1.6045-1 are applicable beginning January 1,
2025. Accordingly, digital assets constitute specified securities and are subject to these
requirements beginning January 1, 2025.
2. Digital Assets Held in the Custody of Brokers
For taxpayers that leave their digital assets in the custody of a broker, unless the
taxpayer provides the broker with an adequate identification of the units sold, disposed
of, or transferred, proposed §1.1012-1(j)(3)(i) provided that the units disposed of for
purposes of determining the basis and holding period of such units is determined in
order of time from the earliest units of that same digital asset acquired in the taxpayer’s
account with the broker. Because brokers do not have the purchase date information
about units purchased outside the broker’s custody and transferred into the taxpayer’s
account, proposed §1.6045-1 instead required brokers to treat units of a particular
digital asset that are transferred into the taxpayer’s account as purchased as of the date
and time of the transfer (rather than as of the date actually acquired as proposed
§1.1012-1(j)(3)(i) requires taxpayers to do). The rule for units that are transferred into
the custody of a broker, the comments received in response to this rule, and the final
decisions made after considering those comments are discussed in Part I.E.3.b. of this
Summary of Comments and Explanation of Revisions. See also, final §§1.1012-1(j)(3)(i)
and 1.6045-1(d)(2)(ii)(B). Additionally, see Part I.E.3.b. of this Summary of Comments
and Explanation of Revisions, for a discussion of final §1.1012-1(j)(3)(ii) for how and
when a taxpayer can make an adequate identification of the units sold, disposed of, or
transferred when the taxpayer leaves multiple units of a type of digital asset in the
custody of a broker.

3. Transitional Guidance
The IRS published Virtual Currency FAQs5 explaining how longstanding Federal
tax principles apply to virtual currency held by taxpayers as capital assets. For example,
FAQs 39-40 explain that a taxpayer may specifically identify the units of virtual currency
deemed to be sold, exchanged, or otherwise disposed of either by referencing any
identifier, such as the private key, public key, or by records showing the transaction
information for units of virtual currency held in a single account, wallet, or address. The
information required by these FAQs include: (1) the date and time each unit was
acquired; (2) the taxpayer’s basis and the fair market value of each unit at the time
acquired; (3) the date and time each unit was sold, exchanged, or otherwise disposed
of; and (4) the fair market value of each unit when sold, exchanged, or disposed of, and
the amount of money or the value of property received for each unit. FAQ 41 further
explains that if a taxpayer does not identify specific units of virtual currency, the units
are deemed to have been sold, exchanged, or otherwise disposed of in chronological
order beginning with the earliest unit of the virtual currency a taxpayer purchased or
acquired, that is, on a FIFO basis.
Comments expressed concern that the proposed basis identification rules of
proposed §1.1012-1(j) would apply differently from those in FAQs 39-41. Comments
also noted that many taxpayers have interpreted FAQs 39-41 as permitting, or at least
not prohibiting, taxpayers from specifically identifying units or applying the FIFO rule on
a “universal or multi-wallet” basis. The comments generally described this approach as
one in which a taxpayer holds units of a digital asset in a combination of unhosted
wallets or exchange accounts and sells, disposes of, or transfers units from one wallet
or account, but either specifically identifies units or applies the FIFO rule to effectively
The IRS first published the Virtual Currency FAQs on October 9, 2019. Since that time, the FAQs have
been revised and renumbered. References to FAQ numbers in this preamble are to the numbering in the
version of the FAQs as of June 6, 2024.
treat the units sold, disposed of, or transferred as coming from a different wallet or
account. For example, assume D holds 50 units of digital asset GH in D’s unhosted
wallet, each of which was acquired on March 1, Year 1, and has a basis of $5. D also
acquires 50 units of digital asset GH through Exchange FYZ, each of which was
acquired on July 1, Year 1, and has a basis of $1. Using the universal or multi-wallet
approach, D directs Exchange FYZ on December 1, Year 1, to sell 20 units of digital
asset GH on D’s behalf but specifically identifies the 20 units sold as 20 units coming
from D’s unhosted wallet for purposes of determining the basis. As a result of the sale,
D holds 30 units of GH with Exchange FYZ and 50 units of GH in D’s unhosted wallet.
Of those 80 units, D treats 30 units as having a basis of $1 and 50 units as having a
basis of $5, without regard to whether the units were purchased through Exchange FYZ
or in D’s unhosted wallet. Whatever the merits of the comments’ points, regulations
implementing section 1012(c)(1) are required to adopt an account-by-account method
for determining basis and the universal or multi-wallet approach does not conform with
the statutory requirements. See Part II.C.1.b. of this Summary of Comments and
Explanation of Revisions.
These comments also expressed concerns that taxpayers, who seek to transition
either prospectively or retroactively from the “universal or multi-wallet” approach to the
proposed basis identification rules would experience, perhaps unknowingly, ongoing
discrepancies. Some of the discrepancies, in their view, may be exacerbated by the
limitations of current basis-tracking software. A comment also noted that taxpayers
often have multiple numbers of different tokens and multiple numbers of different
blockchains, both of which further enhance the significant complexity of basis tracking.
These complexities, in the comment’s view, make it impractical for taxpayers to
specifically identify digital assets as provided in proposed §1.1012-1(j)(1) or to apply the
default identification rule in proposed §1.1012-1(j)(2).

A comment requested that taxpayers who previously made basis identifications
or applied the FIFO rule on a universal or multi-wallet basis consistently with FAQs 3941 be exempt from the basis identification rules of proposed §1.1012-1(j). The final
regulations do not adopt the request to exempt previously acquired digital assets from
the proposed basis identification rules because such a rule would create significant
complexity and confusion if taxpayers used different methods for determining basis for
existing and newly acquired digital assets. However, see this Part II.C.3. of this
Summary of Comments and Explanation of Revisions for a discussion of transitional
guidance with respect to these issues.
A few comments requested additional rules and examples, explaining how
taxpayers should transition from the universal or multi-wallet approach to specifically
identify digital assets as provided in final §1.1012-1(j)(1) or apply the default
identification rule in final §1.1012-1(j)(2). The Treasury Department and the IRS have
determined that any basis adjustments necessary to comply with these final rules is a
factual determination. However, to promote taxpayer readiness to comply with the rules
in final §1.1012-1(j) beginning in 2025, Revenue Procedure 2024-28 is being issued
contemporaneously with these final regulations, and will be published in the Internal
Revenue Bulletin, to provide transitional relief. The transitional relief will take into
account that a transition from the universal approach to the specific identification or
default identification rules involves evaluating a taxpayer’s remaining digital assets and
pool of basis originally calculated under the universal approach and may result,
unknowingly, in ongoing discrepancies that could be exacerbated by the limitations of
currently available basis tracking software. This relief applies to transactions that occur
on or after January 1, 2025. Additionally, the IRS will continue to work closely with
taxpayers and other stakeholders to ensure the smooth implementation of final §1.10121(j), including the mitigation of penalties in the early stages of implementation for all but

particularly egregious cases. Accordingly, final §1.1012-1(j) will apply to all acquisitions
and dispositions of digital assets on or after January 1, 2025.
D. Comments requesting substantive guidance on specific types of digital asset
transactions
A few comments requested that the final rules address the tax treatment of
specific transactions such as wrapping, burning, liquidity transactions, splitting or
combining digital assets into smaller or larger units, and the character and source of
revenue-sharing agreements. These regulations provide generally applicable gross
proceeds and basis determination rules for digital assets and therefore are not the
proper forum to address those issues. Therefore, the final regulations do not adopt
these recommendations. See Part I.C.2. of this Summary of Comments and Explanation
of Revisions for a further discussion of reporting on such transactions.
E. Examples in proposed §1.1001-7(b)(5)
A few comments recommended revisions to certain examples included in
proposed §1.1001-7(b)(5). One comment stated that the transaction described in
proposed §1.1001-7(b)(5)(iii) (Example 3) is not realistic and should be revised. Final
§1.1001-7(b)(5)(iii) includes a modified example but does not incorporate the
comment’s recommendation. The Treasury Department and the IRS have determined
that the example in final §1.1001-7(b)(5)(iii) illustrates the rules necessary to assist
taxpayers in determining amounts realized and that the comment’s recommended
revisions would limit its usefulness. Another comment recommended that proposed
§1.1001-7(b)(5)(i) (Example 1) be revised to address a transaction in which the digital
assets are recorded on the blockchain using the UTXO model. The final regulations do
not adopt this recommendation. The Treasury Department and the IRS have
determined that the recommended revisions are not necessary to highlight the general
rules set forth herein.
F. Miscellaneous comments relating to fair market value, amount realized, and basis

A comment also recommended that the proposed rules be coordinated with other
Federal agencies to harmonize the reporting and tax treatment of digital assets across
different jurisdictions and markets and should include a uniform standard for
determining the fair market value, amount realized, and basis of digital assets, and
should include a requirement that brokers report the same information to the IRS and to
the customers on Form 1099-B. Such a rule, the comment believed, could be aligned
with the requirements of other Federal agencies, which would simplify valuations and
reduce the risk of errors or disputes. The final regulations do not adopt this
recommendation. These 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.
A comment advised that the proposed rules would produce results that would not
reflect economic reality or the preferences of taxpayers, who may already employ
different methods and standards for tracking their transactions and calculating their
gains and losses. The comment recommended that the final rules adopt rules consistent
with existing Federal tax principles and guidance, such as Notice 2014-21, or allow
more flexibility and choice for taxpayers to use any reasonable standards consistent
with their records and tax reporting. The final regulations do not adopt these
recommendations. The Treasury Department and the IRS have determined that
providing uniform rules will ease the administrative burdens placed on taxpayers,
brokers, and the IRS. A comment expressed concerns that applying the cost allocation
rules would require meticulous record-keeping on the part of taxpayers, which may be
challenging for some taxpayers, particularly those engaged in high-frequency trading or
small-scale transactions. These issues are also applicable to taxpayers who engage in

high-frequency trading of traditional securities. The Treasury Department and the IRS
have determined that special rules are not warranted for digital assets.
A few comments suggested that the use of digital assets to pay for transaction
costs or certain other services should not be taxable. These comments are not adopted
because the Treasury Department and the IRS have determined that treating an
exchange of digital assets for services is a realization event, within the meaning of
section 1001(a) and existing precedents. See Part II.A. of this Summary of Comments
and Explanation of Revisions for a further discussion of digital asset dispositions as
realization events.
III. Final §1.6045-4
In addition to reporting on dispositions by real estate buyers of digital assets in
exchange for real estate, the proposed regulations required real estate reporting
persons to report on digital assets received by sellers of real estate in real estate
transactions. One comment questioned the authority behind this change because the
Infrastructure Act did not specifically reference reporting of digital asset payments made
in real estate transactions. Section 6045(a) provides that a broker must make a return
showing “such details regarding gross proceeds and such other information as the
Secretary may by forms or regulations require.” Additionally, section 6045(e)(2)
provides that “[a]ny person treated as a real estate reporting person. . . shall be treated
as a broker.” Accordingly, the statute gives the Secretary explicit authority to require
real estate reporting persons to report on digital asset payments made in real estate
transactions.
As discussed in Part I.B.4. of this Summary of Comments and Explanation of
Revisions, one comment raised the concern that in some real estate transactions, direct
(peer to peer) payments of digital assets from buyers to sellers may be paid outside of
closing and not reflected in the real estate contract for sale. In such transactions, the

comment stated that the real estate reporting person would not ordinarily know that the
buyer used digital assets to make payment. Instead, the comment suggested that the
buyer (or buyer’s representative) would be closer to the details of the transaction and
should, therefore, be the reporting party. Section 6045(e) provides authority for just one
person to report on the real estate transaction. Accordingly, the final regulations do not
make any changes to require a second person to report on the digital asset payment.
The Treasury Department and the IRS, however, have determined that it is not
appropriate to require reporting by real estate reporting persons on digital asset
payments received by the real estate seller when the real estate reporting person does
not know, or would not ordinarily know, that digital assets were used by the real estate
buyer to make payment. Accordingly, these regulations add final §1.6045-4(h)(3), which
limits the real estate reporting person’s obligation to report on digital asset payments
received by the seller of real estate unless the real estate reporting person has actual
knowledge, or ordinarily would know, that digital assets were received by the real estate
seller. Additionally, the regulations modify Example 10 at final §1.6045-4(r)(10) to reflect
this change. See Part I.B.4. of this Summary of Comments and Explanation of
Revisions, for a discussion of the application of this same standard for real estate
reporting persons reporting on the buyer of real estate under final §1.6045-1.
Another comment recommended against requiring reporting of digital asset
addresses and transaction IDs because that information is not relevant to the seller’s
gross proceeds or basis. Although the requirement to report digital asset addresses and
transaction IDs was included in the proposed regulations to determine if valuations of
digital assets and real estate were done properly, the final regulations have removed
the requirement. See Part I.D.1. of this Summary of Comments and Explanation of
Revisions for a discussion of the rationale behind removing the requirement to report
this information under final §1.6045-1.

One comment raised the concern that reporting on digital assets would be
burdensome for real estate reporting persons because real estate transactions are
stand-alone transactions and not ongoing account relationships. This comment stated
that valuations would be particularly burdensome in installment sale transactions, where
the real estate reporting person would need to report the fair market value as of the time
of closing of digital assets to be paid later. Instead, this comment recommended that a
new check box be added to Form 1099-S to indicate that digital assets were received by
the transferor instead of reporting the gross proceeds from the digital asset transfer.
The Treasury Department and the IRS considered these comments. The final
regulations do not adopt this suggestion, however, for several reasons. First, the
information reporting rules help to reduce the overall income tax gap because they
provide information necessary for taxpayers to prepare their Federal income tax returns
and reduce the number of inadvertent errors or intentional misstatements shown on
those returns. Information reporting also provides information to the IRS that identifies
taxpayers who have engaged in these digital asset transactions and may not be
reporting their income appropriately. The fair market value of digital assets used to
purchase property (including real property) is generally equal to the value of the
property. The real estate reporting person has several ways it can ascertain the value of
real estate. For example, the agreed upon price of the real estate could be detailed in
the contract of sale. To the extent this agreed upon price influences, for example, the
commissions due to real estate agents or the taxes due at closing, this amount may
already need to be shared with the real estate reporting person. Additionally, depending
on the digital assets, the valuation could be relatively easy to determine if, for example,
the digital asset is one that tracks the U.S. dollar or is otherwise widely traded. Also, the
real estate reporting person could also ask both the buyer and seller whether they had
agreed upon the value of the digital assets paid. Finally, if all these avenues to

determine the value of digital assets paid are not successful, the regulations permit the
real estate reporting person to report the value as undeterminable.
One comment requested that the examples involving closing attorneys that are
real estate reporting persons be revised to refer to closing agents instead to reflect the
more common and more general term. This comment has been adopted.
Finally, unrelated to transactions involving digital assets, the proposed
regulations updated the rules to reflect the section 6045(e)(5) exception from reporting
for gross income up to $250,000 of gain on the sale or exchange of a principal
residence if certain conditions are met. As part of this update, proposed §1.6045-4(b)(1)
modified an illustration included in the body of the rule of a transaction that is treated as
a sale or exchange even though it may not be currently taxable so that it specifically
references this exception (that is, a sale of a principal residence giving rise to gain up to
$250,000 or $500,000 in the case of married persons filing jointly) to the reporting rule.
One comment questioned whether the example should reflect the actual dollars in the
reporting exception rule or if the example should, instead, reference the “prescribed
amount” because the actual prescribed amounts could change in the future. The final
regulations do not adopt this change because referencing “prescribed amounts” could
be confusing, and the amounts referenced are merely included in an example and not in
any operative rule.
IV. Final §§1.6045A-1 and 1.6045B-1
The proposed regulations did not provide guidance or otherwise implement the
changes made by the Infrastructure Act that require transfer statement reporting in the
case of digital asset transfers under section 6045A(a) or broker information reporting
under section 6045A(d) for digital asset transfers that are not sales or are not transfers
to accounts maintained by persons that the transferring broker knows or has reason to
know are also brokers. Additionally, it was unclear whether brokers had systems in

place to provide transfer statements under section 6045A or whether issuers had
procedures in place to report information about certain organizational actions (like stock
splits, mergers, or acquisitions) that affect basis under section 6045B for assets that
qualify both as digital assets and specified securities under the existing rules.
Accordingly, the proposed regulations provided that any specified security of a type that
would have been a covered security under section 6045A pursuant to the pre-2024 final
regulations under section 6045 (that is, described in §1.6045-1(a)(14)(i) through (iv) of
the pre-2024 final regulations) that is also a digital asset is exempt from transfer
statement reporting under section 6045A and similarly proposed to exempt issuers from
reporting under section 6045B on any such specified security that is also a digital asset.
The proposed regulations also provided penalty relief to transferors and issuers that
voluntarily provide these transfer statements and issuer reporting statements.
One comment raised the concern that the decision to delay transfer statements
for digital assets under section 6045A will mean that brokers will not receive the
important information regarding basis that would be included on those transfer
statements. Another comment recommended that the section 6045A rules remain
applicable to transfers of securities that are also digital assets.
The Treasury Department and the IRS have determined that specified securities
that are digital assets should generally be exempt from the section 6045A transfer
reporting requirements because it is unclear at this point how digital asset brokers
would be able to provide the necessary information to make basis reporting work
efficiently for digital assets that are broadly tradeable. While brokers may more readily
be able to provide transfer statements for tokenized securities, the transfer of such
assets on a distributed ledger may not necessarily accommodate the provision of
transfer statements. Brokers who wish voluntarily to provide transfer statements for
digital assets may do so and will not be subject to penalties for failure to furnish the

information correctly under section 6722. Accordingly, the final regulations do not make
any broadly applicable changes to the regulations under section 6045A in response to
these comments. The final regulations do, however, revise the language in proposed
§1.6045A-1(a)(1)(vi) to limit the transfer statement exemption only to those specified
securities, the sale of which would be reportable as a digital asset after the application
of the coordination rules in final §1.6045-1(c)(8). See Part I.A.4.a. of this Summary of
Comments and Explanation of Revisions, for a discussion of the new coordination rule
in final §1.6045-1(c)(8)(iii) treating sales of dual classification assets that are digital
assets solely because the sale of such assets are cleared or settled on a limited-access
regulated network as sales of securities or commodities and not sales of digital assets.
Additionally, until the Treasury Department and the IRS determine the information that
will be required on transfer statements with respect to digital assets, final §1.6045A1(a)(1)(vi) limits the penalty relief for voluntarily provided transfer statements to those
dual classification assets that are tokenized securities under final §1.6045-1(c)(8)(i)(D).
See Part I.A.4.a. of this Summary of Comments and Explanation of Revisions, for a
discussion of the new coordination rule in final §1.6045-1(c)(8)(i)(D) regarding tokenized
securities.
One comment agreed with the proposal to exempt issuers from reporting under
section 6045B on any specified security that is also a digital asset and recommended
delaying the application of section 6045B until after the IRS provides guidance under
substantive tax law on which corporate actions affect the basis in specified securities
that are digital assets. Another comment recommended against delaying issuer
statements under section 6045B because that will hinder the ability of brokers to make
basis adjustments related to covered digital assets. Another comment recommended
against exempting issuers from reporting on any security that is also a digital asset
because tokenized funds, which are 1940 Act Funds, are already subject to section

6045B reporting, and this reporting provides critical information to institutional investors
that are otherwise exempt from Form 1099 reporting if they are corporations.
The Treasury Department and the IRS agree that issuers that are already
providing issuer statements should continue to do so. The ability of an issuer of
traditional securities to provide information about organizational events should not be
affected by whether those securities are sold on a cryptographically secured distributed
ledger, because issuers may provide the information by posting it on their website.
Accordingly, final §1.6045B-1(a)(6) provides that an issuer of specified securities that
was subject to the issuer statement requirements before the application of these final
regulations (legacy specified securities) should continue to be subject to those rules
notwithstanding that such specified securities are also digital assets. Additionally, final
§1.6045B-1(a)(6) provides that an issuer of specified securities that are digital assets
and not legacy specified securities is permitted, but not required, to file an issuer return
under section 6045B. An issuer that chooses to provide this reporting and furnish
statements for a specified security under section 6045B will not be subject to penalties
under section 6721 or 6722 for failure to report or furnish this information correctly.
Finally, the final regulations do not make any changes to address the comment
requesting guidance under substantive tax law on which corporate actions affect the
basis in specified securities that are digital assets because the comment addresses
questions of substantive tax law that are outside the scope of these regulations.
V. Final §1.6050W-1
Prior to the issuance of the proposed regulations, several digital asset brokers
reported sales of digital assets under section 6050W. The proposed regulations did not
take a position regarding the appropriateness of treating payments of cash for digital
assets, or payments of one digital asset in exchange for a different digital asset as
reportable payments under the 2010 final regulations under section 6050W. Instead, to

the extent these transactions would be reportable under the proposed section 6045
broker reporting rules, the proposed regulations added a tie-breaker rule that generally
provided that section 6045 (and not section 6050W) would apply to these transactions.
Thus, when a payor makes a payment using digital assets as part of a third party
network transaction involving the exchange of the payor’s digital assets for goods or
services and that payment constitutes a sale of digital assets by the payor under the
broker reporting rules under section 6045, the amount paid by the payee in settlement
of that exchange would be subject to the broker reporting rules (including any
exemptions from these rules) and not section 6050W. Additionally, when goods or
services provided by a payee are digital assets, and the exchange is a sale of digital
assets by the payee under the broker reporting rules under section 6045, the payment
to the payee in settlement of that exchange would be reportable under the broker
reporting rules (including any exemptions from these rules) and not section 6050W.
As discussed in Part I.B.1. of this Summary of Comments and Explanation of
Revisions, the final regulations reserve and do not finalize rules on the treatment of
decentralized exchanges and certain unhosted digital asset wallet providers as brokers.
Because these entities will not be subject to reporting on the sales of digital assets as
brokers under final §1.6045-1, the final regulations have been revised to apply the tiebreaker rule only to payors that are brokers under final §1.6045-1(a)(1) that effected the
sale of such digital assets. Accordingly, the tie-breaker rule will not apply to
decentralized exchanges, unhosted digital asset wallet providers, or any other industry
participant not subject to these final regulations to the extent they are already subject to
reporting under section 6050W.
The proposed regulations also included an example at proposed §1.6050W1(c)(5)(ii)(C) (Example 3) illustrating the tie-breaker rule in the case of a third party
network transaction undertaken by CRX, a third party settlement organization. In the

example, CRX effects a payment using an NFT buyer’s digital assets that have been
deposited with CRX to a participating payee (J) that is a seller of NFTs representing
digital artwork. The NFTs that J sells have also been deposited with CRX. Although the
payment from buyer to J would have otherwise been reportable under section 6050W
because the transaction constitutes the settlement of a reportable payment transaction
by CRX, the example concludes that because it is also a sale under proposed §1.60451(a)(9)(ii), CRX must file an information return under section 6045 and not under section
6050W.
A comment recommended against treating all NFTs as goods and services but
instead recommended a case by case determination be made based on the underlying
asset or rights referenced by the NFT. To address this comment, the final regulations
revise the analysis in §1.6050W-1(c)(5)(ii)(C) (Example 3) of the proposed regulations,
redesignated as final §1.6050W-1(c)(5)(ii)(B) (Example 2) in the final regulations, to
make it clear that the example applies only to NFTs that represent goods or services
such as the NFT in the example, which represents unique digital artwork. The comment
also asserted that NFTs representing digital artwork cannot be a good or a service
because it cannot be seen, weighed, measured, felt, touched, or otherwise perceived by
the senses. The Treasury Department and the IRS have determined that the definition
of a good or a service should not be limited in the way suggested by this comment and
the final regulations do not do so. One comment requested that the final regulations
provide a bright line test or other safe harbor guidance for classifying NFTs that
represent more than one asset or right as a good or a service. The final regulations do
not adopt this comment because it involves determinations about NFTs that are outside
the scope of these regulations. Another comment requested that the final regulations
under section 6050W be revised to define goods or services and what it means to
guarantee payments, which are components of the definition of a third party payment

network transaction subject to reporting under section 6050W. The final regulations do
not adopt this comment because it addresses definitions under section 6050W and is
thus outside the scope of these regulations.
The proposed regulations also clarified that in the case of a third party settlement
organization that has the contractual obligation to make payments to participating
payees, a payment in settlement of a reportable payment transaction includes the
submission of an instruction to a purchaser to transfer funds directly to the account of
the participating payee for purposes of settling the reportable payment transaction. One
comment suggested that a settlement organization that provides instructions to a
purchaser to transfer funds should not be treated as making or guaranteeing payment.
The Treasury Department and the IRS do not agree with this suggestion and no
changes are made to this clarification. Section 6050W(b)(3) provides that a third party
settlement organization is a type of payment settlement entity that is a central
organization which has the contractual obligation to make payment to participating
payees in settlement of third party network transactions. The section 6050W regulations
already provided in §1.6050W-1(a)(2) that a payment settlement entity is making a
payment in settlement of a reportable transaction if the payment settlement entity
submits the instruction to transfer funds to the account of the participating payee. The
final regulations merely clarify these instructions may be made to the purchaser. They
do not affect any of the other factors that make a third party a third party settlement
organization, such as the existence of an agreement or arrangement that, among other
things, guarantees persons providing goods or services pursuant to such agreement or
arrangement that such persons will be paid for providing those goods and services, as
provided in section 6050W(d)(3)(C).
Another comment recommended that the tie-breaker rule be reversed so that
transactions involving digital assets would remain reportable under section 6050W

rather than under section 6045 because the information reportable under section 6045
is generally for sales of capital assets, whereas the information reportable under section
6050W is for both sales of property and payments for services. This comment also
suggested that, since marketplaces that list unique or collectible NFTs resemble wellknown marketplaces for tangible goods which are subject to section 6050W reporting,
that these NFT marketplaces should report NFT transactions in the same matter as the
established marketplaces. Another comment raised the concern that NFT artists find it
difficult to calculate their tax under the existing information reporting rules.
The final regulations do not adopt the comment recommending that the tiebreaker rule be reversed because section 6045 was affirmatively amended by Congress
to regulate the information reporting of digital asset transactions. Additionally, as a
broad statutory provision, section 6045 is better suited for reporting on NFTs, the uses
for which continue to evolve in ways that the use of goods and services traditionally
subject to section 6050W reporting do not. Moreover, broadly applicable information
reporting rules help to reduce the overall income tax gap because it provides necessary
information to taxpayers, as explained by one comment stating that the existing rules
are not sufficient for artists to prepare their Federal income tax returns (and reduce the
number of inadvertent errors or intentional misstatements shown on those returns) from
NFT transactions. Information reporting also provides information to the IRS that
identifies taxpayers who have engaged in these transactions. One comment suggested
that a payee statement reflecting the information provided on a Form 1099-K would be
easier for taxpayers to reconcile to Federal their income tax return because the
transactions are reported in a single aggregate form. The final regulations do not adopt
this comment because, as discussed in Part I.D.3. of this Summary of Comments and
Explanation of Revisions, the final regulations already allow brokers to report sales of
specified NFTs under an optional aggregate reporting method. Another comment

recommended that reporting by brokers on Form 1099-DA for NFT sales should
distinguish between sales by NFT creators or minters (primary sales) and sales by NFT
resellers (secondary sales). As discussed in Part I.D.3. of this Summary of Comments
and Explanation of Revisions, the final regulations adopt this comment by requiring
brokers that report under the optional reporting method for specified NFTs to indicate
the portion of the aggregate gross proceeds reported that is attributable to the specified
NFT creator’s or minter’s first sale to the extent ordinarily known by the broker.
Finally, a comment requested that guidance be provided regarding the character
of the percentage payments made to the original NFT creator or minter after a
secondary sale of that same NFT because this determination would impact whether
these payments are reportable as a royalty (with a $10 de minimis threshold) or as a
payment reportable under section 6045 or some other information reporting provision.
Additionally, the character of the payment could impact the source of the payment
income for purposes of withholding under chapter 3 of the Code and application of
treaty benefits (if applicable). The final regulations do not adopt this comment as it is
outside the scope of these regulations.
VI. Final §§31.3406(b)(3)-2, 31.3406(g)-1, 31.3406(g)-2, 31.3406(h)-2
Section 3406 and the regulations thereunder require certain payors of reportable
payments, including payments of gross proceeds required to be reported by a broker
under section 6045, to deduct and withhold a tax on a payment at the statutory backup
withholding rate (currently 24 percent) if the payee fails to provide a TIN, generally on a
Form W-9, along with a certification under penalties of perjury that the TIN furnished is
correct (certified TIN), or if the payee provides an incorrect TIN. See §31.3406(b)(3)2(a) (Reportable barter exchanges and gross proceeds of sales of securities or
commodities by brokers). The proposed regulations added digital assets to the title of
§31.3406(b)(3)-2 of the 2002 final regulations but did not make any substantive

changes to the rules therein because these rules were considered broad enough to
cover digital asset transactions that are reportable under section 6045. Additionally,
proposed §31.3406(g)-2(e) provided that a real estate reporting person must withhold
under section 3406 and, pursuant to the rules under §31.3406(b)(3)-2 of the 2002 final
regulations, on a reportable payment made in a real estate transaction with respect to a
purchaser that exchanges digital assets for real estate to the extent that the exchange is
treated as a sale of digital assets subject to reporting under proposed §1.6045-1.
A. Digital assets sales for cash
Many comments recommended that the final regulations apply the backup
withholding rules only to reportable payments associated with digital assets that are
sold for cash. One comment explained that brokers that exchange customers’ digital
assets for cash are regulated under Federal law as MSBs and under State law as
money transmitters. As a result, these brokers already have programs in place to
comply with applicable AML and customer identification requirements. This comment
suggested that because these brokers already have the infrastructure in place to collect
proper tax documentation from customers, they can use their existing systems to deduct
and withhold backup withholding taxes on payments of cash made in exchange for
digital assets. Other comments requested that the Treasury Department and the IRS
provide sufficient time to allow these brokers to contact existing customers to collect
certified TINs on Forms W-9. In response to these comments, the Treasury Department
and the IRS have concluded that it is appropriate to provide temporary relief on the
imposition of backup withholding for these transactions to give brokers the time they
need to build and implement backup withholding systems for these types of
transactions. See Part VI.D. of this Summary of Comments and Explanation of
Revisions for a description of the transitional relief that will be provided.
B. Digital asset sales for non-cash property

Section 3406 requires payors to deduct and withhold the backup withholding tax
on the payment made to the payee. When reportable payments made to the payee are
made in property (other than money), §31.3406(h)-2(b)(2)(i) provides that the payor
(broker) must withhold 24 percent of the fair market value of the property determined
immediately before or on the date of payment. As with all backup withholding, the payor
is liable for the amount required to be withheld regardless of whether the payor
withholds from such property. Under the general rule, payors are prohibited from
withholding from any alternative source maintained by the payor other than the source
with respect to which the payor has a withholding liability. §31.3406(h)-2(b)(1).
Exceptions from this general rule are provided in §31.3406(h)-2(b)(2) for certain
payments made in (non-cash) property. Specifically, under these rules, instead of
withholding from the property payment itself, §31.3406(h)-2(b)(2)(i) provides that a
payor may withhold “from the principal amount being deposited with the payor or from
another source maintained by the payee with the payor.” The regulation crossreferences to an example illustrating methods of withholding permitted for payments
constituting prizes, awards, and gambling winnings paid in property other than cash.
See §31.3406(h)-2(b)(2)(i) (cross-reference to §31.3402(q)-1(d) (Example 5) later
redesigned as §31.3402(q)-1(f) (Example 4) by TD 9824, 82 FR 44925 (September 27,
2017)). This example illustrates that payors making payments in property may either
gross up the overall payment with cash to pay the withholding tax (plus the withholding
tax on that grossed-up payment) or have the payee pay the withholding tax to the payor.
For a payor that cannot locate an alternative source of cash from which to withhold,
§31.3406(h)-2(b)(2)(ii) permits the payor to defer its obligation to withhold (except for
reportable payments made with prizes, awards, or gambling winnings) until the earlier of
the date sufficient cash to satisfy the withholding obligation is deposited into the payee’s
account maintained with the payor or the close of the fourth calendar year after the

obligation arose. If no cash becomes available in these other sources by the close of
the fourth calendar year after the obligation arose, however, the payor is liable for the
backup withholding tax.
Several comments requested that the final regulations clarify how the backup
withholding rules apply to sales of digital assets for different digital assets and other
non-cash property. One comment requested that the final regulations provide added
flexibility to allow brokers to meet their withholding obligations. First, to the extent that
these comments assumed that non-cash property proceeds cannot be subdivided, it
should be noted that some digital assets do allow for subdivision and, when they do, the
payor can satisfy backup withholding obligations by liquidating a portion of those
proceeds. Additionally, depending on contractual relationships with their customers,
brokers may be permitted to liquidate alternative sources that are comprised of digital
assets to satisfy their withholding obligations. Accordingly, brokers effecting sales of
digital assets for different digital assets in many cases may have the ability to satisfy
their withholding obligations from the digital assets received in the transaction (that is,
from the reportable payment) or from an alternative source of digital assets maintained
by the payee with the payor.
Another comment asked if brokers are permitted to withhold from digital assets
being disposed of instead of the digital assets received in the exchange when market
considerations would make that approach less costly. The Treasury Department and the
IRS have determined that withholding from disposed-of digital assets is analogous to
having the payee pay the withholding tax to the payor as illustrated in the example of
permitted withholding methods for prizes, awards, and gambling winnings. §31.3402(q)1(f) (Example 4). Accordingly, whether a broker can withhold from digital assets being
disposed of is a matter for brokers and customers to determine based on the legal or
other arrangements between them. No changes are made to the final regulations to

address this comment. The Treasury Department and the IRS intend to study the rules
under §31.3406(h)-2(b) further and may issue guidance providing brokers a greater
ability to liquidate alternative sources of digital assets to satisfy backup withholding
obligations. Additionally, such guidance may address the four-year deferral rule in fact
patterns where digital assets are maintained by the payee with the payor.
One comment recommended that the withholding rate be reduced for
dispositions of digital assets for different digital assets or other non-cash property. The
final regulations do not adopt these suggestions because the withholding rate is set by
statute in section 3406(a)(1). Another comment recommended that the rules permit a
delay in the payment of withheld taxes to the later of 180-days or until the end of the
calendar year to allow customers to provide their tax documentation. As discussed in
Part VI.D. of this Summary of Comments and Explanation of Revisions, the final
regulations address this comment by delaying the application of the backup withholding
rules.
Although a few comments expressed the view that brokers have the ability to
administer backup withholding on dispositions of digital assets for certain types of noncash property, numerous other comments raised concerns with the logistics of
withholding on sales of digital assets for different digital assets, particularly when the
price of the digital assets received in the exchange (received digital asset) fluctuates
between the time of transaction and the time the received digital assets are liquidated
into U.S. dollars for deposit with the Treasury Department. These comments noted that,
even for received digital assets that do not experience large fluctuations in value, it is
not operationally possible for brokers to be certain that they can liquidate 24 percent of
the received digital assets at the same valuation price as applies to the underlying
transaction giving rise to the withholding obligation. Accordingly, these comments
questioned whether the withholding tax payment would be deficient if the liquidated

value of the withheld digital assets falls below the value of 24 percent of the received
digital assets at the time of the underlying transaction and requested relief to the extent
the liquidated value is deficient. Another comment questioned if any excess value must
be paid to the Treasury Department when the liquidated value of the withheld digital
assets is greater than 24 percent of the received digital assets at the time of the
underlying transaction. Another comment stated that some brokers do not have
processes in place to liquidate received digital assets daily to make required backup
withholding deposits in U.S. dollars and requested that deposits to the Treasury
Department be permitted in digital assets.
Section 3406 provides that if a payee fails to provide a TIN or certain other
conditions are satisfied, the payor shall deduct and withhold from the reportable
payment a tax equal to a rate that is currently 24 percent. The responsibility for ensuring
that sufficient withholding tax is withheld is by statute a payor responsibility. Moreover,
brokers are in the best position to mitigate any volatility risks associated with disposing
of digital assets received in an exchange of digital assets. For example, brokers may be
able to minimize or eliminate their risk by implementing systems to shorten the time
between the initial transaction and the liquidation of the withheld digital asset.
Accordingly, the Treasury Department and the IRS have determined that it is not
appropriate for the Federal government to accept the market risk of a customer’s
withheld digital asset. Instead, the risk should be borne in the first instance by the
broker offering digital asset transactions to its customers. Accordingly, the final
regulations do not adopt the suggestion to pass the price volatility risk of withheld digital
assets onto the Federal government. However, see Part VI.D. of this Summary of
Comments and Explanation of Revisions regarding temporary penalty relief for backup
withholding, which is based in part on the risk of payment shortfalls due to the volatility
of some digital assets.

The Treasury Department and the IRS understand that a broker may shift the
withholding liability risk associated with price volatility to a customer who has invested in
the withheld digital asset and has not provided a TIN under penalties of perjury. For
example, as suggested by one comment, brokers could mandate that their customers
who have not provided a certified TIN maintain with the broker cash margin accounts or
digital asset accounts with relatively stable digital assets (such as stablecoins) for
brokers to use to satisfy their backup withholding obligations. Brokers could also require
their customers to agree to allow the brokers to sell for cash 24 percent of the disposed
digital assets at the time of the transaction. In addition, brokers could remind customers
that fail to provide their TINs as requested that the customer may be liable for penalties
under section 6723 of the Code. Finally, brokers could mandate that their customers
provide accurate tax documentation to avoid backup withholding obligations altogether.
Because any such arrangement would be a commercial arrangement between the
broker and its customer, these final regulations do not address such arrangements.
Several comments requested guidance (with examples) setting forth operational
solutions to avoid broker liability with respect to this price fluctuation risk and additional
time to put those solutions in place. The final regulations do not include specific
examples because there appears to be many solutions brokers could adopt that are
industry and business specific. However, the Treasury Department and the IRS intend
to study these rules further and may issue additional guidance.
One comment recommended that the final regulations be revised to prevent the
application of cascading backup withholding in a sale of digital assets for different digital
assets when the broker sells 24 percent of the received digital assets to pay the backup
withholding tax on the initial transaction. For example, a customer exchanges 1 unit of
digital asset AB for 100 units of digital asset CD (first transaction), and to apply backup
withholding, the broker sells 24 percent (or 24 units) of digital asset CD for cash

(second transaction). The comment recommended that the sale of the 24 units of CD in
the second transaction not be subject to backup withholding if that sale is effected by
the broker to satisfy its backup withholding obligations with respect to a sale of digital
assets in exchange for different assets and the cash sale was effected by the broker on
or prior to the date that the broker is required to deposit the backup withholding tax
liability with respect to the underlying digital asset exchange. The Treasury Department
and the IRS have determined that a limited backup withholding exception should apply
in the case of cascading backup withholding obligations. To address this cascading
backup withholding problem, the final regulations except certain sales for cash of
withheld digital assets from the definition of sales required to be reported if the sale is
undertaken immediately after the underlying sale to satisfy the broker’s obligation under
section 3406 to deduct and withhold a tax with respect to the underlying transaction. If
that condition is met, the sale will be excepted from broker reporting and backup
withholding will not apply. See final §1.6045-1(c)(3)(ii)(D). The special rule for the
identification of units withheld from a transaction, discussed in Part I.E.3.a. of this
Summary of Comments and Explanation of Revisions, also ensures that the excepted
sale of the withheld units does not give rise to any additional gain or loss.
Numerous comments requested an exception from backup withholding for
transactions in which digital assets are exchanged for property (other than relatively
liquid digital assets), such as traditional financial assets, real estate, goods, services, or
different digital assets that cannot be fractionalized, such as NFTs and tokenized
financial instruments (illiquid property), when there is insufficient cash in the customer’s
account. Backup withholding is an essential enforcement tool to ensure that complete
and accurate information returns can be filed by payors with respect to payments made
to payees. Accurate TINs and other information provided by payors are critical to
matching such information with income reported on a payee’s Federal income tax

return. A complete exception from backup withholding or an exception for sales of digital
assets for illiquid property would increase the likelihood that customers will not provide
correct TINs to their brokers. Such an exception would also raise factual questions
about whether certain property received in a transaction is truly illiquid. For example,
one broker might assert that a stored-value card in a fixed amount is illiquid if the broker
cannot withhold 24 percent of the value of the card or if the resale market for those
cards does not facilitate full face value payments. On the other hand, a different broker
might decide to require the payee to send back cash in an amount representing 24
percent of the of the value of the card. Moreover, brokers have some ability to minimize
their backup withholding in these circumstances by taking steps to ensure that the
customer pays the backup withholding tax instead of the broker. For example, brokers
could remind customers that failure to provide their TINs as requested may result in
customers being liable for penalties under section 6723. Brokers also may be able to
require customers that refuse to provide accurate tax documentation to maintain cash
accounts or other digital asset accounts with the broker. Accordingly, subject to the
transition relief discussed in Part VI.D. of this Summary of Comments and Explanation
of Revisions, the final regulations do not provide an exception to backup withholding for
sales of digital assets in exchange for illiquid property.
One comment requested relief from backup withholding when the fair market
value of the received digital asset is not readily ascertainable. This comment also
requested that the final regulations provide guidance clarifying what the broker must do
to conclude that the value of received digital assets is not readily ascertainable. The
final regulations do not adopt this comment because the fact pattern is not unique to
digital asset transactions. Moreover, the final regulations provide rules, at final §1.60451(d)(5)(ii)(A)(1) through (3), that brokers can use to determine the fair market value of
gross proceeds received by a customer in a digital asset transaction. For example, in

the case of a customer that receives a unique NFT in exchange for other digital assets,
the broker can look to the value of the disposed digital assets and use that value for the
NFT.
Several comments requested an exemption from backup withholding for any sale
of a qualifying stablecoin (whether for cash, another digital asset, or other property)
because of the low likelihood that these stablecoin sales will give rise to significant
gains or losses. Backup withholding on these transactions is a necessary tool to ensure
that customers provide their tax documentation in accordance with regulatory
requirements and to allow for correct income tax reporting of the gains and losses that
do occur. Brokers that request customer TINs in accordance with regulatory
requirements are not liable for information reporting penalties with respect to customers
who refuse to comply. Backup withholding, therefore, is the only way to ensure that
either the broker’s customers will provide their TINs and the IRS will receive the
information reporting required or that a tax is collected from those customers who do not
want the IRS to learn about their activities. Additionally, and as discussed in Part I.D.2.
of this Summary of Comments and Explanation of Revisions, the Treasury Department
and the IRS have concluded that information about certain qualifying stablecoin
transactions is essential to the IRS gaining visibility into previously unreported digital
asset transactions. Accordingly, the final regulations do not adopt this comment.
However, it should be noted, as discussed in Part I.D.1. of this Summary of Comments
and Explanation of Revisions, if a broker reports information on designated qualifying
stablecoins sales under the optional method of reporting, sales of non-designated
qualifying stablecoins will not be reported. As such, final §31.3406(b)(3)-2(b)(6)(i)(B)(1)
provides that these non-designated sales of qualifying stablecoins will not be subject to
backup withholding.

As discussed in Part I.D.2.a. of this Summary of Comments and Explanation of
Revisions, there may be circumstances in which a digital asset loses its peg during a
calendar year and therefore does not satisfy the conditions required to be a qualifying
stablecoin. To give brokers time to learn about such de-pegging events and turn on
backup withholding for non-designated sales, final §31.3406(b)(3)-2(b)(6)(i)(B)(2)
provides a grace period before withholding is required. Specifically, in the case of a
digital asset that would have satisfied the definition of a non-designated sale of a
qualifying stablecoin under final §1.6045-1(d)(10)(i)(C) for a calendar year but for a nonqualifying event during that year, a broker is not required to withhold under section 3406
on such sale if it occurs no later than the end of the day that is 30 days after the first
non-qualifying event with respect to such digital asset during such year. For this
purpose, a non-qualifying event is defined as the first date during a calendar year on
which the digital asset no longer satisfies all three conditions described in final §1.60451(d)(10)(ii)(A) through (C) to be a qualifying stablecoin. Finally, final §31.3406(b)(3)2(b)(6)(i)(B)(2) also provides that the date on which a non-qualifying event has occurred
with respect to a digital asset and the date that is no later than 30 days after such nonqualifying event must be determined using UTC. As discussed in Part I.D.2.b. of this
Summary of Comments and Explanation of Revisions, UTC time was chosen for this
purpose to ensure that the same digital assets will or will not be subject to backup
withholding for all brokers regardless of the time zone in which such broker keeps its
books and records.
One comment recommended that the final regulations provide a de minimis
threshold, similar to the $600 threshold for income subject to reporting under section
6041, before backup withholding would be required for dispositions of digital assets for
different digital assets or other non-cash property. Under section 3406(b)(4) and (6),
unless the payment is of a kind required to be shown on a return required under

sections 6041(a) or 6041A(a), the determination of whether any payment is of a kind
required to be shown on a return must be made without regard to any minimum amount
which must be paid before a return is required. While the Secretary may have the
authority to apply a threshold that is established by regulation when determining
whether any payment is of a kind that must be shown on a required return for backup
withholding purposes, the Treasury Department and the IRS have determined that the
application of these thresholds to the backup withholding rules would not be
appropriate. Accordingly, although the final regulations provide de minimis thresholds
for reporting payment transaction sales and designated sales of qualifying stablecoins
and specified NFTs, the transactions that fall below the applicable gross proceeds
thresholds are nonetheless potentially taxable transactions that taxpayers must report
on their Federal income tax returns. The Treasury Department and the IRS have
concluded that customers that have not provided tax documentation to their brokers are
less likely to report their digital asset transactions on their Federal income tax returns
than customers who comply with the documentation requirements. Accordingly, the
Treasury Department and the IRS have determined it is important to impose backup
withholding on gross proceeds that fall below these thresholds. Therefore, under the
final regulations, gross proceeds that are not required to be reported due to the
application of the $600 threshold for payment transaction sales, the $10,000 threshold
for designated sales of qualifying stablecoins, or the $600 threshold for sales of
specified NFTs are nonetheless reportable payments for purposes of backup
withholding.
See Part VI.D. of this Summary of Comments and Explanation of Revisions for a
discussion of certain transitional relief from backup withholding under section 3406.
C. Other backup withholding issues

The proposed regulations requested comments addressing short sales of digital
assets and whether any changes should be made to the backup withholding rules under
§31.3406(b)(3)-2(b)(3) and (4). In response, one comment requested that the final
regulations clarify how gains or losses from short sales of digital assets are to be
treated and what, if any, withholding is required for short sales of digital assets. Another
comment requested that any backup withholding rules for short sales of digital assets
take into account factors like holding periods, borrowed assets, and sale conditions.
After considering the requests, as discussed in Part I.C. of this Summary of Comments
and Explanation of Revisions, the Treasury Department and the IRS have determined
that the substantive issues raised by these comments require further study. Accordingly,
the final regulations do not address these comments and do not make any changes to
these rules. However, see Part VII. of this Summary of Comments and Explanation of
Revisions for a discussion of guidance being provided along with these final regulations
to address reporting on certain transactions requiring further study.
Another comment requested guidance regarding how to apply the rules for
making timely deposits of tax withheld by brokers that operate 24 hours a day. This
comment stated that brokers need to know what time (and based on what time zone)
their day ends for purposes of making timely deposits and whether timely deposits are
measured based on days or by 24 hour rolling periods. Another comment requested
that the final regulations permit brokers to report based on the broker’s time zone
provided that the time zone is disclosed to the customer and is used consistently for all
reporting years. Many businesses have continuous operations across several time
zones. Because the proposed regulations did not propose any changes to the rules for
making timely deposits of tax withheld by digital asset brokers, the final regulations do
not provide a special rule for digital asset brokers.

Another comment requested guidance regarding the withholding rules for crossborder transactions, including the appropriate withholding rates under existing U.S. tax
treaties. The final regulations do not address this comment because the withholding
rules under chapter 3 of the Code are outside the scope of these regulations. See Part
VI.D. of this Summary of Comments and Explanation of Revisions for a discussion of
certain transitional relief from backup withholding under section 3406.
D. Applicability date for backup withholding on digital asset sales
Several comments requested that the imposition of backup withholding on
dispositions of digital assets for cash, different digital assets, or other non-cash property
be delayed until brokers can develop systems to implement withholding on these
transactions. Other comments advised that software currently exists that can be
embedded in any trading platform’s user interface to help brokers obtain proper tax
document from customers. The Treasury Department and the IRS have determined it is
appropriate to provide temporary relief on the imposition of backup withholding for these
transactions to give brokers the time they need to build and implement backup
withholding systems for these types of transactions. Accordingly, the notice discussed in
Part VI. of this Summary of Comments and Explanation of Revisions will also provide
transitional relief from backup withholding under section 3406 for sales of digital assets
as follows:
1. Digital Asset Sales for Cash
The Treasury Department and the IRS recognize that, although brokers engaging
in these cash transactions may be in a good position to obtain proper tax
documentation, they will need time to build systems to collect and retain that
documentation and to obtain that documentation from existing customers. Accordingly,
to promote industry readiness to comply with the backup withholding requirements,
Notice 2024-56 is being issued contemporaneously with these final regulations to

provide transitional relief from backup withholding under section 3406 on these sales.
This notice, which will be published in the Internal Revenue Bulletin, provides that the
effective date for backup withholding date is postponed to January 1, 2026, for potential
backup withholding obligations imposed under section 3406 for payments required to be
reported on Forms 1099-DA for sale transactions. Additionally, for sale transactions
effected in 2026 for customers that have opened accounts with the broker prior to
January 1, 2026, the notice further provides that backup withholding will not apply with
respect to any payee that furnishes a TIN to the broker, whether or not on a Form W-9
in the manner required in §§31.3406(d)-1 through 31.3406(d)-5, provided the broker
submits that payee’s TIN to the IRS’s TIN matching program and receives a response
that the TIN furnished by the payee is correct. See §601.601(d)(2). Transitional relief
also is being provided under these final regulations for sales of digital assets effected
before January 1, 2027, that were held in a preexisting account established with a
broker before January 1, 2026, if the customer has not been previously classified as a
U.S. person by the broker, and the information the broker has for the customer includes
a residence address that is not a U.S. address.
2. Sales of Digital Assets in Exchange for Different Digital Assets (Other than
Nonfungible Tokens that Cannot be Fractionalized)
As discussed in Part VI.B. of this Summary of Comments and Explanation of
Revisions, brokers are concerned with the logistics of withholding on sales of digital
assets for different digital assets when the price of the digital assets received in the
exchange fluctuates between time of transaction and the time the received digital assets
are liquidated into U.S. dollars for deposit with the Treasury Department. Although there
are steps brokers can take to diminish this price volatility risk or transfer this risk entirely
to the customer, the Treasury Department and the IRS recognize that brokers need time
to implement these procedures. Accordingly, in addition to the delayed application of the
backup withholding rules provided for digital assets sold for cash, Notice 2024-56 also

provides that the IRS will not assert penalties for a broker’s failure to deduct, withhold,
and pay any backup withholding tax that is caused by a decrease in the value of
received digital assets (other than nonfungible tokens that the broker cannot
fractionalize) between the time of the transaction giving rise to the backup withholding
liability and the time the broker liquidates 24 percent of the received digital assets,
provided the broker undertakes to effect that liquidation immediately after the
transaction giving rise to the backup withholding liability.
One comment recommended that the final regulations apply backup withholding
to sales of digital assets other than stablecoins in exchange for stablecoins under the
same rules as apply to sales of digital assets for cash. The final regulations do not
adopt this comment. Although there may be less price volatility risks in received
stablecoins than there is with other digital assets, stablecoins are not cash and are not
treated as such by these regulations.
3. Sales of Digital Assets in Exchange for Other Property
As discussed in Part VI.B. of this Summary of Comments and Explanation of
Revisions, the final regulations do not provide an exception to backup withholding for
sales of digital assets in exchange for illiquid property. The Treasury Department and
the IRS, however, understand that there are additional practical issues with requiring
backup withholding on PDAP sales and sales effected by real estate reporting persons
because these brokers typically cannot withhold from the proceeds, which would
typically be the goods or services (or real estate) purchased. Accordingly, in addition to
the delayed application of the backup withholding rules provided for digital assets sold
for cash, Notice 2024-56 also provides that the IRS will not apply the backup
withholding rules to any PDAP sale or to any sale effected by a real estate reporting
person until further guidance is issued.
VII.

Applicability Dates and Penalty Relief

The Treasury Department and the IRS received and considered many comments
about the applicability dates contained in the proposed regulations. Multiple comments
requested additional time beyond the proposed applicability date for gross proceeds
reporting on transactions occurring on or after January 1, 2025, and for basis reporting
for transactions occurring on or after January 1, 2026. Comments asked for time
ranging from one to five years after publication of the final rules to prepare for reporting
transactions, with the most common suggestion being an applicability date between 18
and 24 months after publication of the final regulations. Several comments suggested
that broker reporting begin at the same time as CARF reporting, either for all brokers or
for non-U.S. brokers. Multiple comments requested that the final regulations become
applicable in stages, with many suggesting that custodial industry participants should be
required to report during the first stage but that non-custodial participants should begin
reporting a year or more later. Comments generally pointed to the time needed to build
information reporting systems and to adequately document customers to support their
recommendation of later applicability dates. They also cited concerns about fulfilling
backup withholding requirements and adapting to filing a new information return, the
Form 1099-DA, and about the IRS’s ability to receive and process a large number of
new forms.
Conversely, some comments indicated that the proposed applicability dates were
appropriate. As one comment noted, some digital asset brokers reported digital asset
transactions on Forms 1099-B before the passage of the Infrastructure Act. Similarly,
another comment stated that brokers that make payments to customers in the form of
staking rewards or income from lending digital assets are already required to file and
furnish Forms 1099-MISC, Miscellaneous Information, to those customers. Accordingly,
in the view of these comments, those brokers have some experience with documenting
customers and handling their personally identifiable information. Finally, one comment

stated that if transaction ID, digital asset address, and time of the transaction were not
required to be reported, then existing traditional financial reporting solutions could be
expanded relatively easily to include reporting on dispositions of digital assets.
The Treasury Department and the IRS agree that a phased-in or staged
approach to broker reporting is appropriate and have determined that the proposed
applicability dates for gross proceeds and basis reporting should be retained in the final
regulations for custodial industry participants. At least some of these participants have
experience reporting transactions involving their customers. Further, as described in
Part I.D. of this Summary of Comments and Explanation of Revisions, under the final
regulations, these brokers will not be required to report the time of the transaction, the
digital asset address or the transaction ID on Forms 1099-DA. Brokers will be required
to report basis for transactions occurring on or after January 1, 2026, but only with
respect to digital assets the customer acquired from, and held with, the same broker on
or after January 1, 2026. Although the proposed regulations required basis reporting for
assets acquired on or after January 1, 2023, it is anticipated that moving the acquisition
date to on or after January 1, 2026, and eliminating the need to track basis retroactively
will assist brokers in preparing to report basis for transactions that occur beginning in
2026. See Part I.F. of this Summary of Comments and Explanation of Revisions for a
discussion of the changes made to the basis reporting rules. Finally, and as more fully
described in Part I.B.1.b. of this Summary of Comments and Explanation of Revisions,
the proposed digital asset middleman rules that would apply to non-custodial industry
participants are not being finalized with these final regulations. The Treasury
Department and the IRS intend to expeditiously issue separate final regulations
describing information reporting rules for non-custodial industry participants with an
appropriate, separate applicability date.

The rules of final §1.1001-7 apply to all sales, exchanges, and dispositions of
digital assets on or after January 1, 2025.
The rules of final §1.1012-1(h) apply to all acquisitions and dispositions of digital
assets on or after January 1, 2025. The rules of final §1.1012-1(j) apply to all
acquisitions and dispositions of digital assets on or after January 1, 2025.
The rules of final §1.6045-1 apply to sales of digital assets on or after January 1,
2025.
The amendments to the rules of final §1.6045-4 apply to real estate transactions
with dates of closing occurring on or after January 1, 2026.
The changes made in final §1.6045A-1 limit the application of the pre-2024 final
regulations in the case of digital assets. Accordingly, these changes apply as of the
effective date of this Treasury decision.
The rules of final §1.6045B-1 apply to organizational actions occurring on or after
January 1, 2025, that affect the basis of digital assets that are also described in one or
more paragraphs of §1.6045-1(a)(14)(i) through (iv).
The rules of final §1.6050W-1 apply to payments made using digital assets on or
after January 1, 2025.
The rules of final §31.3406(b)(3)-2 apply to reportable payments by a broker to a
payee with respect to sales of digital assets on or after January 1, 2025, that are
required to be reported under section 6045.
The rules of final §31.3406(g)-1 apply on or after January 1, 2025, and the rules
of final §31.3406(g)-2 apply to sales of digital assets on or after January 1, 2026.
The rules of final §301.6721-1(h)(3)(iii) apply to returns required to be filed on or
after January 1, 2026. The rules of final §301.6722-1(e)(2)(viii) apply to payee
statements required to be furnished on or after January 1, 2026.
Special Analyses

I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury Regulations
under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS
are not subject to the requirements of section 6(b) of Executive Order 12866, as
amended. Therefore, a regulatory impact assessment is not required.
II. Paperwork Reduction Act
In general, the collection of information in the regulations is required under
section 6045. The collection of information in these regulations with respect to
dispositions of digital assets is set forth in final §1.6045-1 and the collection of
information with respect to dispositions of real estate in consideration for digital assets
is set forth in final §1.6045-4. The IRS intends that the collection of information pursuant
to final §1.6045-1 will be conducted by way of Form 1099-DA and that the collection of
information pursuant to final §1.6045-4 will be conducted through a revised Form 1099S.
The proposed regulations contained burden estimates regarding the collection of
information with respect to the dispositions of digital assets and the collection of
information with respect to dispositions of real estate in consideration for digital assets.
For the proposed regulations, the Treasury Department and the IRS estimated that
approximately 600 to 9,500 brokers would be impacted by the proposed regulations.
The proposed regulations also contained an estimate of between 7.5 minutes and 10.5
minutes as the average time to complete the required Forms 1099 for each customer.
And the proposed regulations also contained an estimate of 13 to 16 million customers
that would have transactions subject to the proposed regulations. Taking the mid-points
of the ranges for the number of brokers expected to be impacted by these regulations,
the number of taxpayers expected to receive one or more Forms 1099 required by
these regulations, and the time to complete those required forms (5,050 brokers, 14.5

million recipients, and 9 minutes respectively), the proposed regulations estimated the
average broker would incur 425 hours of time burden and $27,000 of monetized burden
for the ongoing costs per year. The proposed regulations contained estimates of
2,146,250 total annual burden hours and $136,350,000 in total monetized annual
burden.
The proposed regulations estimated start-up costs to be between three to eight
times annual costs. Given that the Treasury Department and the IRS expected per firm
annual estimated burden hours to be 425 hours and $27,000 of estimated monetized
burden, the proposed regulations estimated per firm start-up aggregate burden hours to
range from 1,275 to 3,400 hours and $81,000 to $216,000 of aggregate monetized
burden. Using the mid-points, start-up total estimated aggregate burden hours was
11,804,375 and total estimated monetized burden is $749,925,000.
Regarding the Form 1099-DA, the burden estimate must reflect the continuing
costs of collecting and reporting the information required by these regulations as well as
the upfront or start-up costs associated with creating the systems to collect and report
the information taking into account all of the comments received, as well as the changes
made in these final regulations that will affect the paperwork burden. A reasonable
burden estimate for the average time to complete these forms for each customer is 9
minutes (0.15 hours). The Treasury Department and the IRS estimate that 13 to 16
million customers will be impacted by these final regulations (mid-point of 14.5 million
customers). The Treasury Department and the IRS estimate that approximately 900 to
9,700 brokers will be impacted by these final regulations (mid-point of 5,300 brokers).
The Treasury Department and the IRS estimate the average broker to incur
approximately 425 hours of time burden and $28,000 of monetized burden. The total
estimated aggregate annual burden hours is 2,252,500 and the total estimated
monetized burden is $148,400,000.

Additionally, start-up costs are estimated to be between five and ten times annual
costs. Given that we expect per firm annual estimated burden hours to be 425 hours
and $28,000 of estimated monetized burden, the Treasury Department and the IRS
estimate per firm start-up aggregate burden hours from 2,125 to 4,250 hours and
$140,000 to $280,000 of aggregate monetized burden. Using the mid-points, start-up
total estimated aggregate burden hours is 3,188 and total estimated monetized burden
is $210,000 per firm. The total estimated aggregate burden hours is 16,896,400 and
total estimated monetized burden is $1,113,000,000.
Based on the most recent OMB burden estimate for the average time to
complete Form 1099-S, it was estimated that the IRS received a total number of
2,563,400 Form 1099-S responses with a total estimated time burden for those
responses of 411,744 hours (or 9.6 minutes per Form). Neither a material change in the
average time to complete the revised Form, nor a material increase in the number of
Forms that will be filed is expected once these final regulations are effective. No
material increase is expected in the start-up costs and it is anticipated that less than 1
percent of Form 1099-S issuers will be impacted by this change.
Numerous comments were received on the estimates contained in the proposed
regulations. Many of these comments asserted that the annual estimated time and
monetized burdens were too low. Some comments recommended that the estimates be
recalculated using a total of 8 billion Forms 1099-DA filed and furnished annually. The
request to use this number was based on a public statement made by a former IRS
employee. The Treasury Department and the IRS do not adopt this recommendation
because the reference to 8 billion returns was not based on the requirements in the
proposed or final regulations. Some comments attempted to calculate the monetized
burden for specific exchanges using the average amounts used in the proposed
regulations. The Treasury Department and the IRS also note that any attempts to

recalculate the monetized burden for specific exchanges will likely yield unrealistic
results. The monetized burden is based on average costs, and it is expected that
smaller firms may experience lower costs overall but higher costs on an average per
customer basis. This is because while the ongoing costs of reporting information to the
IRS may be small, there will be larger costs associated with the initial setup. It is
expected that the larger initial setup costs will likely be amortized among more
customers for the larger exchanges. The Treasury Department and the IRS anticipate
conducting a survey in the future to determine the actual costs of compliance with these
regulations; however, the estimates used in these final regulations are based on the
best currently available information.
Multiple comments said that the estimated number of brokers impacted by the
proposed regulations was too low. One comment said the number of entities affected
should include everyone who uses credit cards or travels in the United States and
should therefore be millions of people. That comment also said the number of entities
affected should include individual taxpayers since the proposed regulations includes
rules affecting individual taxpayers. One comment said the estimate was too low
because it underestimated the impact on decentralized autonomous organizations,
governance token holders, operators of web applications, and other similarly situated
potential brokers. The estimated number of brokers in these final regulations was not
increased based on these comments because the issues raised by these comments do
not impact the number of brokers subject to the broker reporting requirements of these
final regulations. The definition of a digital asset is 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; therefore, credit card points are not digital assets
subject to reporting under these final regulations. The final regulations include
substantive rules for computing the sale or other disposition of digital assets, but

because taxpayers are already required to calculate and report their tax liability under
existing law, these regulations do not impose an additional reporting requirement on
these individuals. Finally, the Treasury Department and the IRS are not increasing the
burden estimates based on comments about decentralized autonomous organizations
or operators of web applications because the final regulations apply only to digital asset
industry participants that take possession of the digital assets being sold by their
customers, namely operators of custodial digital asset trading platforms, certain digital
asset hosted wallet providers, certain PDAPs, and digital asset kiosks, and to certain
real estate persons that are already subject to the broker reporting rules.
The Treasury Department and the IRS estimate that approximately 900 to 9,700
brokers, with a mid-point of 5,300, will be impacted by these final regulations. The lower
bound of this estimate was derived using Form 1099 issuer data through 2022 and
statistics on the number of exchanges from CoinMarketCap.com. Because the Form
1099 issuer data and statistics from CoinMarketCap do not distinguish between
centralized and decentralized exchanges, this estimate likely overestimates the number
of brokers that will be impacted by these final regulations. The upper bound of this
estimate is based on IRS data for brokers with nonzero revenue who may deal in digital
assets, specifically the number of issuers with North American Classification System
(NAICS) codes for Securities Brokerage (52312), Commodity Contracts Dealing (52313)
and Commodity Contracts Brokerage (52314).
The proposed regulations estimated the average time to complete these Forms
for each customer as between 7.5 minutes and 10.5 minutes, with a mid-point of 9
minutes (or 0.15 hours). Some comments said the 9-minute average time to complete
these Forms for each customer is too low, with one comment stating it underestimated
time to complete by at least two orders of magnitude. Another comment said
considering the complexity and specificity of the proposed reporting, including the

requirement to report the time of transactions, the average time should be 15 minutes.
The final regulations remove the requirement to report the time of the transaction. The
final regulations also remove the obligation to report transaction ID and digital asset
addresses. Additionally, the final regulations include a de minimis rule for PDAPs and
an optional alternative reporting method for sales of certain NFTs and qualifying
stablecoins to allow for aggregate reporting instead of transaction reporting, with a de
minimis annual threshold below which no reporting is required, which the Treasury
Department and the IRS anticipate will further reduce the reporting burden. Given the
final regulations more streamlined reporting requirements, the Treasury Department and
the IRS have concluded that the original estimate for the average time to complete
these Forms was reasonable and retain the estimated average time to complete these
Forms for each customer of between 7.5 minutes and 10.5 minutes, with a mid-point of
9 minutes (or 0.15 hours).
The proposed regulations estimated that 13 to 16 million customers will be
impacted by these proposed regulations. Some comments asserted that the estimated
number of customers was too low. One comment said the estimate was too low
because it assumes that each of the affected taxpayers would generate a single Form
1099-DA, but that this is incorrect because brokers generally are required to submit
separate reports for each sale by each customer. That comment also said that if
substitute annual Forms 1099 and payee statements were permissible, the average
affected taxpayer likely would generate between 40 to 50 information returns per year.
That comment also asserted that the estimate of 14.5 million customers is too low
because 40 to 50 million Americans currently own digital assets and 75 million may
transact in digital assets this year. Some comments said the estimated number of
customers should be 8 billion based on a statement from a former IRS official.

The Treasury Department and the IRS have not updated the estimated number
of customers impacted by these final regulations based on these comments. The
burden estimate is based on the number of taxpayers who will receive Forms 1099-DA
rather than the number of Forms 1099-DA that each taxpayer receives because the
primary broker burden is related to the system design and implementation required by
these final regulations, including the requirements to confirm or obtain customer
identification information. The burden associated with each additional Form 1099-DA
required per customer is expected to be marginal compared with the cost of
implementing the reporting system. While comments indicated more taxpayers own and
transact in digital assets than estimated in the proposed regulations, the Treasury
Department and the IRS have concluded that information included on information
returns filed with the IRS and tax returns signed under penalties of perjury is the most
accurate information currently available for the purpose of estimating the number of
affected taxpayers. The Treasury Department and the IRS estimate the number of
customers impacted by these final regulations will be between 13 million and 16 million
with a midpoint of 14,500,000. The estimate is based on the number of taxpayers who
received one or more Forms 1099 reporting digital asset activity in tax year 2021, plus
the number of taxpayers who responded yes to the digital asset question on their Form
1040 for tax year 2021.
The proposed regulations used a $63.53 per hour estimate to monetize the
burden. The proposed regulations used wage and compensation data from the Bureau
of Labor Statistics (BLS) that capture the wage, benefit, and overhead costs of a typical
tax preparer to estimate the average broker’s monetized burden. Some comments said
that the monetized burden in the proposed regulations was too low. One comment said
the wage and compensation rate used in the proposed regulations was too low because
these compliance costs capture the cost of a typical tax preparer and not the atypical

digital asset-specific tax and legal expertise needed to comply with these rules. Another
comment said the wage and compensation rate was underestimated because of the
higher labor cost per hour given the specialized nature of the reporting, the volume of
data and cross-functional effort required and similar factors. The Treasury Department
and the IRS do not accept the comments that the monetization rate is too low and have
concluded that the methodology to determine the rate is correct given the information
available about broker reporting costs. The final regulations use an average
monetization rate of $65.49. This updated estimate is based on survey data collected
from filers of similar information returns with NAICS codes for Securities Brokerage
(52312), Commodity Contracts Dealing (52313) and Commodity Contracts Brokerage
(52314), adjusted for inflation. A lower bound is set at the Federal minimum wage plus
employment taxes. The upper bound is set using rates from the BLS Occupational
Employment Statistics (OES) and the BLS Employer Costs for Employee Compensation
from the National Compensation Survey. Specifically, the estimate uses the 90th
percentile for accountants and auditors from the OES and the ratio of total
compensation to wages and salaries from the private industry workers (management,
professional, and related occupations) to account for fringe benefits.
The proposed regulations estimated that initial start-up costs would be between
three to eight times annual costs. Some comments said these costs were
underestimated because many brokers are newer companies with limited funding and
resources. Other comments stated the start-up costs of compliance would hurt
innovation. Another comment said the multiple applied was too low and that using a
multiplier for start-up costs between five to ten times annual costs would yield a more
reasonable estimate of the start-up costs for such a complex reporting regime and
would more closely align with prior outcomes for similar regimes that are currently
subject to reporting. Because start-up costs are difficult to measure, the Treasury

Department and the IRS use a multiplier of annual costs to estimate the start-up costs.
To further acknowledge the difficulty of estimating these cases, the Treasury
Department and the IRS have accepted the comment to revise the burden estimate to
reflect that start-up costs would be between five and ten times annual costs.
In summary, the Treasury Department and the IRS estimate that 13 to 16 million
customers will be impacted by these final regulations (mid-point of 14.5 million
customers). A reasonable burden estimate for the average time to complete these forms
for each customer is 9 minutes (0.15 hours). The Treasury Department and the IRS
estimate that approximately 900 to 9,700 brokers will be impacted by these final
regulations (mid-point of 5,300 brokers). The Treasury Department and the IRS
estimate the average time burden per broker will be approximately 425 hours. The
Treasury Department and the IRS use an estimate that the cost of compliance will be
$65.49 per hour, so the total monetized burden is estimated at $28,000 per broker.
Additionally, start-up costs are estimated to be between five and ten times annual
costs. Given the expected per-firm annual burden estimates of 425 hours and $28,000,
the Treasury Department and the IRS estimate per-firm start-up burdens as between
2,125 to 4,250 hours and $140,000 to $280,000 of aggregate monetized burden. Using
the mid-points, start-up total estimated aggregate burden hours is 3,188 hours and total
estimated monetized burden is $210,000 per firm.
An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless it displays a valid control number assigned by the
Office of Management and Budget. On April 22, 2024, the IRS released and invited
comments on the draft Form 1099-DA. The draft Form 1099-DA is available on
https://www.irs.gov. Also on April 22, 2024, the IRS published in the Federal Register
(89 FR 29433) a Notice and request for comments on the collection of information
requirements related to the broker regulations with a 60-day comment period. There will

be an additional 30-day comment period beginning on the date a second Notice and
request for comments on the collection of information requirements related to the broker
regulations is published in the Federal Register. The OMB Control Number for the
Form 1099-S is 1545-0997. The Form 1099-S will be updated for real estate reporting,
which applies to transactions occurring on or after January 1, 2026.
Books or records relating to a collection of information must be retained as long
as their contents may become material in the administration of any internal revenue law.
Generally, tax returns and tax return information are confidential, as required by section
6103.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6) requires agencies to
“prepare and make available for public comment an initial regulatory flexibility analysis,”
which will “describe the impact of the rule on small entities.” 5 U.S.C. 603(a). Unless an
agency determines that a proposal will not have a significant economic impact on a
substantial number of small entities, section 603 of the RFA requires the agency to
present a final regulatory flexibility analysis (FRFA) of the final regulations. The
Treasury Department and the IRS have not determined whether these final regulations
will likely have a significant economic impact on a substantial number of small entities.
This determination requires further study. Because there is a possibility of significant
economic impact on a substantial number of small entities, a FRFA is provided in these
final regulations.
The expected number of impacted issuers of information returns under these
final regulations is between 900 to 9,700 brokers (mid-point of 5,300). Small Business
Administration regulations provide small business size standards by NAICS Industry.
See 13 CFR 121.201. The NAICS includes virtual currency exchange services in the
NAICS code for Commodity Contracts Dealing (52313). According to the Small

Business Administration regulations, the maximum annual receipts for a concern and its
affiliates to be considered small in this NAICS code is $41.5 million. Based on tax return
data, only 200 of the 9,700 firms identified as impacted issuers in the upper bound
estimate exceed the upper bound estimate exceed the $41.5 million threshold. This
implies there could be 700 to 9,500 impacted small business issuers under the Small
Business Administration’s small business size standards.
Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking was
submitted to the Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business, and no comments were received.
A. Need for and objectives of the rule
Information reporting is essential to the integrity of the tax system. The IRS
estimated in its 2019 tax gap analysis that net misreporting as a percent of income for
income with little to no third party information reporting is 55 percent. In comparison,
misreporting for income with some information reporting, such as capital gains, is 17
percent, and for income with substantial information reporting, such as dividend and
interest income, is just five percent.
Prior to these final regulations, many transactions involving digital assets were
outside the scope of information reporting rules. Digital assets are treated as property
for Federal income tax purposes. The regulations under section 6045 require brokers to
file information returns for customers that sell certain types of property providing gross
proceeds and, in some cases, adjusted basis. However, the existing regulations do not
specify digital assets as a type of property for which information reporting is required.
Section 6045 also requires information returns for real estate transactions, but the
existing regulations do not require reporting of amounts received in digital assets.
Section 6050W requires information reporting by payment settlement entities on certain
payments made with respect to payment card and third-party network transactions.

However, the existing regulations are silent as to whether certain exchanges involving
digital assets are reportable payments under section 6050W.
Information reporting by brokers and real estate reporting persons under section
6045 with respect to certain digital asset dispositions and digital asset payments
received by real estate transferors will lead to higher levels of taxpayer compliance
because the income earned by taxpayers engaging in transactions involving digital
assets will be made more transparent to both the IRS and taxpayers. Clear information
reporting rules that require reporting of gross proceeds and, in some cases, adjusted
basis for taxpayers who engage in digital asset transactions will help the IRS identify
taxpayers who have engaged in these transactions, and thereby help to reduce the
overall tax gap. These final regulations are also expected to facilitate the preparation of
tax returns (and reduce the number of inadvertent errors or intentional misstatements
shown on those returns) by and for taxpayers who engage in digital asset transactions.
B. Affected small entities
As discussed above, we anticipate 9,500 of the 9,700 (or 98 percent) impacted
issuers in the upper bound estimate could be small businesses.
1. Impact of the Rules
As previously stated in the Paperwork Reduction Act section of this preamble,
the Form 1099-DA prescribed by the Secretary for reporting sales of digital assets
pursuant to final §1.6045-1(d) of these final regulations is expected to create an
average estimated per customer burden on brokers of between 7.5 and 10.5 minutes,
with a mid-point of 9 minutes (or 0.15 hours). In addition, the form is expected to create
an average estimated per firm start-up aggregated burden of between 2,125 to 4,250
hours in start-up costs to build processes to comply with the information reporting
requirements. The revised Form 1099-S prescribed by the Secretary for reporting gross
proceeds from the payment of digital assets paid to real estate transferors as

consideration in a real estate transaction pursuant to final §1.6045-4(i) of these final
regulations is not expected to change overall costs to complete the revised form.
Because we expect that filers of revised Form 1099-S will already be filers of the form,
we do not expect them to incur a material increase in start-up costs associated with the
revised form.
Although small businesses may engage tax reporting services to complete, file,
and furnish information returns to avoid the start-up costs associated with building an
internal information reporting system for sales of digital assets, it remains difficult to
predict whether the economies of scale efficiencies of using these services will offset
the somewhat more burdensome ongoing costs associated with using third party
contractors.
2. Alternatives Considered for Small Businesses
The Treasury Department and the IRS considered alternatives to these final
regulations that would have created an exception to reporting, or a delayed applicability
date, for small businesses but decided against such alternatives for several reasons. As
discussed above, we anticipate that 9,500 of the 9,700 (or 98 percent) impacted issuers
in the upper bound estimate could be small businesses. First, one purpose of these
regulations is to eliminate the overall tax gap. Any exception or delay to the information
reporting rules for small business brokers, which may comprise the vast majority of
impacted issuers, would reduce the effectiveness of these final regulations. In addition,
such an exception or delay could have the unintended effect of incentivizing taxpayers
to move their business to excepted small businesses, thus thwarting IRS efforts to
identify taxpayers engaged in digital asset transactions. Additionally, because the
information reported on statements furnished to customers will likely be an aid to tax
return preparation by those customers, small business brokers will be able to offer their
customers the same amount of useful information as their larger competitors. Finally, to

the extent investors in digital asset transactions are themselves small businesses, these
final regulations will help these businesses with their own tax preparation efforts.
3. Duplicate, Overlapping, or Relevant Federal Rules
These final regulations do not overlap or conflict with any relevant Federal rules.
As discussed above, the multiple broker rule ensures, in certain instances, that
duplicative reporting is not required.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires that
agencies assess anticipated costs and benefits and take certain other actions before
issuing a final rule that includes any Federal mandate that may result in expenditures in
any one year by a State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for inflation. This rule does not
include any Federal mandate that may result in expenditures by State, local, or Tribal
governments, or by the private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled “Federalism”) prohibits an agency from
publishing any rule that has federalism implications if the rule either imposes
substantial, direct compliance costs on State and local governments, and is not required
by statute, or preempts State law, unless the agency meets the consultation and
funding requirements of section 6 of the Executive order. This final rule does not have
federalism implications, does not impose substantial direct compliance costs on State
and local governments, and does not preempt State law within the meaning of the
Executive order.
VI. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs designated this rule as a major rule as defined by 5

U.S.C. 804(2).
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings, Notices and other guidance cited in
this document are published in the Internal Revenue Bulletin and are available from the
Superintendent of Documents, U.S. Government Publishing Office, Washington, DC
20402, or by visiting the IRS website at https://www.irs.gov.
Drafting Information
The principal authors of these regulations are Roseann Cutrone, Office of the
Associate Chief Counsel (Procedure and Administration) and Alexa Dubert, Office of the
Associate Chief Counsel (Income Tax and Accounting). However, other personnel from
the Treasury Department and the IRS, including Jessica Chase, Office of the Associate
Chief Counsel (Procedure and Administration), Kyle Walker, Office of the Associate
Chief Counsel (Income Tax and Accounting), John Sweeney and Alan Williams, Office
of Associate Chief Counsel (International), and Pamela Lew, Office of Associate Chief
Counsel (Financial Institutions and Products), participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad retirement,
Reporting and recordkeeping requirements, Social security, Unemployment
compensation.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping requirements.
Amendments to the Regulations

Accordingly, 26 CFR parts 1, 31, and 301 are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1001-1 is amended by adding a sentence at the end of
paragraph (a) to read as follows:
§1.1001-1 Computation of gain or loss.
(a)* * * For rules determining the amount realized for purposes of computing the
gain or loss upon the sale, exchange, or other disposition of digital assets, as defined in
§1.6045-1(a)(19), other than a digital asset not required to be reported as a digital asset
pursuant to §1.6045-1(c)(8)(ii), (iii), or (iv), see §1.1001-7.
*****
Par. 3. Section 1.1001-7 is added to read as follows:
§1.1001-7 Computation of gain or loss for digital assets.
(a) In general. This section provides rules to determine the amount realized for
purposes of computing the gain or loss upon the sale, exchange, or other disposition of
digital assets, as defined in §1.6045-1(a)(19) other than a digital asset not required to
be reported as a digital asset pursuant to §1.6045-1(c)(8)(ii), (iii), or (iv).
(b) Amount realized in a sale, exchange, or other disposition of digital assets for
cash, other property, or services--(1) Computation of amount realized--(i) In general. If
digital assets are sold or otherwise disposed of for cash, other property differing
materially in kind or in extent, or services, the amount realized is the excess of:
(A) The sum of:
(1) Any cash received;

(2) The fair market value of any property received or, in the case of a debt
instrument described in paragraph (b)(1)(iv) of this section, the amount determined
under paragraph (b)(1)(iv) of this section; and
(3) The fair market value of any services received; reduced by
(B) The amount of digital asset transaction costs, as defined in paragraph
(b)(2)(i) of this section, allocable to the sale or disposition of the transferred digital
asset, as determined under paragraph (b)(2)(ii) of this section.
(ii) Digital assets used to pay digital asset transaction costs. If digital assets are
used or withheld to pay digital asset transaction costs, as defined in paragraph (b)(2)(i)
of this section, such use or withholding is a disposition of the digital assets for services.
(iii) Application of general rule to certain sales, exchanges, or other dispositions
of digital assets. The following paragraphs (b)(1)(iii)(A) through (C) of this section apply
the rules of this section to certain sales, exchanges, or other dispositions of digital
assets.
(A) Sales or other dispositions of digital assets for cash. The amount realized
from the sale of digital assets for cash is the sum of the amount of cash received plus
the fair market value of services received as described in paragraph (b)(1)(ii) of this
section, reduced by the amount of digital asset transaction costs allocable to the
disposition of the transferred digital assets, as determined under paragraph (b)(2)(ii) of
this section.
(B) Exchanges or other dispositions of digital assets for services, or certain
property. The amount realized on the exchange or other disposition of digital assets for
services or property differing materially in kind or in extent, other than digital assets or
debt instruments described in paragraph (b)(1)(iv) of this section, is the sum of the fair
market value of such property and services received (including services received as
described in paragraph (b)(1)(ii) of this section), reduced by the amount of digital asset

transaction costs allocable to the disposition of the transferred digital assets, as
determined under paragraph (b)(2)(ii) of this section.
(C) Exchanges of digital assets. The amount realized on the exchange of one
digital asset for another digital asset differing materially in kind or in extent is the sum of
the fair market value of the digital asset received plus the fair market value of services
received as described in paragraph (b)(1)(ii) of this section, reduced by the amount of
digital asset transaction costs allocable to the disposition of the transferred digital asset,
as determined under paragraph (b)(2)(ii) of this section.
(iv) Debt instrument issued in exchange for digital assets. For purposes of this
section, if a debt instrument is issued in exchange for digital assets and the debt
instrument is subject to §1.1001-1(g), the amount attributable to the debt instrument is
determined under §1.1001-1(g) (in general, the issue price of the debt instrument).
(2) Digital asset transaction costs--(i) Definition. The term digital asset
transaction costs means the amounts paid in cash or property (including digital assets)
to effect the sale, disposition or acquisition of a digital asset. Digital asset transaction
costs include transaction fees, transfer taxes, and commissions.
(ii) Allocation of digital asset transaction costs. This paragraph (b)(2)(ii) provides
the rules for allocating digital asset transaction costs to the sale or disposition of a
digital asset. Accordingly, any other allocation or specific assignment of digital asset
transaction costs is disregarded.
(A) In general. Except as provided in paragraph (b)(2)(ii)(B) of this section, the
total digital asset transaction costs paid by the taxpayer in connection with the sale or
disposition of digital assets are allocable to the sale or disposition of the digital assets.
(B) Special rule for allocation of certain cascading digital asset transaction costs.
This paragraph (b)(2)(ii)(B) provides a special rule in the case of a transaction described
in paragraph (b)(1)(iii)(C) of this section (original transaction) and for which digital

assets are withheld from digital assets acquired in the original transaction to pay the
digital asset transaction costs to effect the original transaction. The total digital asset
transaction costs paid by the taxpayer to effect both the original transaction and any
disposition of the withheld digital assets are allocable exclusively to the disposition of
digital assets in the original transaction.
(3) Time for determining fair market value of digital assets. Generally, the fair
market value of a digital asset is determined as of the date and time of the sale or
disposition of the digital asset.
(4) Special rule when the fair market value of property or services cannot be
determined. If the fair market value of the property (including digital assets) or services
received in exchange for digital assets cannot be determined with reasonable accuracy,
the fair market value of such property or services must be determined by reference to
the fair market value of the digital assets transferred as of the date and time of the
exchange. This paragraph (b)(4), however, does not apply to a debt instrument
described in paragraph (b)(1)(iv) of this section.
(5) Examples. The following examples illustrate the application of paragraphs
(b)(1) through (3) of this section. Unless the facts specifically state otherwise, the
transactions described in the following examples occur after the applicability date set
forth in paragraph (c) of this section. For purposes of the examples under this
paragraph (b)(5), assume that TP is a digital asset investor, and each unit of digital
asset A, B, and C is materially different in kind or in extent from the other units. See
§1.1012-1(h)(4) for examples illustrating the determination of basis of digital assets.
(i) Example 1: Exchange of digital assets for services—(A) Facts. TP owns a total
of 20 units of digital asset A, and each unit has an adjusted basis of $0.50. X, an
unrelated person, agrees to perform cleaning services for TP in exchange for 10 units of
digital asset A, which together have a fair market value of $10. The fair market value of
the services performed by X also equals $10. X then performs the services, and TP
transfers 10 units of digital asset A to X. Additionally, TP pays $1 in cash of transaction
fee to dispose of digital asset A.

(B) Analysis. Under paragraph (b)(1) of this section, TP has a disposition of 10
units of digital asset A for services received. Under paragraphs (b)(2)(i) and (b)(2)(ii)(A)
of this section, TP has digital asset transaction costs of $1, which must be allocated to
the disposition of digital asset A. Under paragraph (b)(1)(i) of this section, TP’s amount
realized on the disposition of the units of digital asset A is $9, which is the fair market
value of the services received, $10, reduced by the digital asset transaction costs
allocated to the disposition of digital asset A, $1. TP recognizes a gain of $4 on the
exchange ($9 amount realized reduced by $5 adjusted basis in 10 units).
(ii) Example 2: Digital asset transaction costs paid in cash in an exchange of
digital assets—(A) Facts. TP owns a total of 10 units of digital asset A, and each unit
has an adjusted basis of $0.50. TP uses BEX, an unrelated third party, to effect the
exchange of 10 units of digital asset A for 20 units of digital asset B. At the time of the
exchange, each unit of digital asset A has a fair market value of $2 and each unit of
digital asset B has a fair market value of $1. BEX charges $2 per transaction, which
BEX requires its customers to pay in cash. At the time of the transaction, TP pays BEX
$2 in cash.
(B) Analysis. Under paragraph (b)(2)(i) of this section, TP has digital asset
transaction costs of $2. Under paragraph (b)(2)(ii)(A) of this section, TP must allocate
such costs ($2) to the disposition of the 10 units of digital asset A. Under paragraphs
(b)(1)(i) and (b)(3) of this section, TP’s amount realized from the exchange is $18, which
is the fair market value of the 20 units of digital asset B received ($20) as of the date
and time of the transaction, reduced by the digital asset transaction costs allocated to
the disposition of digital asset A ($2). TP recognizes a gain of $13 on the exchange
($18 amount realized reduced by $5 adjusted basis in the 10 units of digital asset A).
(iii) Example 3: Digital asset transaction costs paid with other digital assets—(A)
Facts. The facts are the same as in paragraph (b)(5)(ii)(A) of this section (the facts in
Example 2), except that BEX requires its customers to pay transaction fees using units
of digital asset C. TP has an adjusted basis in each unit of digital asset C of $0.50. TP
transfers 2 units of digital asset C to BEX to effect the exchange of digital asset A for
digital asset B. TP also pays to BEX an additional unit of digital asset C for services
rendered by BEX to effect the disposition of digital asset C for payment of the
transaction costs. The fair market value of each unit of digital asset C is $1.
(B) Analysis. TP disposes of 3 units of digital asset C for services described in
paragraph (b)(1)(ii) of this section. Therefore, under paragraph (b)(2)(i) of this section,
TP has digital asset transaction costs of $3. Under paragraph (b)(2)(ii)(A) of this section,
TP must allocate $2 of such costs to the disposition of the 10 units of digital asset A. TP
must also allocate $1 of such costs to the disposition of the 3 units of digital asset C.
None of the digital asset transaction costs are allocable to the acquired units of digital
asset B. Under paragraphs (b)(1)(i) and (b)(3) of this section, TP’s amount realized on
the disposition of digital asset A is $18, which is the excess of the fair market value of
the 20 units of digital asset B received ($20) as of the date and time of the transaction
over the allocated digital asset transaction costs ($2). Also, under paragraphs (b)(1)(i)
and (b)(3) of this section, TP’s amount realized on the disposition of the 3 units of digital
asset C is $2, which is the excess of the gross proceeds determined as of the date and
time of the transaction over the allocated digital asset transaction costs of $1. TP
recognizes a gain of $13 on the disposition of 10 units of digital asset A ($18 amount
realized over $5 adjusted basis) and a gain of $0.50 on the disposition of the 3 units of
digital asset C ($2 amount realized over $1.50 adjusted basis).

(iv) Example 4: Digital asset transaction costs withheld from the transferred
digital assets in an exchange of digital assets—(A) Facts. The facts are the same as in
paragraph (b)(5)(ii)(A) of this section (the facts in Example 2), except that BEX requires
its payment be withheld from the units of the digital asset transferred. At the time of the
transaction, BEX withholds 1 unit of digital asset A. TP exchanges the remaining 9 units
of digital asset A for 18 units of digital asset B.
(B) Analysis. The withholding of 1 unit of digital asset A is a disposition of a
digital asset for services within the meaning of paragraph (b)(1)(ii) of this section. Under
paragraph (b)(2)(i) of this section, TP has digital asset transaction costs of $2. Under
paragraph (b)(2)(ii)(A) of this section, TP must allocate such costs to the disposition of
the 10 units of digital asset A. Under paragraphs (b)(1)(i) and (b)(3) of this section, TP’s
amount realized on the 10 units of digital asset A is $18, which is the excess of the fair
market value of the 18 units of digital asset B received ($18) and the fair market value of
services received ($2) as of the date and time of the transaction over the allocated
digital asset transaction costs ($2). TP recognizes a gain on the 10 units of digital asset
A transferred of $13 ($18 amount realized reduced by $5 adjusted basis in the 10 units).
(v) Example 5: Digital asset transaction fees withheld from the acquired digital
assets in an exchange of digital assets—(A) Facts. The facts are the same as in
paragraph (b)(5)(iv)(A) of this section (the facts in Example 4), except that BEX requires
its payment be withheld from the units of the digital asset acquired. At the time of the
transaction, BEX withholds 3 units of digital asset B, 2 units of which effect the
exchange of digital asset A for digital asset B and 1 unit of which effects the disposition
of digital asset B for payment of the transaction fees. TP does not make an identification
to BEX identifying other units of B as the units disposed.
(B) Analysis. The withholding of 3 units of digital asset B is a disposition of digital
assets for services within the meaning of paragraph (b)(1)(ii) of this section. Under
paragraph (b)(2)(i) of this section, TP has digital asset transaction costs of $3. Under
paragraph (b)(2)(ii)(B) of this section, TP must allocate such costs to the disposition of
the 10 units of digital asset A in the original transaction. Under paragraphs (b)(1)(i) and
(b)(3) of this section, TP’s amount realized on the 10 units of digital asset A is $17,
which is the excess of the fair market value of the 20 units of digital asset B received
($20) as of the date and time of the transaction over the allocated digital asset
transaction costs ($3). TP’s amount realized on the disposition of the 3 units of digital
asset B used to pay digital asset transaction costs is $3, which is the fair market value
of services received at the time of the transaction. TP recognizes a gain on the 10 units
of digital asset A transferred of $12 ($17 amount realized reduced by $5 adjusted basis
in the 10 units). TP recognizes $0 in gain or loss on the 3 units of digital asset B
withheld ($3 amount realized reduced by $3 (adjusted basis in the 3 units)). See
§1.1012-1(j)(3)(iii) for the special rule for identifying the basis and holding period of the
3 units withheld.
(c) Applicability date. This section applies to all sales, exchanges, and
dispositions of digital assets on or after January 1, 2025.
Par. 4. Section 1.1012-1 is amended by adding paragraphs (h) through (j) to read
as follows:

§1.1012-1 Basis of property.
*****
(h) Determination of basis of digital assets--(1) Overview and general rule. This
paragraph (h) provides rules to determine the basis of digital assets, as defined in
§1.6045-1(a)(19) other than a digital asset not required to be reported as a digital asset
pursuant to §1.6045-1(c)(8)(ii), (iii), or (iv), received in a purchase for cash, a transfer in
connection with the performance of services, an exchange for digital assets or other
property differing materially in kind or in extent, an exchange for a debt instrument
described in paragraph (h)(1)(v) of this section, or in a part sale and part gift transfer
described in paragraph (h)(1)(vi) of this section. Except as provided in paragraph
(h)(1)(ii), (v), and (vi) of this section, the basis of digital assets received in a purchase or
exchange is generally equal to the cost thereof at the date and time of the purchase or
exchange, plus any allocable digital asset transaction costs as determined under
paragraph (h)(2)(ii) of this section.
(i) Basis of digital assets purchased for cash. The basis of digital assets
purchased for cash is the amount of cash used to purchase the digital assets plus any
allocable digital asset transaction costs as determined under paragraph (h)(2)(ii)(A) of
this section.
(ii) Basis of digital assets received in connection with the performance of
services. For rules regarding digital assets received in connection with the performance
of services, see §§1.61-2(d)(2) and 1.83-4(b).
(iii) Basis of digital assets received in exchange for property other than digital
assets. The basis of digital assets received in exchange for property differing materially
in kind or in extent, other than digital assets or debt instruments described in paragraph
(h)(1)(v) of this section, is the cost as described in paragraph (h)(3) of this section of the

digital assets received plus any allocable digital asset transaction costs as determined
under paragraph (h)(2)(ii)(A) of this section.
(iv) Basis of digital assets received in exchange for other digital assets. The basis
of digital assets received in an exchange for other digital assets differing materially in
kind or in extent is the cost as described in paragraph (h)(3) of this section of the digital
assets received.
(v) Basis of digital assets received in exchange for the issuance of a debt
instrument. If a debt instrument is issued in exchange for digital assets, the cost of the
digital assets attributable to the debt instrument is the amount determined under
paragraph (g) of this section, plus any allocable digital asset transaction costs as
determined under paragraph (h)(2)(ii)(A) of this section.
(vi) Basis of digital assets received in a part sale and part gift transfer. To the
extent digital assets are received in a transfer, which is in part a sale and in part a gift,
see §1.1012-2.
(2) Digital asset transaction costs--(i) Definition. The term digital asset
transaction costs under this paragraph (h) has the same meaning as in §1.10017(b)(2)(i).
(ii) Allocation of digital asset transaction costs. This paragraph (h)(2)(ii) provides
the rules for allocating digital asset transaction costs, as defined in paragraph (h)(2)(i) of
this section, for transactions described in paragraph (h)(1) of this section. Any other
allocation or specific assignment of digital asset transaction costs is disregarded.
(A) Allocation of digital asset transaction costs on a purchase or exchange for
digital assets. Except as provided in paragraphs (h)(2)(ii)(B) and (C) of this section, the
total digital asset transaction costs paid by the taxpayer in connection with an
acquisition of digital assets are allocable to the digital assets received.

(B) Special rule for the allocation of digital asset transaction costs paid to effect
an exchange of digital assets for other digital assets. Except as provided in paragraph
(h)(2)(ii)(C) of this section, the total digital asset transaction costs paid by the taxpayer,
to effect an exchange described in paragraph (h)(1)(iv) of this section are allocable
exclusively to the disposition of the transferred digital assets.
(C) Special rule for allocating certain cascading digital asset transaction costs.
This paragraph (h)(2)(ii)(C) provides a special rule for an exchange described in
paragraph (h)(1)(iv) of this section (original transaction) and for which digital assets are
withheld from digital assets acquired in the original transaction to pay the digital asset
transaction costs to effect the original transaction. The total digital asset transaction
costs paid by the taxpayer, to effect both the original transaction and any disposition of
the withheld digital assets, are allocable exclusively to the disposition of digital assets in
the original transaction.
(3) Determining the cost of the digital assets received. In the case of an
exchange described in either paragraph (h)(1)(iii) or (iv) of this section, the cost of the
digital assets received is the same as the fair market value used in determining the
amount realized on the sale or disposition of the transferred property for purposes of
section 1001 of the Code. Generally, the cost of a digital asset received is determined at
the date and time of the exchange. The special rule in §1.1001-7(b)(4) also applies in
this section for purposes of determining the fair market value of a received digital asset
when it cannot be determined with reasonable accuracy.
(4) Examples. The following examples illustrate the application of paragraphs
(h)(1) through (3) of this section. Unless the facts specifically state otherwise, the
transactions described in the following examples occur after the applicability date set
forth in paragraph (h)(5) of this section. For purposes of the examples under this
paragraph (h)(4), assume that TP is a digital asset investor, and that digital assets A, B,

and C are materially different in kind or in extent from each other. See §1.1001-7(b)(5)
for examples illustrating the determination of the amount realized and gain or loss in a
sale or disposition of a digital asset for cash, other property differing materially in kind or
in extent, or services.
(i) Example 1: Transaction fee paid in cash—(A) Facts. TP uses BEX, an
unrelated third party, to exchange 10 units of digital asset A for 20 units of digital asset
B. At the time of the exchange, a unit of digital asset A has a fair market value of $2,
and a unit of digital asset B has a fair market value of $1. BEX charges TP a transaction
fee of $2, which TP pays to BEX in cash at the time of the exchange.
(B) Analysis. Under paragraph (h)(2)(i) of this section, TP has digital asset
transaction costs of $2. Under paragraph (h)(2)(ii)(B) of this section, TP allocates the
digital asset transaction costs ($2) to the disposition of the 10 units of digital asset A.
Under paragraphs (h)(1)(iv) and (h)(3) of this section, TP’s basis in the 20 units of digital
asset B received is $20, which is the sum of the fair market value of the 20 units of
digital asset B received ($20).
(ii) Example 2: Transaction fee paid in other property—(A) Facts. The facts are
the same as in paragraph (h)(4)(i)(A) of this section (the facts in Example 1), except that
BEX requires its customers to pay transaction fees using units of digital asset C. TP
pays the transaction fees using 2 units of digital asset C that TP holds. At the time TP
pays the transaction fees, each unit of digital asset C has a fair market value of $1. TP
acquires 20 units of digital asset B with a fair market value of $20 in the exchange.
(B) Analysis. Under paragraph (h)(2)(i) of this section, TP has digital asset
transaction costs of $2. Under paragraph (h)(2)(ii)(B) of this section, TP must allocate
the digital asset transaction costs ($2) to the disposition of the 10 units of digital asset
A. Under paragraphs (h)(1)(iv) and (h)(3) of this section, TP’s basis in the 20 units of
digital asset B is $20, which is the sum of the fair market value of the 20 units of digital
asset B received ($20).
(iii) Example 3: Digital asset transaction costs withheld from the transferred
digital assets—(A) Facts. The facts are the same as in paragraph (h)(4)(i)(A) of this
section (the facts in Example 1), except that BEX withholds 1 unit of digital asset A in
payment of the transaction fees and TP receives 18 units of digital asset B.
(B) Analysis. Under paragraph (h)(2)(i) of this section, TP has digital asset
transaction costs of $2. Under paragraph (h)(2)(ii)(B) of this section, TP must allocate
the digital asset transaction costs ($2) to the disposition of the 10 units of digital asset
A. Under paragraphs (h)(1)(iv) and (h)(3) of this section, TP’s total basis in the digital
asset B units is $18, which is the sum of the fair market value of the 18 units of digital
asset B received ($18).
(5) Applicability date. This paragraph (h) is applicable to all acquisitions and
dispositions of digital assets on or after January 1, 2025.
(i) [Reserved]

(j) Sale, disposition, or transfer of digital assets. Paragraphs (j)(1) and (2) of this
section apply to digital assets not held in the custody of a broker, such as digital assets
that are held in an unhosted wallet. Paragraph (j)(3) of this section applies to digital
assets held in the custody of a broker. For the definitions of the terms wallet, hosted
wallet, unhosted wallet, and held in a wallet or account, as used in this paragraph (j),
see §1.6045-1(a)(25)(i) through (iv). For the definition of the term broker, see §1.60451(a)(1). For the definition of the term digital asset, see §1.6045-1(a)(19); however, a
digital asset not required to be reported as a digital asset pursuant to §1.6045-1(c)(8)(ii),
(iii), or (iv) is not subject to the rules of this section.
(1) Digital assets not held in the custody of a broker. If a taxpayer sells, disposes
of, or transfers less than all units of the same digital asset not held in the custody of the
broker, such as in a single unhosted wallet or in a hosted wallet provided by a person
other than a broker, the basis and holding period of the units sold, disposed of, or
transferred are determined by making a specific identification of the units in the wallet
that are sold, disposed of, or transferred, as provided in paragraph (j)(2) of this section.
If a specific identification is not made, the basis and holding period of the units sold,
disposed of, or transferred are determined by treating the units not held in the custody
of a broker as sold, disposed of, or transferred in order of time from the earliest date on
which units of the same digital asset not held in the custody of a broker were acquired
by the taxpayer. For purposes of the preceding sentence, the date any units were
transferred into the taxpayer’s wallet is disregarded.
(2) Specific identification of digital assets not held in the custody of a broker. A
specific identification of the units of a digital asset sold, disposed of, or transferred is
made if, no later than the date and time of the sale, disposition, or transfer, the taxpayer
identifies on its books and records the particular units to be sold, disposed of, or
transferred by reference to any identifier, such as purchase date and time or the

purchase price for the unit, that is sufficient to identify the units sold, disposed of, or
transferred. A specific identification can be made only if adequate records are
maintained for the unit of a specific digital asset not held in the custody of a broker to
establish that a unit sold, disposed of, or transferred is removed from the wallet.
(3) Digital assets held in the custody of a broker. This paragraph (j)(3) applies to
digital assets held in the custody of a broker.
(i) Unit of a digital asset sold, disposed of, or transferred. Except as provided in
paragraph (j)(3)(iii) of this section, where multiple units of the same digital asset are
held in the custody of a broker, as defined in §1.6045-1(a)(1), and the taxpayer does not
provide the broker with an adequate identification of which units are sold, disposed of,
or transferred by the date and time of the sale, disposition, or transfer, as provided in
paragraph (j)(3)(ii) of this section, the basis and holding period of the units sold,
disposed of, or transferred are determined by treating the units held in the custody of
the broker as sold, disposed of, or transferred in order of time from the earliest date on
which units of the same digital asset held in the custody of a broker were acquired by
the taxpayer. For purposes of the preceding sentence, the date any units were
transferred into the custody of the broker is disregarded.
(ii) Adequate identification of units held in the custody of a broker. Except as
provided in paragraph (j)(3)(iii) of this section, where multiple units of the same digital
asset are held in the custody of a broker, as defined in §1.6045-1(a)(1), an adequate
identification occurs if, no later than the date and time of the sale, disposition, or
transfer, the taxpayer specifies to the broker having custody of the digital assets the
particular units of the digital asset to be sold, disposed of, or transferred by reference to
any identifier, such as purchase date and time or purchase price, that the broker
designates as sufficiently specific to identify the units sold, disposed of, or transferred.
The taxpayer is responsible for maintaining records to substantiate the identification. A

standing order or instruction for the specific identification of digital assets is treated as
an adequate identification made at the time of sale, disposition, or transfer. In addition,
a taxpayer’s election to use average basis for a covered security for which average
basis reporting is permitted and that is also a digital asset is also an adequate
identification. In the case of a broker offering only one method of making a specific
identification, such method is treated as a standing order or instruction.
(iii) Special rule for the identification of certain units withheld. Notwithstanding
paragraph (j)(3)(i) or (ii) of this section, in the case of a transaction described in
paragraph (h)(1)(iv) of this section (digital assets exchanged for different digital assets)
and for which the broker withholds units of the same digital asset received for either the
broker’s backup withholding obligations under section 3406 of the Code, or for payment
of services described in §1.1001-7(b)(1)(ii) (digital asset transaction costs), the taxpayer
is deemed to have made an adequate identification, within the meaning of paragraph
(j)(3)(ii) of this section, for such withheld units regardless of any other adequate
identification within the meaning of paragraph (j)(3)(ii) of this section designating other
units of the same digital asset as the units sold, disposed of, or transferred.
(4) Method for specifically identifying units of a digital asset. A method of
specifically identifying the units of a digital asset sold, disposed of, or transferred under
this paragraph (j), for example, by the earliest acquired, the latest acquired, or the
highest basis, is not a method of accounting. Therefore, a change in the method of
specifically identifying the digital asset sold, disposed of, or transferred, for example,
from the earliest acquired to the latest acquired, is not a change in method of
accounting to which sections 446 and 481 of the Code apply.
(5) Examples. The following examples illustrate the application of paragraphs
(j)(1) through (j)(3) of this section. Unless the facts specifically state otherwise, the
transactions described in the following examples occur after the applicability date set

forth in paragraph (j)(6) of this section. For purposes of the examples under this
paragraph (j)(5), assume that TP is a digital asset investor and that the units of digital
assets in the examples are the only digital assets owned by TP.
(i) Example 1: Identification of digital assets not held in the custody of a broker—
(A) Facts. On September 1, Year 2, TP transfers two lots of digital asset DE to a new
digital asset address generated and controlled by an unhosted wallet, as defined in
§1.6045-1(a)(25)(iii). The first lot transferred into TP’s wallet consists of 10 units of
digital asset DE, with a purchase date of January 1, Year 1, and a basis of $2 per unit.
The second lot transferred into TP’s wallet consists of 20 units of digital asset DE, with a
purchase date of January 1, Year 2, and a basis of $5 per unit. On September 2, Year
2, when the DE units have a fair market value of $10 per unit, TP purchases $100 worth
of consumer goods from Merchant M. To make payment, TP transfers 10 units of digital
asset DE from TP’s wallet to CPP, a processor of digital asset payments as defined in
§1.6045-1(a)(22), that then pays $100 to M, in a transaction treated as a sale by TP of
the 10 units of digital asset DE. Prior to making the transfer to CPP, TP keeps a record
that the 10 units of DE sold in this transaction were from the second lot of units
transferred into TP’s wallet.
(B) Analysis. Under the facts in paragraph (j)(5)(i)(A) of this section, TP’s notation
in its records on the date of sale, prior to the time of the sale, specifying that the 10 units
sold were from the 20 units TP acquired on January 1, Year 2, is a specific identification
within the meaning of paragraph (j)(2) of this section. TP’s notation is sufficient to
identify the 10 units of digital asset DE sold. Accordingly, TP has identified the units
disposed of for purposes of determining the basis ($5 per unit) and holding period (one
year or less) of the units sold in order to purchase the merchandise.
(ii) Example 2: Identification of digital assets not held in the custody of a broker—
(A) Facts. The facts are the same as in paragraph (j)(5)(i)(A) of this section (the facts in
Example 1), except in making the transfer to CPP, TP did not keep a record at or prior
to the time of the sale of the specific 10 units of digital asset DE that TP intended to sell.
(B) Analysis. TP did not make a specific identification within the meaning of
paragraph (j)(2) of this section for the 10 units of digital asset DE that were sold.
Pursuant to the ordering rule provided in paragraph (j)(1) of this section, the units
disposed of are determined by treating the units held in the unhosted wallet as disposed
of in order of time from the earliest date on which units of the same digital asset held in
the unhosted wallet were acquired by the taxpayer. Accordingly, TP must treat the 10
units sold as the 10 units with a purchase date of January 1, Year 1, and a basis of $2
per unit, transferred into the wallet.
(iii) Example 3: Identification of digital assets held in the custody of a broker—(A)
Facts. On August 1, Year 1, TP opens a custodial account at CRX, a broker within the
meaning of §1.6045-1(a)(1), and purchases through CRX 10 units of digital asset DE for
$9 per unit. On January 1, Year 2, TP opens a custodial account at BEX, an unrelated
broker, and purchases through BEX 20 units of digital asset DE for $5 per unit. On
August 1, Year 3, TP transfers the digital assets TP holds with CRX into TP’s custodial
account with BEX. BEX has a policy that purchase or transfer date and time, if
necessary, is a sufficiently specific identifier for customers to determine the units sold,
disposed of, or transferred. On September 1, Year 3, TP directs BEX to sell 10 units of

digital asset DE for $10 per unit and specifies that BEX sell the units that were
purchased on January 1, Year 2. BEX effects the sale.
(B) Analysis. No later than the date and time of the sale, TP specified to BEX the
particular units of digital assets to be sold. Accordingly, under paragraph (j)(3)(ii) of this
section, TP provided an adequate identification of the 10 units of digital asset DE sold.
Accordingly, the 10 units of digital asset DE that TP sold are the 10 units that TP
purchased on January 1, Year 2.
(iv) Example 4: Identification of digital assets held in the custody of a broker—(A)
Facts. The facts are the same as in paragraph (j)(5)(iii)(A) of this section (the facts in
Example 3) except that TP directs BEX to sell 10 units of digital asset DE but does not
make any identification of which units to sell. Additionally, TP does not provide purchase
date information to BEX with respect to the units transferred into TP’s account with
BEX.
(B) Analysis. Because TP did not specify to BEX no later than the date and time
of the sale the particular units of digital assets to be sold, TP did not make an adequate
identification within the meaning of paragraph (j)(3)(ii) of this section. Thus, the ordering
rule provided in paragraph (j)(3)(i) of this section applies to determine the units of digital
asset DE sold. Pursuant to this rule, the units sold must be determined by treating the
units held in the custody of the broker as disposed of in order of time from the earliest
date on which units of the same digital asset held in the custody of a broker were
acquired by the taxpayer. The 10 units of digital asset DE sold must be attributed to the
10 units of digital asset DE acquired on August 1, Year 1, which are the earliest units of
digital asset DE acquired by TP that are held in TP’s account with BEX. In addition,
because TP did not provide to BEX customer-provided acquisition information as
defined in §1.6045-1(d)(2)(ii)(B)(4) with respect to the units transferred into TP’s
account with BEX (or adopt a standing order to follow the ordering rule applicable to
BEX under §1.6045-1(d)(2)(ii)(B)(2)), the units determined as sold by BEX under
§1.6045-1(d)(2)(ii)(B)(1) and that BEX will report as sold under §1.6045-1 are not the
same units that TP must treat as sold under this section. See §1.6045-1(d)(2)(vii)(C)
(Example 3).
(v) Example 5: Identification of the digital asset used to pay certain digital asset
transaction costs—(A) Facts. On January 1, Year 1, TP purchases 10 units of digital
asset AB and 30 units of digital asset CD in a custodial account with DRX, a broker
within the meaning of §1.6045-1(a)(1). DRX has a policy that purchase or transfer date
and time, if necessary, is a sufficiently specific identifier by which its customers may
identify the units sold, disposed of, or transferred. On June 30, Year 2, TP directs DRX
to purchase 10 additional units of digital asset AB with 10 units of digital asset CD. DRX
withholds one unit of the digital asset AB received for transaction fees. TP does not
make any identification of the 1 unit of digital asset AB withheld by DRX. TP engages in
no other transactions.
(B) Analysis. DRX’s withholding of 1 unit of digital asset AB from the 10 units
acquired by TP is a disposition by TP of the 1 unit as of June 30, Year 2. See §§1.10017 and 1.1012-1(h) for determining the amount realized and basis of the disposed unit,
respectively. Despite TP not making an adequate identification, within the meaning of
paragraph (j)(3)(ii) of this section to DRX of the 1 unit withheld, under the special rule of
paragraph (j)(3)(iii) of this section, the withheld unit of AB must be attributed to the units
of AB acquired on June 30, Year 2 and held in TP’s account with DRX.

(vi) Example 6: Identification of the digital asset used to pay certain digital asset
transaction costs—(A) Facts. The facts are the same as in paragraph (j)(5)(v)(A) of this
section (the facts in Example 5) except that TP has a standing order with BEX to treat
the earliest unit purchased in TP’s account as the unit sold, disposed of, or transferred.
(B) Analysis. The transaction is an exchange of digital assets for different digital
assets and for which the broker withholds units of the same digital asset received in
order to pay digital asset transaction costs. Accordingly, although TP’s standing order to
treat the earliest unit purchased in TP’s account (that is, the units purchased by TP on
January 1, Year 1) as the units sold is an adequate identification under paragraph
(j)(3)(ii) of this section, TP is deemed to have made an adequate identification for such
withheld units pursuant to paragraph (j)(3)(iii) of this section regardless of TP’s
adequate identification designating other units as the units sold. Thus, the results are
the same as provided in paragraph (j)(5)(v)(B) of this section (the analysis in Example
5).
(6) Applicability date. This paragraph (j) is applicable to all acquisitions and
dispositions of digital assets on or after January 1, 2025.
Par. 5. Section 1.6045-0 is added to read as follows:
§1.6045-0 Table of contents.
In order to facilitate the use of §1.6045-1, this section lists the paragraphs
contained in §1.6045-1.
§1.6045-1 Returns of information of brokers and barter exchanges.
(a) Definitions.
(1) Broker.
(2) Customer.
(i) In general.
(ii) Special rules for payment transactions involving digital assets.
(3) Security.
(4) Barter exchange.
(5) Commodity.
(6) Regulated futures contract.
(7) Forward contract.
(8) Closing transaction.
(9) Sale.
(i) In general.
(ii) Sales with respect to digital assets.
(A) In general.
(B) Dispositions of digital assets for certain property.
(C) Dispositions of digital assets for certain services.
(D) Special rule for sales effected by processors of digital asset payments.
(10) Effect.
(i) In general.
(ii) Actions relating to certain options and forward contracts.

(11) Foreign currency.
(12) Cash.
(13) Person.
(14) Specified security.
(15) Covered security.
(i) In general.
(ii) Acquired in an account.
(iii) Corporate actions and other events.
(iv) Exceptions.
(16) Noncovered security.
(17) Debt instrument, bond, debt obligation, and obligation.
(18) Securities futures contract.
(19) Digital asset.
(i) In general.
(ii) No inference.
(20) Digital asset address.
(21) Digital asset middleman.
(i) In general.
(ii) [Reserved]
(iii) Facilitative service.
(A) [Reserved]
(B) Special rule involving sales of digital assets under paragraphs (a)(9)(ii)(B)
through (D) of this section.
(22) Processor of digital asset payments.
(23) Stored-value card.
(24) Transaction identification.
(25) Wallet, hosted wallet, unhosted wallet, and held in a wallet or account.
(i) Wallet.
(ii) Hosted wallet.
(iii) Unhosted wallet.
(iv) Held in a wallet or account.
(b) Examples.
(c) Reporting by brokers.
(1) Requirement of reporting.
(2) Sales required to be reported.
(3) Exceptions.
(i) Sales effected for exempt recipients.
(A) In general.
(B) Exempt recipient defined.
(C) Exemption certificate.
(1) In general.
(2) Limitation for corporate customers.
(3) Limitation for U.S. digital asset brokers.
(ii) Excepted sales.
(iii) Multiple brokers.
(A) In general.
(B) Special rule for sales of digital assets.
(iv) Cash on delivery transactions.
(v) Fiduciaries and partnerships.
(vi) Money market funds.
(A) In general.
(B) Effective/applicability date.

(vii) Obligor payments on certain obligations.
(viii) Foreign currency.
(ix) Fractional share.
(x) Certain retirements.
(xi) Short sales.
(A) In general.
(B) Short sale closed by delivery of a noncovered security.
(C) Short sale obligation transferred to another account.
(xii) Cross reference.
(xiii) Short-term obligations issued on or after January 1, 2014.
(xiv) Certain redemptions.
(4) Examples.
(5) Form of reporting for regulated futures contracts.
(i) In general.
(ii) Determination of profit or loss from foreign currency contracts.
(iii) Examples.
(6) Reporting periods and filing groups.
(i) Reporting period.
(A) In general.
(B) Election.
(ii) Filing group.
(A) In general.
(B) Election.
(iii) Example.
(7) Exception for certain sales of agricultural commodities and commodity
certificates.
(i) Agricultural commodities.
(ii) Commodity Credit Corporation certificates.
(iii) Sales involving designated warehouses.
(iv) Definitions.
(A) Agricultural commodity.
(B) Spot sale.
(C) Forward sale.
(D) Designated warehouse.
(8) Special coordination rules for reporting digital assets that are dual
classification assets.
(i) General rule for reporting dual classification assets as digital assets.
(ii) Reporting of dual classification assets that constitute contracts covered by
section 1256(b) of the Code.
(iii) Reporting of dual classification assets cleared or settled on a limited-access
regulated network.
(A) General rule.
(B) Limited-access regulated network.
(iv) Reporting of dual classification assets that are interests in money market
funds.
(v) Example: Digital asset securities.
(d) Information required.
(1) In general.
(2) Transactional reporting.
(i) Required information.
(A) General rule for sales described in paragraph (a)(9)(i) of this section.
(B) Required information for digital asset transactions.

(C) Exception for certain sales effected by processors of digital asset payments.
(D) Acquisition information for sales of certain digital assets.
(ii) Specific identification of specified securities.
(A) In general.
(B) Identification of digital assets sold, disposed of, or transferred.
(1) No identification of units by customer.
(2) Adequate Identification of units by customer.
(3) Special rule for the identification of certain units withheld from a transaction.
(4) Customer-provided acquisition information for digital assets.
(iii) Penalty relief for reporting information not subject to reporting.
(A) Noncovered securities.
(B) Gross proceeds from digital assets sold before applicability date.
(iv) Information from other parties and other accounts.
(A) Transfer and issuer statements.
(v) Failure to receive a complete transfer statement for securities.
(vi) Reporting by other parties after a sale of securities.
(A) Transfer statements.
(B) Issuer statements.
(C) Exception.
(vii) Examples.
(3) Sales between interest payment dates.
(4) Sale date.
(i) In general.
(ii) Special rules for digital asset sales.
(5) Gross proceeds.
(i) In general.
(ii) Sales of digital assets.
(A) Determining gross proceeds.
(1) Determining fair market value.
(2) Consideration value not readily ascertainable.
(3) Reasonable valuation method for digital assets.
(B) Digital asset data aggregator.
(iii) Digital asset transactions effected by processors of digital asset payments.
(iv) Definition and allocation of digital asset transaction costs.
(A) Definition.
(B) General allocation rule.
(C) Special rule for allocation of certain cascading digital asset transaction costs.
(v) Examples.
(6) Adjusted basis.
(i) In general.
(ii) Initial basis.
(A) Cost basis for specified securities acquired for cash.
(B) Basis of transferred securities.
(1) In general.
(2) Securities acquired by gift.
(C) Digital assets acquired in exchange for property.
(1) In general.
(2) Allocation of digital asset transaction costs.
(iii) Adjustments for wash sales.
(A) Securities in the same account or wallet.
(1) In general.
(2) Special rules for covered securities that are also digital assets.

(B) Covered securities in different accounts or wallets.
(C) Effect of election under section 475(f)(1).
(D) Reporting at or near the time of sale.
(iv) Certain adjustments not taken into account.
(v) Average basis method adjustments.
(vi) Regulated investment company and real estate investment trust adjustments.
(vii) Treatment of de minimis errors.
(viii) Examples.
(ix) Applicability date.
(x) Examples.
(7) Long-term or short-term gain or loss.
(i) In general.
(ii) Adjustments for wash sales.
(A) Securities in the same account or wallet.
(1) In general.
(2) Special rules for covered securities that are also digital assets.
(B) Covered securities in different accounts or wallets.
(C) Effect of election under section 475(f)(1).
(D) Reporting at or near the time of sale.
(iii) Constructive sale and mark-to-market adjustments.
(iv) Regulated investment company and real estate investment trust adjustments.
(v) No adjustments for hedging transactions or offsetting positions.
(8) Conversion into United States dollars of amounts paid or received in foreign
currency.
(i) Conversion rules.
(ii) Effect of identification under §1.988-5(a), (b), or (c) when the taxpayer effects
a sale and a hedge through the same broker.
(iii) Example.
(9) Coordination with the reporting rules for widely held fixed investment trusts
under §1.671-5.
(10) Optional reporting methods for qualifying stablecoins and specified
nonfungible tokens.
(i) Optional reporting method for qualifying stablecoins.
(A) In general.
(B) Aggregate reporting method for designated sales of qualifying stablecoins.
(C) Designated sale of a qualifying stablecoin.
(D) Examples.
(ii) Qualifying stablecoin.
(A) Designed to track certain other currencies.
(B) Stabilization mechanism.
(C) Accepted as payment.
(D) Examples.
(iii) Optional reporting method for specified nonfungible tokens.
(A) In general.
(B) Reporting method for specified nonfungible tokens.
(C) Examples.
(iv) Specified nonfungible token.
(A) Indivisible.
(B) Unique.
(C) Excluded property.
(D) Examples.
(v) Joint accounts.

(11) Collection and retention of additional information with respect to the sale of a
digital asset.
(e) Reporting of barter exchanges.
(1) Requirement of reporting.
(2) Exchanges required to be reported.
(i) In general.
(ii) Exemption.
(iii) Coordination rules for exchanges of digital assets made through barter
exchanges.
(f) Information required.
(1) In general.
(2) Transactional reporting.
(i) In general.
(ii) Exception for corporate member or client.
(iii) Definition.
(3) Exchange date.
(4) Amount received.
(5) Meaning of terms.
(6) Reporting period.
(g) Exempt foreign persons.
(1) Brokers.
(2) Barter exchanges.
(3) Applicable rules.
(i) Joint owners.
(ii) Special rules for determining who the customer is.
(iii) Place of effecting sale.
(A) Sale outside the United States.
(B) Sale inside the United States.
(iv) Special rules where the customer is a foreign intermediary or certain U.S.
branches.
(4) Rules for sales of digital assets.
(i) Definitions.
(A) U.S. digital asset broker.
(B) [Reserved]
(ii) Rules for U.S. digital asset brokers.
(A) Place of effecting sale.
(B) Determination of foreign status.
(iii) Rules for CFC digital asset brokers not conducting activities as money
services businesses.
(iv) Rules for non-U.S. digital asset brokers not conducting activities as money
services businesses.
(A) [Reserved]
(B) Sale treated as effected at an office inside the United States.
(1) [Reserved]
(2) U.S. indicia.
(C) Consequences of treatment as sale effected at an office inside the United
States.
(v) [Reserved]
(vi) Rules applicable to brokers that obtain or are required to obtain
documentation for a customer and presumption rules.
(A) In general.
(1) Documentation of foreign status.

(2) Presumption rules.
(i) In general.
(ii) Presumption rule specific to U.S. digital asset brokers.
(iii) [Reserved]
(3) Grace period to collect valid documentation in the case of indicia of a foreign
customer.
(4) Blocked income.
(B) Reliance on beneficial ownership withholding certificates to determine foreign
status.
(1) Collection of information other than U.S. place of birth.
(i) In general.
(ii) [Reserved]
(2) Collection of information showing U.S. place of birth.
(C) [Reserved]
(D) Joint owners.
(E) Special rules for customer that is a foreign intermediary, a flow-through entity,
or certain U.S. branches.
(1) Foreign intermediaries in general.
(i) Presumption rule specific to U.S. digital asset brokers.
(ii) [Reserved]
(2) Foreign flow-through entities.
(3) U.S. branches that are not beneficial owners.
(F) Transition rule for obtaining documentation to treat a customer as an exempt
foreign person.
(vii) Barter exchanges.
(5) Examples.
(h) Identity of customer.
(1) In general.
(2) Examples.
(i) [Reserved]
(j) Time and place for filing; cross-references to penalty and magnetic media
filing requirements.
(k) Requirement and time for furnishing statement; cross-reference to penalty.
(1) General requirements.
(2) Time for furnishing statements.
(3) Consolidated reporting.
(4) Cross-reference to penalty.
(l) Use of magnetic media or electronic form.
(m) Additional rules for option transactions.
(1) In general.
(2) Scope.
(i) In general.
(ii) Delayed effective date for certain options.
(iii) Compensatory option.
(3) Option subject to section 1256.
(4) Option not subject to section 1256.
(i) Physical settlement.
(ii) Cash settlement.
(iii) Rules for warrants and stock rights acquired in a section 305 distribution.
(iv) Examples.
(5) Multiple options documented in a single contract.
(6) Determination of index status.

(n) Reporting for debt instrument transactions.
(1) In general.
(2) Debt instruments subject to January 1, 2014, reporting.
(i) In general.
(ii) Exceptions.
(iii) Remote or incidental.
(iv) Penalty rate.
(3) Debt instruments subject to January 1, 2016, reporting.
(4) Holder elections.
(i) Election to amortize bond premium.
(ii) Election to currently include accrued market discount.
(iii) Election to accrue market discount based on a constant yield.
(iv) Election to treat all interest as OID.
(v) Election to translate interest income and expense at the spot rate.
(5) Broker assumptions and customer notice to brokers.
(i) Broker assumptions if the customer does not notify the broker.
(ii) Effect of customer notification of an election or revocation.
(A) Election to amortize bond premium.
(B) Other debt elections.
(iii) Electronic notification.
(6) Reporting of accrued market discount.
(i) Sale.
(ii) Current inclusion election.
(7) Adjusted basis.
(i) Original issue discount.
(ii) Amortizable bond premium.
(A) Taxable bond.
(B) Tax-exempt bonds.
(iii) Acquisition premium.
(iv) Market discount.
(v) Principal and certain other payments.
(8) Accrual period.
(9) Premium on convertible bond.
(10) Effect of broker assumptions on customer.
(11) Additional rules for certain holder elections.
(i) In general.
(A) Election to treat all interest as OID.
(B) Election to accrue market discount based on a constant yield.
(ii) [Reserved]
(12) Certain debt instruments treated as noncovered securities.
(i) In general.
(ii) Effective/applicability date.
(o) [Reserved]
(p) Electronic filing.
(q) Applicability dates.
(r) Cross-references.
Par. 6. Section 1.6045-1 is amended by:
1. Revising and republishing paragraphs (a), (b), (c)(3) and (4), and (c)(5)(i);
2. Adding paragraph (c)(8);

3. Revising and republishing paragraph (d)(2) and revising paragraphs (d)(4) and
(5);
4. Revising and republishing paragraphs (d)(6)(i) and (ii), (d)(6)(iii)(A) and (B),
and (d)(6)(v);
5. Adding paragraph (d)(6)(x);
6. Revising and republishing paragraphs (d)(7)(i), (d)(7)(ii)(A) and (B), and (d)(9);
7. Adding paragraphs (d)(10) and (11) and (e)(2)(iii);
8. Revising and republishing paragraph (g);
9. Revising paragraphs (j) and (m)(1);
10. Adding paragraph (m)(2)(ii)(C);
11. Revising and republishing paragraphs (n)(6)(i) and (q); and
12. Adding paragraph (r).
The revisions, republications, and additions read as follows:
§1.6045-1 Returns of information of brokers and barter exchanges.
(a) Definitions. The following definitions apply for purposes of this section and
§§1.6045-2 and 1.6045-4.
(1) Broker. The term broker means any person (other than a person who is
required to report a transaction under section 6043 of the Code), U.S. or foreign, that, in
the ordinary course of a trade or business during the calendar year, stands ready to
effect sales to be made by others. A broker includes an obligor that regularly issues and
retires its own debt obligations, a corporation that regularly redeems its own stock, or a
person that regularly offers to redeem digital assets that were created or issued by that
person. A broker also includes a real estate reporting person under §1.6045-4(e) who
(without regard to any exceptions provided by §1.6045-4(c) and (d)) would be required
to make an information return with respect to a real estate transaction under §1.60454(a). However, with respect to a sale (including a redemption or retirement) effected at

an office outside the United States under paragraph (g)(3)(iii) of this section (relating to
sales other than sales of digital assets), a broker includes only a person described as a
U.S. payor or U.S. middleman in §1.6049-5(c)(5). In the case of a sale of a digital asset,
a broker includes only a U.S. digital asset broker as defined in paragraph (g)(4)(i)(A)(1)
of this section. In addition, a broker does not include an international organization
described in §1.6049-4(c)(1)(ii)(G) that redeems or retires an obligation of which it is the
issuer.
(2) Customer--(i) In general. The term customer means, with respect to a sale
effected by a broker, the person (other than such broker) that makes the sale, if the
broker acts as—
(A) An agent for such person in the sale;
(B) A principal in the sale;
(C) The participant in the sale responsible for paying to such person or crediting
to such person's account the gross proceeds on the sale; or
(D) A digital asset middleman, as defined in paragraph (a)(21) of this section,
that effects the sale of a digital asset for such person.
(ii) Special rules for payment transactions involving digital assets. In addition to
the persons defined as customers in paragraph (a)(2)(i) of this section, the term
customer includes:
(A) The person who transfers digital assets in a sale described in paragraph
(a)(9)(ii)(D) of this section to a processor of digital asset payments that has an
agreement or other arrangement with such person for the provision of digital asset
payment services that provides that the processor of digital asset payments may verify
such person’s identity or otherwise comply with anti-money laundering (AML) program
requirements under 31 CFR part 1010, or any other AML program requirements, as are
applicable to that processor of digital asset payments. For purposes of the previous

sentence, an agreement or other arrangement includes any arrangement under which,
as part of customary onboarding procedures, such person is treated as having agreed
to general terms and conditions.
(B) The person who transfers digital assets or directs the transfer of digital
assets—
(1) In exchange for property of a type the later sale of which, if effected by such
broker, would constitute a sale of that property under paragraph (a)(9) of this section; or
(2) In exchange for the acquisition of services performed by such broker; and
(C) In the case of a real estate reporting person under §1.6045-4(e) with respect
to a real estate transaction as defined in §1.6045-4(b)(1), the person who transfers
digital assets or directs the transfer of digital assets to the transferor of real estate (or
the seller’s nominee or agent) to acquire such real estate.
(3) Security. The term security means:
(i) A share of stock in a corporation (foreign or domestic);
(ii) An interest in a trust;
(iii) An interest in a partnership;
(iv) A debt obligation;
(v) An interest in or right to purchase any of the foregoing in connection with the
issuance thereof from the issuer or an agent of the issuer or from an underwriter that
purchases any of the foregoing from the issuer;
(vi) An interest in a security described in paragraph (a)(3)(i) or (iv) of this section
(but not including executory contracts that require delivery of such type of security);
(vii) An option described in paragraph (m)(2) of this section; or
(viii) A securities futures contract.
(4) Barter exchange. The term barter exchange means any person with members
or clients that contract either with each other or with such person to trade or barter

property or services either directly or through such person. The term does not include
arrangements that provide solely for the informal exchange of similar services on a
noncommercial basis.
(5) Commodity. The term commodity means:
(i) Any type of personal property or an interest therein (other than securities as
defined in paragraph (a)(3) of this section), the trading of regulated futures contracts in
which has been approved by or has been certified to the Commodity Futures Trading
Commission (see 17 CFR 40.3 or 40.2);
(ii) Lead, palm oil, rapeseed, tea, tin, or an interest in any of the foregoing; or
(iii) Any other personal property or an interest therein that is of a type the
Secretary determines is to be treated as a commodity under this section, from and after
the date specified in a notice of such determination published in the Federal Register.
(6) Regulated futures contract. The term regulated futures contract means a
regulated futures contract within the meaning of section 1256(b) of the Code.
(7) Forward contract. The term forward contract means:
(i) An executory contract that requires delivery of a commodity in exchange for
cash and which contract is not a regulated futures contract;
(ii) An executory contract that requires delivery of personal property or an interest
therein in exchange for cash, or a cash settlement contract, if such executory contract
or cash settlement contract is of a type the Secretary determines is to be treated as a
forward contract under this section, from and after the date specified in a notice of such
determination published in the Federal Register; or
(iii) An executory contract that—
(A) Requires delivery of a digital asset in exchange for cash, stored-value cards,
a different digital asset, or any other property or services described in paragraph
(a)(9)(ii)(B) or (C) of this section; and

(B) Is not a regulated futures contract.
(8) Closing transaction. The term closing transaction means a lapse, expiration,
settlement, abandonment, or other termination of a position. For purposes of the
preceding sentence, a position includes a right or an obligation under a forward
contract, a regulated futures contract, a securities futures contract, or an option.
(9) Sale--(i) In general. The term sale means any disposition of securities,
commodities, options, regulated futures contracts, securities futures contracts, or
forward contracts, and includes redemptions of stock, retirements of debt instruments
(including a partial retirement attributable to a principal payment received on or after
January 1, 2014), and enterings into short sales, but only to the extent any of these
actions are conducted for cash. In the case of an option, a regulated futures contract, a
securities futures contract, or a forward contract, a sale includes any closing
transaction. When a closing transaction for a contract described in section 1256(b)(1)(A)
involves making or taking delivery, there are two sales, one resulting in profit or loss on
the contract, and a separate sale on the delivery. When a closing transaction for a
contract described in section 988(c)(5) of the Code involves making delivery, there are
two sales, one resulting in profit or loss on the contract, and a separate sale on the
delivery. For purposes of the preceding sentence, a broker may assume that any
customer's functional currency is the U.S. dollar. When a closing transaction in a
forward contract involves making or taking delivery, the broker may treat the delivery as
a sale without separating the profit or loss on the contract from the profit or loss on the
delivery, except that taking delivery for U.S. dollars is not a sale. The term sale does not
include entering into a contract that requires delivery of personal property or an interest
therein, the initial grant or purchase of an option, or the exercise of a purchased call
option for physical delivery (except for a contract described in section 988(c)(5)). For

purposes of this section only, a constructive sale under section 1259 of the Code and a
mark to fair market value under section 475 or 1296 of the Code are not sales.
(ii) Sales with respect to digital assets--(A) In general. In addition to the specific
rules provided in paragraphs (a)(9)(ii)(B) through (D) of this section, the term sale also
includes:
(1) Any disposition of a digital asset in exchange for cash or stored-value cards;
(2) Any disposition of a digital asset in exchange for a different digital asset; and
(3) The delivery of a digital asset pursuant to the settlement of a forward contract,
option, regulated futures contract, any similar instrument, or any other executory
contract which would be treated as a sale of a digital asset under this paragraph
(a)(9)(ii) if the contract had not been executory. In the case of a transaction involving a
contract described in the previous sentence, see paragraph (a)(9)(i) of this section for
rules applicable to determining whether a sale has occurred and how to report the
making or taking delivery of the underlying asset.
(B) Dispositions of digital assets for certain property. Solely in the case of a
broker that is a real estate reporting person defined in §1.6045-4(e) with respect to real
property or is in the business of effecting sales of property for others, which sales when
effected would constitute sales under paragraph (a)(9)(i) of this section, the term sale
also includes any disposition of a digital asset in exchange for such property.
(C) Dispositions of digital assets for certain services. The term sale also includes
any disposition of a digital asset in consideration for any services provided by a broker
that is a real estate reporting person defined in §1.6045-4(e) with respect to real
property or a broker that is in the business of effecting sales of property described in
paragraph (a)(9)(i), paragraphs (a)(9)(ii)(A) and (B), or paragraph (a)(9)(ii)(D) of this
section.

(D) Special rule for certain sales effected by processors of digital asset
payments. In the case of a processor of digital asset payments as defined in paragraph
(a)(22) of this section, the term sale also includes the payment by one party of a digital
asset to a processor of digital asset payments in return for the payment of that digital
asset, cash, or a different digital asset to a second party. If any sale of digital assets
described in this paragraph (a)(9)(ii)(D) would also be subject to reporting under one of
the definitions of sale described in paragraphs (a)(9)(ii)(A) through (C) of this section as
a sale effected by a broker other than as a processor of digital asset payments, the
broker must treat the sale solely as a sale under such other paragraph and not as a sale
under this paragraph (a)(9)(ii)(D).
(10) Effect--(i) In general. The term effect means, with respect to a sale, to act
as—
(A) An agent for a party in the sale wherein the nature of the agency is such that
the agent ordinarily would know the gross proceeds from the sale;
(B) In the case of a broker described in the second sentence of paragraph (a)(1)
of this section, a person that is an obligor retiring its own debt obligations, a corporation
redeeming its own stock, or an issuer of digital assets redeeming those digital assets;
(C) A principal that is a dealer in such sale; or
(D) A digital asset middleman as defined in paragraph (a)(21) of this section for a
party in a sale of digital assets.
(ii) Actions relating to certain options and forward contracts. For purposes of
paragraph (a)(10)(i) of this section, acting as an agent, principal, or digital asset
middleman with respect to grants or purchases of options, exercises of call options, or
enterings into contracts that require delivery of personal property or an interest therein
is not of itself effecting a sale. A broker that has on its books a forward contract under
which delivery is made effects such delivery.

(11) Foreign currency. The term foreign currency means currency of a foreign
country.
(12) Cash. The term cash means United States dollars or any convertible foreign
currency that is issued by a government or a central bank, whether in physical or digital
form.
(13) Person. The term person includes any governmental unit and any agency or
instrumentality thereof.
(14) Specified security. The term specified security means:
(i) Any share of stock (or any interest treated as stock, including, for example, an
American Depositary Receipt) in an entity organized as, or treated for Federal tax
purposes as, a corporation, either foreign or domestic (provided that, solely for
purposes of this paragraph (a)(14)(i), a security classified as stock by the issuer is
treated as stock, and if the issuer has not classified the security, the security is not
treated as stock unless the broker knows that the security is reasonably classified as
stock under general Federal tax principles);
(ii) Any debt instrument described in paragraph (a)(17) of this section, other than
a debt instrument subject to section 1272(a)(6) of the Code (certain interests in or
mortgages held by a real estate mortgage investment conduit (REMIC), certain other
debt instruments with payments subject to acceleration, and pools of debt instruments
the yield on which may be affected by prepayments) or a short-term obligation
described in section 1272(a)(2)(C);
(iii) Any option described in paragraph (m)(2) of this section;
(iv) Any securities futures contract;
(v) Any digital asset as defined in paragraph (a)(19) of this section; or
(vi) Any forward contract described in paragraph (a)(7)(iii) of this section requiring
the delivery of a digital asset.

(15) Covered security. The term covered security means a specified security
described in this paragraph (a)(15).
(i) In general. Except as provided in paragraph (a)(15)(iv) of this section, the
following specified securities are covered securities:
(A) A specified security described in paragraph (a)(14)(i) of this section acquired
for cash in an account on or after January 1, 2011, except stock for which the average
basis method is available under §1.1012-1(e).
(B) Stock for which the average basis method is available under §1.1012-1(e)
acquired for cash in an account on or after January 1, 2012.
(C) A specified security described in paragraphs (a)(14)(ii) and (n)(2)(i) of this
section (not including the debt instruments described in paragraph (n)(2)(ii) of this
section) acquired for cash in an account on or after January 1, 2014.
(D) A specified security described in paragraphs (a)(14)(ii) and (n)(3) of this
section acquired for cash in an account on or after January 1, 2016.
(E) Except for an option described in paragraph (m)(2)(ii)(C) of this section
(relating to an option on a digital asset), an option described in paragraph (a)(14)(iii) of
this section granted or acquired for cash in an account on or after January 1, 2014.
(F) A securities futures contract described in paragraph (a)(14)(iv) of this section
entered into in an account on or after January 1, 2014.
(G) A specified security transferred to an account if the broker or other custodian
of the account receives a transfer statement (as described in §1.6045A-1) reporting the
security as a covered security.
(H) An option on a digital asset described in paragraphs (a)(14)(iii) and
(m)(2)(ii)(C) of this section (other than an option described in paragraph (a)(14)(v) of
this section) granted or acquired in an account on or after January 1, 2026.
(I)

[Reserved]

(J) A specified security described in paragraph (a)(14)(v) of this section that is
acquired in a customer’s account by a broker providing custodial services for such
specified security on or after January 1, 2026, in exchange for cash, stored-value cards,
different digital assets, or any other property or services described in paragraph
(a)(9)(ii)(B) or (C) of this section, respectively.
(K) A specified security described in paragraph (a)(14)(vi) of this section, not
described in paragraph (a)(14)(v) of this section, that is entered into or acquired in an
account on or after January 1, 2026.
(ii) Acquired in an account. For purposes of this paragraph (a)(15), a security is
considered acquired in a customer’s account at a broker or custodian if the security is
acquired by the customer’s broker or custodian or acquired by another broker and
delivered to the customer’s broker or custodian. Acquiring a security in an account
includes granting an option and entering into a forward contract or short sale.
(iii) Corporate actions and other events. For purposes of this paragraph (a)(15), a
security acquired due to a stock dividend, stock split, reorganization, redemption, stock
conversion, recapitalization, corporate division, or other similar action is considered
acquired for cash in an account.
(iv) Exceptions. Notwithstanding paragraph (a)(15)(i) of this section, the following
specified securities are not covered securities:
(A) Stock acquired in 2011 that is transferred to a dividend reinvestment plan (as
described in §1.1012-1(e)(6)) in 2011. However, a covered security acquired in 2011
that is transferred to a dividend reinvestment plan after 2011 remains a covered
security.
(B) A specified security, other than a specified security described in paragraph
(a)(14)(v) or (vi) of this section, acquired through an event described in paragraph

(a)(15)(iii) of this section if the basis of the acquired security is determined from the
basis of a noncovered security.
(C) A specified security that is excepted at the time of its acquisition from
reporting under paragraph (c)(3) or (g) of this section. However, a broker cannot treat a
specified security as acquired by an exempt foreign person under paragraph (g)(1)(i) or
paragraphs (g)(4)(ii) through (v) of this section at the time of acquisition if, at that time,
the broker knows or should have known (including by reason of information that the
broker is required to collect under section 1471 or 1472 of the Code) that the customer
is not a foreign person.
(D) A security for which reporting under this section is required by §1.60495(d)(3)(ii) (certain securities owned by a foreign intermediary or flow-through entity).
(E) Digital assets in a sale required to be reported under paragraph (g)(4)(vi)(E)
of this section by a broker making a payment of gross proceeds from the sale to a
foreign intermediary, flow-through entity, or U.S. branch.
(16) Noncovered security. The term noncovered security means any specified
security that is not a covered security.
(17) Debt instrument, bond, debt obligation, and obligation. For purposes of this
section, the terms debt instrument, bond, debt obligation, and obligation mean a debt
instrument as defined in §1.1275-1(d) and any instrument or position that is treated as a
debt instrument under a specific provision of the Code (for example, a regular interest in
a REMIC as defined in section 860G(a)(1) of the Code and §1.860G-1). Solely for
purposes of this section, a security classified as debt by the issuer is treated as debt. If
the issuer has not classified the security, the security is not treated as debt unless the
broker knows that the security is reasonably classified as debt under general Federal
tax principles or that the instrument or position is treated as a debt instrument under a
specific provision of the Code.

(18) Securities futures contract. For purposes of this section, the term securities
futures contract means a contract described in section 1234B(c) of the Code whose
underlying asset is described in paragraph (a)(14)(i) of this section and which is entered
into on or after January 1, 2014.
(19) Digital asset--(i) In general. For purposes of this section, the term digital
asset means any 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 actually recorded on that ledger, and
that is not cash as defined in paragraph (a)(12) of this section.
(ii) No inference. Nothing in this paragraph (a)(19) or elsewhere in this section
may be construed to mean that a digital asset is or is not properly classified as a
security, commodity, option, securities futures contract, regulated futures contract, or
forward contract for any other purpose of the Code.
(20) Digital asset address. For purposes of this section, the term digital asset
address means the unique set of alphanumeric characters, in some cases referred to as
a quick response or QR Code, that is generated by the wallet into which the digital asset
will be transferred.
(21) Digital asset middleman--(i) In general. The term digital asset middleman
means any person who provides a facilitative service as described in paragraph
(a)(21)(iii) of this section with respect to a sale of digital assets.
(ii) [Reserved]
(iii) Facilitative service. (A) [Reserved]
(B) Special rule involving sales of digital assets under paragraphs (a)(9)(ii)(B)
through (D) of this section. A facilitative service means:

(1) The acceptance or processing of digital assets as payment for property of a
type which when sold would constitute a sale under paragraph (a)(9)(i) of this section by
a broker that is in the business of effecting sales of such property.
(2) Any service performed by a real estate reporting person as defined in
§1.6045-4(e) with respect to a real estate transaction in which digital assets are paid by
the real estate buyer in full or partial consideration for the real estate, provided the real
estate reporting person has actual knowledge or ordinarily would know that digital
assets were used by the real estate buyer to make payment to the real estate seller. For
purposes of this paragraph (a)(21)(iii)(B)(2), a real estate reporting person is considered
to have actual knowledge that digital assets were used by the real estate buyer to make
payment if the terms of the real estate contract provide for payment using digital assets.
(3) The acceptance or processing of digital assets as payment for any service
provided by a broker described in paragraph (a)(1) of this section determined without
regard to any sales under paragraph (a)(9)(ii)(C) of this section that are effected by
such broker.
(4) Any payment service performed by a processor of digital asset payments
described in paragraph (a)(22) of this section, provided the processor of digital asset
payments has actual knowledge or ordinarily would know the nature of the transaction
and the gross proceeds therefrom.
(5) The acceptance of digital assets in return for cash, stored-value cards, or
different digital assets, to the extent provided by a physical electronic terminal or kiosk.
(22) Processor of digital asset payments. For purposes of this section, the term
processor of digital asset payments means a person who in the ordinary course of a
trade or business stands ready to effect sales of digital assets as defined in paragraph
(a)(9)(ii)(D) of this section by regularly facilitating payments from one party to a second

party by receiving digital assets from the first party and paying those digital assets,
cash, or different digital assets to the second party.
(23) Stored-value card. For purposes of this section, the term stored-value card
means a card, including any gift card, with a prepaid value in U.S. dollars, any
convertible foreign currency, or any digital asset, without regard to whether the card is in
physical or digital form.
(24) Transaction identification. For purposes of this section, the term transaction
identification, or transaction ID, means the unique set of alphanumeric identification
characters that a digital asset distributed ledger associates with a transaction involving
the transfer of a digital asset from one digital asset address to another. The term
transaction ID includes terms such as a TxID or transaction hash.
(25) Wallet, hosted wallet, unhosted wallet, and held in a wallet or account--(i)
Wallet. A wallet is a means of storing, electronically or otherwise, a user’s private keys
to digital assets held by or for the user.
(ii) Hosted wallet. A hosted wallet is a custodial service that electronically stores
the private keys to digital assets held on behalf of others.
(iii) Unhosted wallet. An unhosted wallet is a non-custodial means of storing,
electronically or otherwise, a user’s private keys to digital assets held by or for the user.
Unhosted wallets, sometimes referred to as self-hosted or self-custodial wallets, can be
provided through software that is connected to the Internet (a hot wallet) or through
hardware or physical media that is disconnected from the Internet (a cold wallet).
(iv) Held in a wallet or account. A digital asset is referred to in this section as held
in a wallet or account if the wallet, whether hosted or unhosted, or account stores the
private keys necessary to transfer control of the digital asset. A digital asset associated
with a digital asset address that is generated by a wallet, and a digital asset associated
with a sub-ledger account of a wallet, are similarly referred to as held in a wallet.

References to variations of held in a wallet or account, such as held at a broker, held
with a broker, held by the user of a wallet, held on behalf of another, acquired in a wallet
or account, or transferred into a wallet or account, each have a similar meaning.
(b) Examples. The following examples illustrate the definitions in paragraph (a) of
this section.
(1) Example 1. The following persons generally are brokers within the meaning of
paragraph (a)(1) of this section—
(i) A mutual fund, an underwriter of the mutual fund, or an agent for the mutual
fund, any of which stands ready to redeem or repurchase shares in such mutual fund.
(ii) A professional custodian (such as a bank) that regularly arranges sales for
custodial accounts pursuant to instructions from the owner of the property.
(iii) A depositary trust or other person who regularly acts as an escrow agent in
corporate acquisitions, if the nature of the activities of the agent is such that the agent
ordinarily would know the gross proceeds from sales.
(iv) A stock transfer agent for a corporation, which agent records transfers of
stock in such corporation, if the nature of the activities of the agent is such that the
agent ordinarily would know the gross proceeds from sales.
(v) A dividend reinvestment agent for a corporation that stands ready to purchase
or redeem shares.
(vi) A person who in the ordinary course of a trade or business provides users
with hosted wallet services to the extent such person stands ready to effect the sale of
digital assets on behalf of its customers, including by acting as an agent for a party in
the sale wherein the nature of the agency is as described in paragraph (a)(10)(i)(A) of
this section.
(vii) A processor of digital asset payments as described in paragraph (a)(22) of
this section.
(viii) A person who in the ordinary course of a trade or business either owns or
operates one or more physical electronic terminals or kiosks that stand ready to effect
the sale of digital assets for cash, stored-value cards, or different digital assets,
regardless of whether the other person is the disposer or the acquirer of the digital
assets in such an exchange.
(ix) [Reserved]
(x) A person who in the ordinary course of a trade or business stands ready at a
physical location to effect sales of digital assets on behalf of others.
(xi) [Reserved]

(2) Example 2. The following persons are not brokers within the meaning of
paragraph (a)(1) of this section in the absence of additional facts that indicate the
person is a broker—
(i) A stock transfer agent for a corporation, which agent daily records transfers of
stock in such corporation, if the nature of the activities of the agent is such that the
agent ordinarily would not know the gross proceeds from sales.
(ii) A person (such as a stock exchange) that merely provides facilities in which
others effect sales.
(iii) An escrow agent or nominee if such agency is not in the ordinary course of a
trade or business.
(iv) An escrow agent, otherwise a broker, which agent effects no sales other than
such transactions as are incidental to the purpose of the escrow (such as sales to
collect on collateral).
(v) A floor broker on a commodities exchange, which broker maintains no records
with respect to the terms of sales.
(vi) A corporation that issues and retires long-term debt on an irregular basis.
(vii) A clearing organization.
(viii) A merchant who is not otherwise required to make a return of information
under section 6045 of the Code and who regularly sells goods or other property (other
than digital assets) or services in return for digital assets.
(ix) A person solely engaged in the business of validating distributed ledger
transactions, through proof-of-work, proof-of-stake, or any other similar consensus
mechanism, without providing other functions or services.
(x) A person solely engaged in the business of selling hardware or licensing
software, the sole function of which is to permit a person to control private keys which
are used for accessing digital assets on a distributed ledger, without providing other
functions or services.
(3) Example 3: Barter exchange. A, B, and C belong to a carpool in which they
commute to and from work. Every third day, each member of the carpool provides
transportation for the other two members. Because the carpool arrangement provides
solely for the informal exchange of similar services on a noncommercial basis, the
carpool is not a barter exchange within the meaning of paragraph (a)(4) of this section.
(4) Example 4: Barter exchange. X is an organization whose members include
retail merchants, wholesale merchants, and persons in the trade or business of
performing services. X's members exchange property and services among themselves
using credits on the books of X as a medium of exchange. Each exchange through X is
reflected on the books of X by crediting the account of the member providing property or
services and debiting the account of the member receiving such property or services. X
also provides information to its members concerning property and services available for
exchange through X. X charges its members a commission on each transaction in

which credits on its books are used as a medium of exchange. X is a barter exchange
within the meaning of paragraph (a)(4) of this section.
(5) Example 5: Commodity, forward contract. A warehouse receipt is an interest
in personal property for purposes of paragraph (a) of this section. Consequently, a
warehouse receipt for a quantity of lead is a commodity under paragraph (a)(5)(ii) of this
section. Similarly, an executory contract that requires delivery of a warehouse receipt
for a quantity of lead is a forward contract under paragraph (a)(7)(ii) of this section.
(6) Example 6: Customer. The only customers of a depositary trust acting as an
escrow agent in corporate acquisitions, which trust is a broker, are shareholders to
whom the trust makes payments or shareholders for whom the trust is acting as an
agent.
(7) Example 7: Customer. The only customers of a stock transfer agent, which
agent is a broker, are shareholders to whom the agent makes payments or
shareholders for whom the agent is acting as an agent.
(8) Example 8: Customer. D, an individual not otherwise exempt from reporting, is
the holder of an obligation issued by P, a corporation. R, a broker, acting as an agent
for P, retires such obligation held by D. Such obligor payments from R represent obligor
payments by P. D, the person to whom the gross proceeds are paid or credited by R, is
the customer of R.
(9) Example 9: Covered security. E, an individual not otherwise exempt from
reporting, maintains an account with S, a broker. On June 1, 2012, E instructs S to
purchase stock that is a specified security for cash. S places an order to purchase the
stock with T, another broker. E does not maintain an account with T. T executes the
purchase. Custody of the purchased stock is transferred to E's account at S. Under
paragraph (a)(15)(ii) of this section, the stock is considered acquired for cash in E's
account at S. Because the stock is acquired on or after January 1, 2012, under
paragraph (a)(15)(i) of this section, it is a covered security.
(10) Example 10: Covered security. F, an individual not otherwise exempt from
reporting, is granted 100 shares of stock in F's employer by F's employer. Because F
does not acquire the stock for cash or through a transfer to an account with a transfer
statement (as described in §1.6045A-1), under paragraph (a)(15) of this section, the
stock is not a covered security.
(11) Example 11: Covered security. G, an individual not otherwise exempt from
reporting, owns 400 shares of stock in Q, a corporation, in an account with U, a broker.
Of the 400 shares, 100 are covered securities and 300 are noncovered securities. Q
takes a corporate action to split its stock in a 2-for-1 split. After the stock split, G owns
800 shares of stock. Because the adjusted basis of 600 of the 800 shares that G owns
is determined from the basis of noncovered securities, under paragraphs (a)(15)(iii) and
(a)(15)(iv)(B) of this section, these 600 shares are not covered securities and the
remaining 200 shares are covered securities.
(12) Example 12: Processor of digital asset payments, sale, and customer—(i)
Facts. Company Z is an online merchant that accepts digital asset DE as a form of
payment for the merchandise it sells. The merchandise Z sells does not include digital
assets. Z does not provide any other service that could be considered as standing ready

to effect sales of digital assets or any other property subject to reporting under section
6045. CPP is in the business of facilitating payments made by users of digital assets to
merchants with which CPP has an account. CPP also has contractual arrangements
with users of digital assets for the provision of digital asset payment services that
provide that CPP may verify such user’s identity pursuant to AML program
requirements. Z contracts with CPP to help Z's customers to make payments to Z using
digital assets. Under Z’s agreement with CPP, when purchasers of merchandise initiate
payment on Z’s website using DE, they are directed to CPP’s website to complete the
payment part of the transaction. CPP is a third party settlement organization, as defined
in §1.6050W-1(c)(2), with respect to the payments it makes to Z. Customer R seeks to
purchase merchandise from Z that is priced at $6,000 (which is 6,000 units of DE). After
R initiates a purchase, R is directed to CPP’s website where R is directed to enter into
an agreement with CPP, which as part of CPP’s customary onboarding procedures
developed pursuant to AML program requirements, requires R to submit information to
CPP to verify R’s identity. Thereafter, R is instructed to transfer 6,000 units of DE to a
digital asset address controlled by CPP. CPP then pays $6,000 in cash to Z, who in turn
processes R’s order.
(ii) Analysis. CPP is a processor of digital asset payments within the meaning of
paragraph (a)(22) of this section because CPP, in the ordinary course of its business,
regularly effects sales of digital assets as defined in paragraph (a)(9)(ii)(D) of this
section by receiving digital assets from one party and paying those digital assets, cash,
or different digital assets to a second party. Based on CPP’s contractual relationship
with Z, CPP has actual knowledge that R’s payment was a payment transaction and the
amount of gross proceeds R received as a result. Accordingly, CPP’s services are
facilitative services under paragraph (a)(21)(iii)(B) of this section and CPP is acting as a
digital asset middleman under paragraph (a)(21) of this section to effect R’s sale of
digital assets under paragraph (a)(10)(i)(D) of this section. R’s payment of 6,000 units of
DE to CPP in return for the payment of $6,000 cash to Z is a sale of digital assets under
paragraph (a)(9)(ii)(D) of this section. Additionally, because CPP has an arrangement
with R for the provision of digital asset payment services that provides that CPP may
verify R’s identity pursuant to AML program requirements, R is CPP’s customer under
paragraph (a)(2)(ii)(A) of this section. Finally, CPP is also required to report the
payment to Z under §1.6050W-1(a) because the payment is a third party network
transaction under §1.6050W-1(c). The answer would be the same if CPP paid Z the
6,000 units of DE or another digital asset instead of cash.
(13) Example 13: Broker. The facts are the same as in paragraph (b)(12)(i) of this
section (the facts in Example 12), except that Z accepts digital asset DE from its
purchasers directly without the services of CPP or any other processor of digital asset
payments. To pay for the merchandise R purchases on Z’s website, R is directed by Z
to transfer 15 units of DE directly to Z’s digital asset address. Z is not a broker under the
definition of paragraph (a)(1) of this section because Z does not stand ready as part of
its trade or business to effect sales as defined in paragraph (a)(9) of this section made
by others. That is, the sales that Z is in the business of conducting are of property that is
not subject to reporting under section 6045.
(14) Example 14: Processor of digital asset payments—(i) Facts. Customer S
purchases goods that are not digital assets with 10 units of digital asset DE from
Merchant M using a digital asset DE credit card issued by Bank BK. BK has a
contractual arrangement with customers using BK’s credit cards that provides that BK
may verify such customer identification information pursuant to AML program

requirements. In addition, as part of BK’s customary onboarding procedures, BK
requires credit card applicants to submit information to BK to verify their identity. M is
one of a network of unrelated persons that has agreed to accept digital asset DE credit
cards issued by BK as payment for purchase transactions under an agreement that
provides standards and mechanisms for settling the transaction between a merchant
acquiring bank and the persons who accept the cards. Bank MAB is the merchant
acquiring entity with the contractual obligation to make payments to M for goods
provided to S in this transaction. To make payment for S’s purchase of goods from M, S
transfers 10 units of digital asset DE to BK. BK pays the 10 units of DE, less its
processing fee, to Bank MAB, which amount Bank MAB pays, less its processing fee, to
M.
(ii) Analysis. BK is a processor of digital asset payments as defined in paragraph
(a)(22) of this section because BK, in the ordinary course of its business, regularly
effects sales of digital assets as defined in paragraph (a)(9)(ii)(D) of this section by
receiving digital assets from one party and paying those digital assets, cash, or different
digital assets to a second party. Bank BK has actual knowledge that payment made by
S is a payment transaction and also knows S’s gross proceeds therefrom. Accordingly,
BK’s services are facilitative services under paragraph (a)(21)(iii)(B) of this section and
BK is acting as a digital asset middleman under paragraph (a)(21) of this section to
effect sales of digital assets under paragraph (a)(10)(i)(D) of this section. S’s payment
of 10 units of DE to BK for the payment of those units, less BK’s processing fee, to Bank
MAB is a sale by S of digital assets under paragraph (a)(9)(ii)(D) of this section.
Additionally, because S transferred digital assets to BK in a sale described in paragraph
(a)(9)(ii)(D) of this section and because BK has an arrangement with S for the provision
of digital asset payment services that provides that BK may verify S’s identity, S is BK’s
customer under paragraph (a)(2)(ii)(A) of this section.
(15) Example 15: Digital asset middleman and effect—(i) Facts. SBK is in the
business of effecting sales of stock and other securities on behalf of customers. To
open an account with SBK, each customer must provide SBK with its name, address,
and tax identification number. SBK accepts 20 units of digital asset DE from Customer
P as payment for 10 shares of AB stock. Additionally, P pays SBK an additional 1 unit of
digital asset DE as a commission for SBK’s services.
(ii) Analysis. SBK’s acceptance of 20 units of DE as payment for the AB stock is
a facilitative service under paragraph (a)(21)(iii)(B) of this section because the payment
is for property (the AB stock) that when sold would constitute a sale under paragraph
(a)(9)(i) of this section by a broker that is in the business of effecting sales of stock and
other securities. SBK’s acceptance of 1 unit of DE as payment for SBK’s commission is
also a facilitative service under paragraph (a)(21)(iii)(B) of this section because SBK is a
broker under paragraph (a)(1) of this section with respect to a sale of stock under
paragraph (a)(9)(i) of this section. Accordingly, SBK is acting as a digital asset
middleman to effect P’s sale of 10 units of DE in return for the AB stock and P’s sale of
1 unit of DE as payment for SBK’s commission under paragraphs (a)(10)(i)(D) and
(a)(21) of this section.
(16) Example 16: Digital asset middleman and effect—(i) Facts. J, an unmarried
individual not otherwise exempt from reporting, enters into a contractual agreement with
B, an individual not otherwise exempt from reporting, to exchange J’s principal
residence, Blackacre, which has a fair market value of $225,000 for units of digital asset
DE with a value of $225,000. Prior to closing, J provides closing agent CA, who is a real

estate reporting person under §1.6045-4(e), with the certifications required under
§1.6045-4(c)(2)(iv) (to exempt the transaction from reporting under §1.6045-4(a) due to
Blackacre being J’s principal residence). Prior to closing, B transfers the digital assets
directly from B’s wallet to J’s wallet, and J certifies to the closing agent (CA) that J
received the digital assets required to be paid under the contract.
(ii) Analysis. CA is performing services as a real estate reporting person with
respect to a real estate transaction in which the real estate buyer (B) pays digital assets
in full or partial consideration for the real estate. In addition, CA has actual knowledge
that payment made to B included digital assets because the terms of the real estate
contract provide for such payment. Accordingly, the closing services provided by CA are
facilitative services under paragraph (a)(21)(iii)(B)(2) of this section, and CA is acting as
a digital asset middleman under paragraph (a)(21) of this section to effect B’s sale of
1,000 DE units under paragraph (a)(10)(i)(D) of this section. These conclusions are not
impacted by whether or not CA is required to report the sale of the real estate by J
under §1.6045-4(a).
(17) Example 17: Digital asset and cash—(i) Facts. Y is a privately held
corporation that issues DL, a digital representation of value designed to track the value
of the U.S. dollar. DL is backed in part or in full by U.S. dollars held by Y, and Y offers to
redeem units of DL for U.S. dollars at par at any time. Transactions involving DL utilize
cryptography to secure transactions that are digitally recorded on a cryptographically
secured distributed ledger called the DL blockchain. CRX is a digital asset broker that
also provides hosted wallet services for its customers seeking to make trades of digital
assets using CRX. R is a customer of CRX. R exchanges 100 units of DL for $100 in
cash from CRX. CRX does not record this transaction on the DL blockchain, but instead
records the transaction on CRX’s own centralized private ledger.
(ii) Analysis. DL is not cash under paragraph (a)(12) of this section because it is
not issued by a government or central bank. DL is a digital asset under paragraph
(a)(19) of this section because it is a digital representation of value that is recorded on a
cryptographically secured distributed ledger. The fact that CRX recorded R’s transaction
on its own private ledger and not on the DL blockchain does not change this conclusion.
(18) Example 18: Broker and effect—(i) Facts. Individual J is an artist in the
business of creating and selling nonfungible tokens that reference J’s digital artwork. To
find buyers and to execute these transactions, J uses the services of P2X, an unrelated
digital asset marketplace that provides a service for nonfungible token sellers to find
buyers and automatically executing contracts in return for a transaction fee. J does not
perform any other services with respect to these transactions. Using P2X’s platform,
buyer K purchases J’s newly created nonfungible token (DA-J) for 1,000 units of digital
asset DE. Using the interface provided by P2X, J and K execute their exchange using
an automatically executing contract, which automatically transfers DA-J to K and K’s
payment of DE units to J.
(ii) Analysis. Although J is a principal in the exchange of DA-J for 1,000 units of
DE, J is not acting as an obligor retiring its own debt obligations, a corporation
redeeming its own stock, or an issuer of digital assets that is redeeming those digital
assets, as described in paragraph (a)(10)(i)(B) of this section. Because J created DA-J
as part of J’s business of creating and selling specified nonfungible tokens, J is also not
acting in these transactions as a dealer as described in paragraph (a)(10)(i)(C) of this
section, as an agent for another party as described in paragraph (a)(10)(i)(A) of this

section, or as a digital asset middleman described in paragraph (a)(10)(i)(D) of this
section. Accordingly, J is not a broker under paragraph (a)(1) of this section because J
does not effect sales of digital assets on behalf of others under the definition of effect
under paragraph (a)(10)(i) of this section.
(19) Example 19: Broker, sale, and effect—(i) Facts. HWP is a person that
regularly provides hosted wallet services for customers. HWP does not operate a digital
asset trading platform, but at the direction of its customers regularly executes customer
exchange orders using the services of digital asset trading platforms. Individual L
maintains digital assets with HWP. L places an order with HWP to exchange 10 units of
digital asset DE held by L with HWP for 100 units of digital asset RN. To execute the
order, HWP places the order with PRX, a person, as defined in section 7701(a)(1) of the
Code, that operates a digital asset trading platform. HWP debits L’s account for the
disposed DE units and credits L’s account for the RN units received in exchange.
(ii) Analysis. The exchange of L’s DE units for RN units is a sale under paragraph
(a)(9)(ii)(A)(2) of this section. HWP acts as an agent for L in this sale, and the nature of
this agency is such that HWP ordinarily would know the gross proceeds from the sale.
Accordingly, HWP has effected the sale under paragraph (a)(10)(i)(A) of this section.
Additionally, HWP is a broker under paragraph (a)(1) of this section because in the
ordinary course of its trade or business, HWP stands ready to effect sales to be made
by others. If PRX is also a broker, see the multiple broker rule in paragraph (c)(3)(iii)(B)
of this section.
(20) Example 20: Digital asset and security. M owns 10 ownership units of a fund
organized as a trust described in §301.7701-4(c) of this chapter that was formed to
invest in digital assets. M’s units are held in a securities brokerage account and are not
recorded using cryptographically secured distributed ledger technology. Although the
underlying investments are comprised of one or more digital assets, M’s investment is in
ownership units of a trust, and the units are not themselves digital assets under
paragraph (a)(19) of this section because transactions involving these units are not
secured using cryptography and are not digitally recorded on a distributed ledger, such
as a blockchain. The answer would be the same if the fund is organized as a C
corporation or partnership.
(21) Example 21: Forward contract, closing transaction, and sale—(i) Facts. On
February 24, Year 1, J contracts with broker CRX to sell J’s 10 units of digital asset DE
to CRX at an agreed upon price, with delivery under the contract to occur at 4 pm on
March 10, Year 1. Pursuant to this agreement, J delivers the 10 units of DE to CRX, and
CRX pays J the agreed upon price in cash.
(ii) Analysis. Under paragraph (a)(7)(iii) of this section, the contract between J
and CRX is a forward contract. J’s delivery of digital asset DE pursuant to the forward
contract is a closing transaction described in paragraph (a)(8) of this section that is
treated as a sale of the underlying digital asset DE under paragraph (a)(9)(ii)(A)(3) of
this section. Pursuant to the rules of paragraphs (a)(9)(i) and (a)(9)(ii)(A)(3) of this
section, CRX may treat the delivery of DE as a sale without separating the profit or loss
on the forward contract from the profit or loss on the delivery.
(22) Example 22: Digital asset—(i) Facts. On February 7, Year 1, J purchases a
regulated futures contract on digital asset DE through futures commission merchant
FCM. The contract is not recorded using cryptographically secured distributed ledger

technology. The contract expires on the last Friday in June, Year 1. On May 1, Year 1, J
enters into an offsetting closing transaction with respect to the regulated futures
contract.
(ii) Analysis. Although the regulated futures contract’s underlying assets are
comprised of digital assets, J’s investment is in the regulated futures contract, which is
not a digital asset under paragraph (a)(19) of this section because transactions
involving the contract are not secured using cryptography and are not digitally recorded
using cryptographically secured distributed ledger technology, such as a blockchain.
When J disposes of the contract, the transaction is a sale of a regulated futures contract
covered by paragraph (a)(9)(i) of this section.
(23) Example 23: Closing transaction and sale—(i) Facts. On January 15, Year 1,
J purchases digital asset DE through Broker. On March 1, Year 1, J sells a regulated
futures contract on DE through Broker. The contract expires on the last Friday in June,
Year 1. On the last Friday in June, Year 1, J delivers the DE in settlement of the
regulated futures contract.
(ii) Analysis. J’s delivery of the DE pursuant to the regulated futures contract is a
closing transaction described in paragraph (a)(8) of this section that is treated as a sale
of the regulated futures contract under paragraph (a)(9)(i) of this section. In addition,
under paragraph (a)(9)(ii)(A)(3) of this section, J’s delivery of digital asset DE pursuant
to the settlement of the regulated futures contract is a sale of the underlying digital asset
DE.
(c) * * *
(3) Exceptions--(i) Sales effected for exempt recipients--(A) In general. No return
of information is required with respect to a sale effected for a customer that is an
exempt recipient under paragraph (c)(3)(i)(B) of this section.
(B) Exempt recipient defined. The term exempt recipient means—
(1) A corporation as defined in section 7701(a)(3), whether domestic or foreign,
except that this exclusion does not apply to sales of covered securities acquired on or
after January 1, 2012, by an S corporation as defined in section 1361(a);
(2) An organization exempt from taxation under section 501(a) or an individual
retirement plan;
(3) The United States or a State, the District of Columbia, the Commonwealth of
Puerto Rico, Guam, the Commonwealth of Northern Mariana Islands, the U.S. Virgin
Islands, or American Samoa, a political subdivision of any of the foregoing, a wholly

owned agency or instrumentality of any one or more of the foregoing, or a pool or
partnership composed exclusively of any of the foregoing;
(4) A foreign government, a political subdivision thereof, an international
organization, or any wholly owned agency or instrumentality of the foregoing;
(5) A foreign central bank of issue as defined in §1.895-1(b)(1) (i.e., a bank that
is by law or government sanction the principal authority, other than the government
itself, issuing instruments intended to circulate as currency);
(6) A dealer in securities or commodities registered as such under the laws of the
United States or a State;
(7) A futures commission merchant registered as such with the Commodity
Futures Trading Commission;
(8) A real estate investment trust (as defined in section 856);
(9) An entity registered at all times during the taxable year under the Investment
Company Act of 1940 (15 U.S.C. 80a-1, et seq.);
(10) A common trust fund (as defined in section 584(a));
(11) A financial institution such as a bank, mutual savings bank, savings and loan
association, building and loan association, cooperative bank, homestead association,
credit union, industrial loan association or bank, or other similar organization; or
(12) A U.S. digital asset broker as defined in paragraph (g)(4)(i)(A)(1) of this
section other than an investment adviser registered either under the Investment
Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.) or with a state securities regulator and
that investment adviser is not otherwise an exempt recipient in one or more of
paragraphs (c)(3)(i)(B)(1) through (11) of this section.
(C) Exemption certificate--(1) In general. Except as provided in paragraph
(c)(3)(i)(C)(2) or (3) of this section, a broker may treat a person described in paragraph
(c)(3)(i)(B) of this section as an exempt recipient based on a properly completed

exemption certificate (as provided in §31.3406(h)-3 of this chapter); the broker's actual
knowledge that the customer is a person described in paragraph (c)(3)(i)(B) of this
section; or the applicable indicators described in §1.6049-4(c)(1)(ii)(A) through (M). A
broker may require an exempt recipient to file a properly completed exemption
certificate and may treat an exempt recipient that fails to do so as a recipient that is not
exempt.
(2) Limitation for corporate customers. For sales of covered securities acquired
on or after January 1, 2012, a broker may not treat a customer as an exempt recipient
described in paragraph (c)(3)(i)(B)(1) of this section based on the indicators of corporate
status described in §1.6049-4(c)(1)(ii)(A). However, for sales of all securities and for
sales of digital assets, a broker may treat a customer as an exempt recipient if one of
the following applies—
(i) The name of the customer contains the term insurance company, indemnity
company, reinsurance company, or assurance company.
(ii) The name of the customer indicates that it is an entity listed as a per se
corporation under §301.7701-2(b)(8)(i) of this chapter.
(iii) The broker receives a properly completed exemption certificate (as provided
in §31.3406(h)-3 of this chapter) that asserts that the customer is not an S corporation
as defined in section 1361(a).
(iv) The broker receives a withholding certificate described in §1.1441-1(e)(2)(i)
that includes a certification that the person whose name is on the certificate is a foreign
corporation.
(3) Limitation for U.S. digital asset brokers. For sales of digital assets, a broker
may not treat a customer as an exempt recipient described in paragraph (c)(3)(i)(B)(12)
of this section unless it obtains from that customer a certification on a properly
completed exemption certificate (as provided in §31.3406(h)-3 of this chapter) that the

customer is a U.S. digital asset broker described in paragraph (g)(4)(i)(A)(1) of this
section.
(ii) Excepted sales. No return of information is required with respect to a sale
effected by a broker for a customer if the sale is an excepted sale. The inclusion in this
paragraph (c)(3)(ii) of a digital asset transaction is not intended to create an inference
that the transaction is a sale of a digital asset under paragraph (a)(9)(ii) of this section.
For this purpose, a sale is an excepted sale if it is—
(A) So designated by the Internal Revenue Service in a revenue ruling or
revenue procedure (see §601.601(d)(2) of this chapter);
(B) A sale with respect to which a return is not required by applying the rules of
§1.6049-4(c)(4) (by substituting the term a sale subject to reporting under section 6045
for the term an interest payment);
(C) A sale of digital asset units withheld by the broker from digital assets received
by the customer in any underlying digital asset sale to pay for the customer’s digital
asset transaction costs;
(D) A sale for cash of digital asset units withheld by the broker from digital assets
received by the customer in a sale of digital assets for different digital assets (underlying
sale) that is undertaken immediately after the underlying sale to satisfy the broker’s
obligation under section 3406 of the Code to deduct and withhold a tax with respect to
the underlying sale;
(E) A disposition of a digital asset representing loyalty program credits or loyalty
program rewards offered by a provider of non-digital asset goods or services to its
customers, in exchange for non-digital asset goods or services from the provider or
other merchants participating with the developer as part of the program, provided that
the digital asset is not capable of being transferred, exchanged, or otherwise used
outside the cryptographically secured distributed ledger network of the loyalty program;

(F) A disposition of a digital asset created and designed for use within a video
game or network of video games in exchange for different digital assets also created
and designed for use within that video game or video game network, provided the
disposed of digital assets are not capable of being transferred, exchanged, or otherwise
used outside of the video game or video game network;
(G) Except in the case of digital assets cleared or settled on a limited-access
regulated network as described in paragraph (c)(8)(iii) of this section, a disposition of a
digital asset representing information with respect to payment instructions or the
management of inventory that does not consist of digital assets, within a
cryptographically secured distributed ledger (or network of interoperable distributed
ledgers) that provides access only to users of such information provided the digital
assets disposed of are not capable of being transferred, exchanged, or otherwise used
outside such distributed ledger or network; or
(H) A disposition of a digital asset offered by a seller of goods or provider of
services to its customers that can be exchanged or redeemed only by those customers
for goods or services provided by such seller or provider if the digital asset is not
capable of being transferred, exchanged, or otherwise used outside the
cryptographically secured distributed ledger network of the seller or provider and cannot
be sold or exchanged for cash, stored-value cards, or qualifying stablecoins at a market
rate inside the seller or provider’s distributed ledger network.
(iii) Multiple brokers--(A) In general. If a broker is instructed to initiate a sale by a
person that is an exempt recipient described in paragraph (c)(3)(i)(B)(6), (7), or (11) of
this section, no return of information is required with respect to the sale by that broker.
In a redemption of stock or retirement of securities, only the broker responsible for
paying the holder redeemed or retired, or crediting the gross proceeds on the sale to
that holder's account, is required to report the sale.

(B) Special rule for sales of digital assets. If more than one broker effects a sale of
a digital asset on behalf of a customer, the broker responsible for first crediting the
gross proceeds on the sale to the customer’s wallet or account is required to report the
sale. A broker that did not first credit the gross proceeds on the sale to the customer’s
wallet or account is not required to report the sale if prior to the sale that broker obtains
a certification on a properly completed exemption certificate (as provided in
§31.3406(h)-3 of this chapter) that the broker first crediting the gross proceeds on the
sale is a person described in paragraph (c)(3)(i)(B)(12) of this section.
(iv) Cash on delivery transactions. In the case of a sale of securities through a
cash on delivery account, a delivery versus payment account, or other similar account
or transaction, only the broker that receives the gross proceeds from the sale against
delivery of the securities sold is required to report the sale. If, however, the broker's
customer is another broker (second-party broker) that is an exempt recipient, then only
the second-party broker is required to report the sale.
(v) Fiduciaries and partnerships. No return of information is required with respect
to a sale effected by a custodian or trustee in its capacity as such or a redemption of a
partnership interest by a partnership, provided the sale is otherwise reported by the
custodian or trustee on a properly filed Form 1041, or the redemption is otherwise
reported by the partnership on a properly filed Form 1065, and all Schedule K-1
reporting requirements are satisfied.
(vi) Money market funds--(A) In general. No return of information is required with
respect to a sale of shares 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).
(B) Effective/applicability date. Paragraph (c)(3)(vi)(A) of this section applies to
sales of shares in calendar years beginning on or after July 8, 2016. Taxpayers and

brokers (as defined in §1.6045-1(a)(1)), however, may rely on paragraph (c)(3)(vi)(A) of
this section for sales of shares in calendar years beginning before July 8, 2016.
(vii) Obligor payments on certain obligations. No return of information is required
with respect to payments representing obligor payments on—
(A) Nontransferable obligations (including savings bonds, savings accounts,
checking accounts, and NOW accounts);
(B) Obligations as to which the entire gross proceeds are reported by the broker
on Form 1099 under provisions of the Internal Revenue Code other than section 6045
(including stripped coupons issued prior to July 1, 1982); or
(C) Retirement of short-term obligations (i.e., obligations with a fixed maturity
date not exceeding 1 year from the date of issue) that have original issue discount, as
defined in section 1273(a)(1), with or without application of the de minimis rule. The
preceding sentence does not apply to a debt instrument issued on or after January 1,
2014. For a short-term obligation issued on or after January 1, 2014, see paragraph
(c)(3)(xiii) of this section.
(D) Demand obligations that also are callable by the obligor and that have no
premium or discount. The preceding sentence does not apply to a debt instrument
issued on or after January 1, 2014.
(viii) Foreign currency. No return of information is required with respect to a sale
of foreign currency other than a sale pursuant to a forward contract or regulated futures
contract that requires delivery of foreign currency.
(ix) Fractional share. No return of information is required with respect to a sale of
a fractional share of stock if the gross proceeds on the sale of the fractional share are
less than $20.
(x) Certain retirements. No return of information is required from an issuer or its
agent with respect to the retirement of book entry or registered form obligations as to

which the relevant books and records indicate that no interim transfers have occurred.
The preceding sentence does not apply to a debt instrument issued on or after January
1, 2014.
(xi) Short sales--(A) In general. A broker may not make a return of information
under this section for a short sale of a security entered into on or after January 1, 2011,
until the year a customer delivers a security to satisfy the short sale obligation. The
return must be made without regard to the constructive sale rule in section 1259 or to
section 1233(h). In general, the broker must report on a single return the information
required by paragraph (d)(2)(i)(A) of this section for the short sale except that the broker
must report the date the short sale was closed in lieu of the sale date. In applying
paragraph (d)(2)(i)(A) of this section, the broker must report the relevant information
regarding the security sold to open the short sale and the adjusted basis of the security
delivered to close the short sale and whether any gain or loss on the closing of the short
sale is long-term or short-term (within the meaning of section 1222).
(B) Short sale closed by delivery of a noncovered security. A broker is not
required to report adjusted basis and whether any gain or loss on the closing of the
short sale is long-term or short-term if the short sale is closed by delivery of a
noncovered security and the return so indicates. A broker that chooses to report this
information is not subject to penalties under section 6721 or 6722 for failure to report
this information correctly if the broker indicates on the return that the short sale was
closed by delivery of a noncovered security.
(C) Short sale obligation transferred to another account. If a short sale obligation
is satisfied by delivery of a security transferred into a customer's account accompanied
by a transfer statement (as described in §1.6045A-1(b)(7)) indicating that the security
was borrowed, the broker receiving custody of the security may not file a return of
information under this section. The receiving broker must furnish a statement to the

transferor that reports the amount of gross proceeds received from the short sale, the
date of the sale, the quantity of shares, units, or amounts sold, and the Committee on
Uniform Security Identification Procedures (CUSIP) number of the sold security (if
applicable) or other security identifier number that the Secretary may designate by
publication in the Federal Register or in the Internal Revenue Bulletin (see
§601.601(d)(2) of this chapter). The statement to the transferor also must include the
transfer date, the name and contact information of the receiving broker, the name and
contact information of the transferor, and sufficient information to identify the customer.
If the customer subsequently closes the short sale obligation in the transferor's account
with non-borrowed securities, the transferor must make the return of information
required by this section. In that event, the transferor must take into account the
information furnished under this paragraph (c)(3)(xi)(C) on the return unless the
transferor knows that the information furnished under this paragraph (c)(3)(xi)(C) is
incorrect or incomplete. A failure to report correct information that arises solely from this
reliance is deemed to be due to reasonable cause for purposes of penalties under
sections 6721 and 6722. See §301.6724-1(a)(1) of this chapter.
(xii) Cross reference. For an exception for certain sales of agricultural
commodities and certificates issued by the Commodity Credit Corporation after January
1, 1993, see paragraph (c)(7) of this section.
(xiii) Short-term obligations issued on or after January 1, 2014. No return of
information is required under this section with respect to a sale (including a retirement)
of a short-term obligation, as described in section 1272(a)(2)(C), that is issued on or
after January 1, 2014.
(xiv) Certain redemptions. No return of information is required under this section
for payments made by a stock transfer agent (as described in §1.6045-1(b)(iv)) with

respect to a redemption of stock of a corporation described in section 1297(a) with
respect to a shareholder in the corporation if—
(A) The stock transfer agent obtains from the corporation a written certification
signed by a person authorized to sign on behalf of the corporation, that states that the
corporation is described in section 1297(a) for each calendar year during which the
stock transfer agent relies on the provisions of this paragraph (c)(3)(xiv), and the stock
transfer agent has no reason to know that the written certification is unreliable or
incorrect;
(B) The stock transfer agent identifies, prior to payment, the corporation as a
participating FFI (including a reporting Model 2 FFI) (as defined in §1.6049-4(f)(10) or
(14), respectively), or reporting Model 1 FFI (as defined in §1.6049-4(f)(13)), in
accordance with the requirements of §1.1471-3(d)(4) (substituting the terms stock
transfer agent and corporation for the terms withholding agent and payee, respectively)
and validates that status annually;
(C) The stock transfer agent obtains a written certification representing that the
corporation shall report the payment as part of its account holder reporting obligations
under chapter 4 of the Code or an applicable IGA (as defined in §1.6049-4(f)(7)) and
provided the stock transfer agent does not know that the corporation is not reporting the
payment as required. The paying agent may rely on the written certification until there is
a change in circumstances or the paying agent knows or has reason to know that the
statement is unreliable or incorrect. A stock transfer agent that knows that the
corporation is not reporting the payment as required under chapter 4 of the Code or an
applicable IGA must report all payments reportable under this section that it makes
during the year in which it obtains such knowledge; and
(D) The stock transfer agent is not also acting in its capacity as a custodian,
nominee, or other agent of the payee with respect to the payment.

(4) Examples. The following examples illustrate the application of the rules in
paragraph (c)(3) of this section:
(i) Example 1. P, an individual who is not an exempt recipient, places an order
with B, a person generally known in the investment community to be a federally
registered broker/dealer, to effect a sale of P's stock in a publicly traded corporation. B,
in turn, places an order to sell the stock with C, a second broker, who will execute the
sale. B discloses to C the identity of the customer placing the order. C is not required to
make a return of information with respect to the sale because C was instructed by B, an
exempt recipient as defined in paragraph (c)(3)(i)(B)(6) of this section, to initiate the
sale. B is required to make a return of information with respect to the sale because P is
B's customer and is not an exempt recipient.
(ii) Example 2. Assume the same facts as in paragraph (c)(4)(i) of this section
(the facts in Example 1) except that B has an omnibus account with C so that B does
not disclose to C whether the transaction is for a customer of B or for B's own account.
C is not required to make a return of information with respect to the sale because C was
instructed by B, an exempt recipient as defined in paragraph (c)(3)(i)(B)(6) of this
section, to initiate the sale. B is required to make a return of information with respect to
the sale because P is B's customer and is not an exempt recipient.
(iii) Example 3. D, an individual who is not an exempt recipient, enters into a cash
on delivery stock transaction by instructing K, a federally registered broker/dealer, to sell
stock owned by D, and to deliver the proceeds to L, a custodian bank. Concurrently with
the above instructions, D instructs L to deliver D's stock to K (or K's designee) against
delivery of the proceeds from K. The records of both K and L with respect to this
transaction show an account in the name of D. Pursuant to paragraph (h)(1) of this
section, D is considered the customer of K and L. Under paragraph (c)(3)(iv) of this
section, K is not required to make a return of information with respect to the sale
because K will pay the gross proceeds to L against delivery of the securities sold. L is
required to make a return of information with respect to the sale because D is L's
customer and is not an exempt recipient.
(iv) Example 4. Assume the same facts as in paragraph (c)(4)(iii) of this section
(the facts in Example 3) except that E, a federally registered investment adviser,
instructs K to sell stock owned by D and to deliver the proceeds to L. Concurrently with
the above instructions, E instructs L to deliver D's stock to K (or K's designee) against
delivery of the proceeds from K. The records of both K and L with respect to the
transaction show an account in the name of D. Pursuant to paragraph (h)(1) of this
section, D is considered the customer of K and L. Under paragraph (c)(3)(iv) of this
section, K is not required to make a return of information with respect to the sale
because K will pay the gross proceeds to L against delivery of the securities sold. L is
required to make a return of information with respect to the sale because D is L's
customer and is not an exempt recipient.
(v) Example 5. Assume the same facts as in paragraph (c)(4)(iv) of this section
(the facts in Example 4) except that the records of both K and L with respect to the
transaction show an account in the name of E. Pursuant to paragraph (h)(1) of this
section, E is considered the customer of K and L. Under paragraph (c)(3)(iv) of this
section, K is not required to make a return of information with respect to the sale
because K will pay the gross proceeds to L against delivery of the securities sold. L is

required to make a return of information with respect to the sale because E is L's
customer and is not an exempt recipient. E is required to make a return of information
with respect to the sale because D is E's customer and is not an exempt recipient.
(vi) Example 6. F, an individual who is not an exempt recipient, owns bonds that
are held by G, a federally registered broker/dealer, in an account for F with G
designated as nominee for F. Upon the retirement of the bonds, the gross proceeds are
automatically credited to the account of F. G is required to make a return of information
with respect to the retirement because G is the broker responsible for making payments
of the gross proceeds to F.
(vii) Example 7. On June 24, 2010, H, an individual who is not an exempt
recipient, opens a short sale of stock in an account with M, a broker. Because the short
sale is entered into before January 1, 2011, paragraph (c)(3)(xi) of this section does not
apply. Under paragraphs (c)(2) and (j) of this section, M must make a return of
information for the year of the sale regardless of when the short sale is closed.
(viii) Example 8—(A) Facts. On August 25, 2011, H opens a short sale of stock in
an account with M, a broker. H closes the short sale with M on January 25, 2012, by
purchasing stock of the same corporation in the account in which H opened the short
sale and delivering the stock to satisfy H's short sale obligation. The stock H purchased
is a covered security.
(B) Analysis. Because the short sale is entered into on or after January 1, 2011,
under paragraphs (c)(2) and (c)(3)(xi) of this section, the broker closing the short sale
must make a return of information reporting the sale for the year in which the short sale
is closed. Thus, M is required to report the sale for 2012. M must report on a single
return the relevant information for the sold stock, the adjusted basis of the purchased
stock, and whether any gain or loss on the closing of the short sale is long-term or
short-term (within the meaning of section 1222). Thus, M must report the information
about the short sale opening and closing transactions on a single return for taxable year
2012.
(ix) Example 9—(A) Facts. Assume the same facts as in paragraph (c)(4)(viii) of
this section (the facts in Example 8) except that H also has an account with N, a broker,
and satisfies the short sale obligation with M by borrowing stock of the same corporation
from N and transferring custody of the borrowed stock from N to M. N indicates on the
transfer statement that the transferred stock was borrowed in accordance with
§1.6045A-1(b)(7).
(B) Analysis with respect to M. Under paragraph (c)(3)(xi)(C) of this section, M
may not file the return of information required under this section. M must furnish a
statement to N that reports the gross proceeds from the short sale on August 25, 2011,
the date of the sale, the quantity of shares sold, the CUSIP number or other security
identifier number of the sold stock, the transfer date, the name and contact information
of M and N, and information identifying H such as H's name and the account number
from which H transferred the borrowed stock.
(C) Analysis with respect to N. N must report the gross proceeds from the short
sale, the date the short sale was closed, the adjusted basis of the stock acquired to
close the short sale, and whether any gain or loss on the closing of the short sale is
long-term or short-term (within the meaning of section 1222) on the return of information

N is required to file under paragraph (c)(2) of this section when H closes the short sale
in the account with N.
(x) Example 10: Excepted sale of digital assets representing payment
instructions—(A) Facts. BNK is a bank that uses a cryptographically secured distributed
ledger technology system (DLT) that provides access only to other member banks to
securely transfer payment instructions that are not securities or commodities described
in paragraph (c)(8)(iii) of this section. These payment instructions are exchanged
between member banks through the use of digital asset DX. Dispositions of DX do not
give rise to sales of other digital assets within the cryptographically secured distributed
ledger (or network of interoperable distributed ledgers) and are not capable of being
transferred, exchanged, or otherwise used, outside the DLT system. BNK disposes of
DX using the DLT system to make a payment instruction to another bank within the DLT
system.
(B) Analysis. BNK’s disposition of DX using the DLT system to make a payment
instruction to another bank within the DLT system is a disposition of a digital asset
representing payment instructions that are not securities or commodities within a
cryptographically secured distributed ledger that provides access only to users of such
information. Because DX cannot be transferred, exchanged, or otherwise used, outside
of DLT, and because the payment instructions are not dual classification assets under
paragraph (c)(8)(iii) of this section, BNK’s disposition of DX is an excepted sale under
paragraph (c)(3)(ii)(G) of this section.
(xi) Example 11: Excepted sale of digital assets representing a loyalty program—
(A) Facts. S created a loyalty program as a marketing tool to incentivize customers to
make purchases at S’s store, which sells non-digital asset goods and services.
Customers that join S’s loyalty program receive 1 unit of digital asset LY at the end of
each month for every $1 spent in S’s store. Units of LY can only be disposed of within
S’s cryptographically secured distributed ledger (DLY) in exchange for goods or
services provided by S or merchants, such as M, that have contractually agreed to
provide goods or services to S’s loyalty customers in exchange for a predetermined
payment from S. Customer C is a participant in S’s loyalty program and has earned
1,000 units of LY. C redeems 1,000 units of LY in exchange for non-digital asset goods
in M’s store.
(B) Analysis. Customer C’s disposition of LY using the DLY system in exchange
for non-digital asset goods in M’s store is a disposition of a digital asset representing
loyalty program credits in exchange for non-digital asset goods or services from M, a
merchant participating with S’s loyalty program. Because LY cannot be transferred,
exchanged, or otherwise used outside of DLY, C’s disposition of LY is an excepted sale
under paragraph (c)(3)(ii)(E) of this section.
(xii) Example 12: Multiple brokers—(A) Facts. L, an individual who is not an
exempt recipient, maintains digital assets with HWP, a U.S. corporation that provides
hosted wallet services. L also maintains an account at CRX, a U.S. corporation that
operates a digital asset trading platform and that also provides custodial services for
digital assets held by L. L places an order with HWP to exchange 10 units of digital
asset DE for 100 units of digital asset RN. To effect the order, HWP places the order
with CRX and communicates to CRX that the order is on behalf of L. Prior to initiating
the transaction, CRX obtains a certification from HWP on a properly completed
exemption certificate (as provided in §31.3406(h)-3 of this chapter) that HWP is a U.S.

digital asset broker described in paragraph (g)(4)(i)(A)(1) of this section. CRX completes
the transaction and transfers the 100 units of RN to HWP. HWP, in turn, credits L’s
account with the 100 units of RN.
(B) Analysis. HWP is the broker responsible for first crediting the gross proceeds
on the sale to L’s wallet. Accordingly, because CRX has obtained from HWP a
certification on a properly completed exemption certificate (as provided in §31.3406(h)-3
of this chapter) that HWP is a U.S. digital asset broker described in paragraph
(g)(4)(i)(A)(1) of this section, CRX is not required to make a return of information with
respect to the sale of 100 units of RN effected on behalf of L under paragraph
(c)(3)(iii)(B) of this section. In contrast, because HWP is the broker that credits the 100
units of RN to L’s account, HWP is required to make a return of information with respect
to the sale.
(xiii) Example 13: Multiple brokers—(A) Facts. The facts are the same as in
paragraph (c)(4)(xii)(A) of this section (the facts in Example 12), except that CRX
deposits the 100 units of RN into L’s account with CRX after the transaction is effected
by CRX. Thereafter, L transfers the 100 units of RN in L’s account with CRX to L’s
account with HWP. Prior to the transaction, HWP obtained a certification from CRX on a
properly completed exemption certificate (as provided in §31.3406(h)-3 of this chapter)
that CRX is a U.S. digital asset broker described in paragraph (g)(4)(i)(A)(1) of this
section.
(B) Analysis. Under paragraph (c)(3)(iii)(B) of this section, despite being
instructed by HWP to make the sale of 100 units of RN on behalf of L, CRX is required
to make a return of information with respect to the sale effected on behalf of L because
CRX is the broker that credits the 100 units of RN to L’s account. In contrast, HWP is
not required to make a return of information with respect to the sale effected on behalf
of L because HWP obtained from CRX a certification on a properly completed
exemption certificate (as provided in §31.3406(h)-3 of this chapter) that CRX is a U.S.
digital asset broker described in paragraph (g)(4)(i)(A)(1) of this section.
(5) * * *
(i) In general. A broker effecting closing transactions in regulated futures
contracts shall report information with respect to regulated futures contracts solely in the
manner prescribed in this paragraph (c)(5). In the case of a sale that involves making
delivery pursuant to a regulated futures contract, only the profit or loss on the contract is
reported as a transaction with respect to regulated futures contracts under this
paragraph (c)(5); such sales are, however, subject to reporting under paragraph
(d)(2)(i)(A). The information required under this paragraph (c)(5) must be reported on a
calendar year basis, unless the broker is advised in writing by an account's owner that
the owner's taxable year is other than a calendar year and the broker elects to report

with respect to regulated futures contracts in such account on the basis of the owner's
taxable year. The following information must be reported as required by Form 1099-B,
Proceeds From Broker and Barter Exchange Transactions, or any successor form, with
respect to regulated futures contracts held in a customer's account:
(A) The name, address, and taxpayer identification number of the customer.
(B) The net realized profit or loss from all regulated futures contracts closed
during the calendar year.
(C) The net unrealized profit or loss in all open regulated futures contracts at the
end of the preceding calendar year.
(D) The net unrealized profit or loss in all open regulated futures contracts at the
end of the calendar year.
(E) The aggregate profit or loss from regulated futures contracts ((b) + (d)−(c)).
(F) Any other information required by Form 1099-B. See 17 CFR 1.33. For this
purpose, the end of a year is the close of business of the last business day of such
year. In reporting under this paragraph (c)(5), the broker shall make such adjustments
for commissions that have actually been paid and for option premiums as are consistent
with the books of the broker. No additional returns of information with respect to
regulated futures contracts so reported are required.
*****
(8) Special coordination rules for reporting digital assets that are dual
classification assets--(i) General rule for reporting dual classification assets as digital
assets. Except in the case of a sale described in paragraph (c)(8)(ii), (iii), or (iv) of this
section, for any sale of a digital asset under paragraph (a)(9)(ii) of this section that also
constitutes a sale under paragraph (a)(9)(i) of this section, the broker must treat the
transaction as set forth in paragraphs (c)(8)(i)(A) through (D). For purposes of this
section, an asset described in this paragraph (c)(8)(i) is a dual classification asset.

(A) The broker must report the sale only as a sale of a digital asset under
paragraph (a)(9)(ii) of this section and not as a sale under paragraph (a)(9)(i) of this
section.
(B) The broker must treat the sale only as a sale of a specified security under
paragraph (a)(14)(v) or (vi) of this section, as applicable, and not as a specified security
under paragraph (a)(14)(i), (ii), (iii), or (iv) of this section.
(C) The broker must apply the reporting rules set forth in paragraphs (d)(2)(i)(B)
through (D) of this section, as applicable, for the information required to be reported for
such sale.
(D) For a sale of a dual classification asset that is treated as a tokenized security,
the broker must report the information set forth in paragraph (c)(8)(i)(D)(3) of this
section.
(1) A tokenized security is a dual classification asset that:
(i) Provides the holder with an interest in another asset that is a security
described in paragraph (a)(3) of this section, other than a security that is also a digital
asset; or
(ii) Constitutes an asset the offer and sale of which was registered with the U.S.
Securities and Exchange Commission, other than an asset treated as a security for
securities law purposes solely as an investment contract.
(2) For purposes of paragraph (c)(8)(i)(D)(1) of this section, a qualifying
stablecoin is not treated as a tokenized security.
(3) In the case of a sale of a tokenized security, the broker must report the
information set forth in paragraph (d)(2)(i)(B)(6) of this section, as applicable. In the
case of a tokenized security that is a specified security under paragraph (a)(14)(i), (ii),
(iii), or (iv) of this section, the broker must also report the information set forth in
paragraph (d)(2)(i)(D)(4) of this section.

(ii) Reporting of dual classification assets that constitute contracts covered by
section 1256(b) of the Code. For a sale of a digital asset on or after January 1, 2025,
that is also a contract covered by section 1256(b), the broker must report the sale only
under paragraph (c)(5) of this section including, as appropriate, the application of the
rules in paragraph (m)(3) of this section.
(iii) Reporting of dual classification assets cleared or settled on a limited-access
regulated network--(A) General rule. The coordination rule of paragraph (c)(8)(i) of this
section does not apply to 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 described in paragraph (c)(8)(iii)(B) of this section. In such case, the broker
must report such sale only as a sale under paragraph (a)(9)(i) of this section and not as
a sale under paragraph (a)(9)(ii) of this section and must treat the sale as a sale of a
specified security under paragraph (a)(14)(i), (ii), (iii), or (iv) of this section, to the extent
applicable, and not as a sale of a specified security under paragraph (a)(14)(v) or (vi) of
this section. 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. See paragraph (d)(2)(i)(A) of this section for the information required
to be reported for such a sale.
(B) Limited-access regulated network. For purposes of this section, a limitedaccess regulated network is described in paragraph (c)(8)(iii)(B)(1) or (2) of this section.
(1) A cryptographically secured distributed ledger, or network of interoperable
cryptographically secured distributed ledgers, that provides clearance or settlement
services and that either:
(i) Provides access only to persons described in one or more of paragraphs
(c)(3)(i)(B)(6), (7), (10), or (11) of this section; or

(ii) Is provided exclusively to its participants by an entity that has registered with
the U.S. Securities and Exchange Commission as a clearing agency, or that has
received an exemption order from the U.S. Securities and Exchange Commission as a
clearing agency, under section 17A of the Securities Exchange Act of 1934.
(2) A cryptographically secured distributed ledger controlled by a single person
described in one of paragraphs (c)(3)(i)(B)(6) through (11) of this section that permits
the ledger to be used solely by itself and its affiliates, and therefore does not provide
access to the ledger to third parties such as customers or investors, in order to clear or
settle sales of assets.
(iv) Reporting of dual classification assets that are interests in money market
funds. The coordination rule of paragraph (c)(8)(i) of this section does not apply to any
sale of a 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). In such case, the
broker must treat such sale only as a sale under paragraph (a)(9)(i) of this section and
not as a sale under paragraph (a)(9)(ii) of this section. See paragraph (c)(3)(vi) of this
section, providing that no return of information is required for shares described in the
first sentence of this paragraph (c)(8)(iv).
(v) Example: Digital asset securities—(A) Facts. Brokers registered under the
securities laws of the United States have formed a large network (broker network) that
maintains accounts for customers seeking to purchase and sell stock. The broker
network clears and settles sales of this stock using a cryptographically secured
distributed ledger (DLN) that provides clearance or settlement services to the broker
network. DLN may not be used by any person other than a registered broker in the
broker network.

(B) Analysis. DLN is a limited-access regulated network described in paragraph
(c)(8)(iii)(B)(1)(i) of this section because it is a cryptographically secured distributed
ledger that provides clearance or settlement services and that provides access only to
brokers described in paragraph (c)(3)(i)(B)(6) of this section. Additionally, sales of stock
cleared on DLN are sales of securities under paragraph (a)(9)(i) of this section and
sales of digital assets under paragraph (a)(9)(ii) of this section. Accordingly, sales of
stock cleared on DLN are described in paragraph (c)(8)(iii) of this section and the
coordination rule of paragraph (c)(8)(i) of this section does not apply to these sales.
Therefore, the sales of stock cleared on DLN are reported only under paragraph (a)(9)(i)
of this section. See paragraph (d)(2)(i)(A) of this section for the method for reporting the
information required to be reported for such a sale.
(d) * * *
(2) Transactional reporting--(i) Required information--(A) General rule for sales
described in paragraph (a)(9)(i) of this section. Except as provided in paragraph (c)(5) of
this section, for each sale described in paragraph (a)(9)(i) of this section for which a
broker is required to make a return of information under this section, the broker must
report on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or
any successor form, the name, address, and taxpayer identification number of the
customer, the property sold, the Committee on Uniform Security Identification
Procedures (CUSIP) number of the security sold (if applicable) or other security
identifier number that the Secretary may designate by publication in the Federal
Register or in the Internal Revenue Bulletin (see §601.601(d)(2) of this chapter), the
adjusted basis of the security sold, whether any gain or loss with respect to the security
sold is long-term or short-term (within the meaning of section 1222 of the Code), the
gross proceeds of the sale, the sale date, and other information required by the form in
the manner and number of copies required by the form. In addition, for a sale of a

covered security on or after January 1, 2014, a broker must report on Form 1099-B
whether any gain or loss is ordinary. See paragraph (m) of this section for additional
rules related to options and paragraph (n) of this section for additional rules related to
debt instruments. See paragraph (c)(8) of this section for rules related to sales of
securities or sales of commodities under paragraph (a)(9)(i) of this section that are also
sales of digital assets under paragraph (a)(9)(ii) of this section.
(B) Required information for digital asset transactions. Except in the case of a
sale of a qualifying stablecoin or a specified nonfungible token for which the broker
reports in the manner set forth in paragraph (d)(10) of this section and subject to the
exception described in paragraph (d)(2)(i)(C) of this section for sales of digital assets
described in paragraph (a)(9)(ii)(D) of this section (sales effected by processors of
digital asset payments), for each sale of a digital asset described in paragraph (a)(9)(ii)
of this section for which a broker is required to make a return of information under this
section, the broker must report on Form 1099-DA, Digital Asset Proceeds From Broker
Transactions, or any successor form, in the manner required by such form or
instructions the following information:
(1) The name, address, and taxpayer identification number of the customer;
(2) The name and number of units of the digital asset sold;
(3) The sale date;
(4) The gross proceeds amount (after reduction for the allocable digital asset
transaction costs as defined and allocated pursuant to paragraph (d)(5)(iv) of this
section);
(5) Whether the sale was for cash, stored-value cards, or in exchange for
services or other property;
(6) In the case of a sale that is reported as a digital asset sale pursuant to the
rule in paragraph (c)(8)(i) of this section and is described as a tokenized security in

paragraph (c)(8)(i)(D) of this section, the broker must also report to the extent required
by Form 1099-DA or instructions: the CUSIP number of the security sold (if applicable)
or other security identifier number that the Secretary may designate by publication in the
Federal Register or in the Internal Revenue Bulletin (see §601.601(d)(2) of this
chapter); any information required under paragraph (m) of this section (related to
options); any information required under paragraph (n) of this section (related to debt
instruments); and any other information required by the form or instructions;
(7) For each such sale of a digital asset that was held by the broker in a hosted
wallet on behalf of a customer and was previously transferred into an account at the
broker (transferred-in digital asset), the broker must also report the date of such transfer
in and the number of units transferred in by the customer;
(8) Whether the broker took into account customer-provided acquisition
information from the customer or the customer’s agent as described in paragraph
(d)(2)(ii)(B)(4) of this section when determining the identification of the units sold
(without regard to whether the broker’s determination with respect to the particular unit
sold was derived from the broker’s own records or from that information); and
(9) Any other information required by the form or instructions.
(C) Exception for certain sales effected by processors of digital asset payments.
A broker is not required to report any information required by paragraph (d)(2)(i)(B) of
this section with respect to a sale of a digital asset described in paragraph (a)(9)(ii)(D)
of this section (sales effected by processors of digital asset payments) by a customer if
the gross proceeds (after reduction for the allocable digital asset transaction costs) from
all such sales of digital assets effected by that broker for the year by the customer do
not exceed $600. Gross proceeds from sales of qualifying stablecoins or specified
nonfungible tokens that are reported in the manner set forth in paragraph (d)(10) of this
section are not included in determining if this $600 threshold has been met. For the

rules applicable for determining who the customer is for purposes of calculating this
$600 threshold in the case of a joint account, see paragraph (d)(10)(v) of this section.
(D) Acquisition information for sales of certain digital assets. Except in the case
of a sale of a qualifying stablecoin or a specified nonfungible token for which the broker
reports in the manner set forth in paragraph (d)(10) of this section, for each sale
described in paragraph (a)(9)(ii) of this section on or after January 1, 2026, of a covered
security defined in paragraph (a)(15)(i)(H), (J), or (K) of this section that was acquired
by the broker for the customer and held in the customer’s account, for which a broker is
required to make a return of information under paragraph (d)(2)(i)(B) of this section, the
broker must also report the following information:
(1) The adjusted basis of the covered security sold calculated in accordance with
paragraph (d)(6) of this section;
(2) The date such covered security was purchased, and whether any gain or loss
with respect to the covered security sold is long-term or short-term in accordance with
paragraph (d)(7) of this section;
(3) For purpose of determining the information required in paragraphs
(d)(2)(i)(D)(1) through (2) in the case of an option and any asset delivered in settlement
of an option, the broker must apply any applicable rules set forth in paragraph (m) of
this section; and
(4) In the case of a sale that is reported as a digital asset sale pursuant to the
rule in paragraph (c)(8)(i) of this section and is described as a tokenized security in
paragraph (c)(8)(i)(D) of this section, see paragraphs (d)(6)(iii)(A)(2) and (d)(7)(ii)(A)(2)
of this section regarding the basis and holding period adjustments required for wash
sales, paragraph (d)(6)(v) of this section for rules regarding the application of the
average basis method, paragraph (m) of this section for rules related to options,

paragraph (n) of this section for rules related to debt instruments, and any other
information required by the form or instructions.
(ii) Specific identification of specified securities--(A) In general. Except as
provided in §1.1012-1(e)(7)(ii), for a specified security described in paragraph (a)(14)(i)
of this section sold on or after January 1, 2011, or for a specified security described in
paragraph (a)(14)(ii) of this section sold on or after January 1, 2014, a broker must
report a sale of less than the entire position in an account of a specified security that
was acquired on different dates or at different prices consistently with a customer's
adequate and timely identification of the security to be sold. See §1.1012-1(c). If the
customer does not provide an adequate and timely identification for the sale, the broker
must first report the sale of securities in the account for which the broker does not know
the acquisition or purchase date followed by the earliest securities purchased or
acquired, whether covered securities or noncovered securities.
(B) Identification of digital assets sold, disposed of, or transferred. For a specified
security described in paragraph (a)(14)(v) of this section, a broker must determine the
unit sold, disposed of, or transferred, if less than the entire position in an account of
such specified security that was acquired on different dates or at different prices,
consistently with the adequate identification of the digital asset to be sold, disposed of,
or transferred.
(1) No identification of units by customer. In the case of multiple units of the
same digital asset that are held by a broker for a customer, if the customer does not
provide the broker with an adequate identification of which units of a digital asset are
sold, disposed of, or transferred by the date and time of the sale, disposition, or transfer,
and the broker does not have adequate transfer-in date records and does not have or
take into account customer-provided acquisition information as defined by paragraph
(d)(2)(ii)(B)(4) of this section, then the broker must first report the sale, disposition, or

transfer of units that were not acquired by the broker for the customer. After the
disposition of all such units of digital assets, the broker must treat units as sold,
disposed of, or transferred in order of time from the earliest date on which units of the
same digital asset were acquired by the customer. See paragraph (d)(2)(ii)(B)(4) of this
section for circumstances under which a broker may use information provided by the
customer or the customer’s agent to determine when units of a digital asset were
acquired by the customer. If the broker does not receive customer-provided acquisition
information with respect to digital assets that were transferred into the customer’s
account or otherwise does not take such information into account, the broker must treat
those units as acquired as of the date and time of the transfer.
(2) Adequate identification of units by customer. Except as provided in paragraph
(d)(2)(ii)(B)(3) of this section, when multiple units of the same digital asset are left in the
custody of the broker, an adequate identification occurs if, no later than the date and
time of the sale, disposition, or transfer, the customer specifies to the broker the
particular units of the digital asset to be sold, disposed of, or transferred by reference to
any identifier that the broker designates as sufficiently specific to determine the units
sold, disposed of, or transferred. For example, a customer’s reference to the purchase
date and time of the units to be sold may be designated by the broker as sufficiently
specific to determine the units sold, disposed of, or transferred if no other unidentified
units were purchased at that same purchase date and time or purchase price. To the
extent permitted by paragraph (d)(2)(ii)(B)(4) of this section, a broker may take into
account customer-provided acquisition information with respect to transferred-in digital
assets for purposes of enabling a customer to make a sufficiently specific reference. A
standing order or instruction for the specific identification of digital assets is treated as
an adequate identification made at the date and time of sale, disposition, or transfer. In
the case of a broker that offers only one method of making a specific identification, such

method is treated as a standing order or instruction within the meaning of the prior
sentence.
(3) Special rule for the identification of certain units withheld from a transaction.
Notwithstanding paragraphs (d)(2)(ii)(B)(1) and (2) of this section, in the case of a sale
of digital assets in exchange for other digital assets differing materially in kind or in
extent and for which the broker withholds units of the digital assets received for either
the broker’s obligation to deduct and withhold a tax under section 3406, or for payment
of the customer’s digital asset transaction costs as defined in paragraph (d)(5)(iv)(A) of
this section, the customer is deemed to have made an adequate identification, within
the meaning of paragraph (d)(2)(ii)(B)(2) of this section, for such withheld units as from
the units received in the underlying transaction regardless of any other adequate
identification within the meaning of paragraph (d)(2)(ii)(B)(2) of this section designating
other units of the same digital asset as the units sold, disposed of, or transferred.
(4) Customer-provided acquisition information for digital assets. For purposes of
identifying which units are sold, disposed of, or transferred under paragraph (d)(2)(ii)(A)
of this section, a broker is permitted, but not required, to take into account customerprovided acquisition information. For purposes of this section, customer-provided
acquisition information means reasonably reliable information, such as the date and
time of acquisition of units of a digital asset, provided by a customer or the customer’s
agent to the broker no later than the date and time of a sale, disposition, or transfer.
Reasonably reliable information includes purchase or trade confirmations at other
brokers or immutable data on a public distributed ledger. Solely for purposes of
penalties under sections 6721 and 6722, a broker that takes into account customerprovided acquisition information for purposes of identifying which units are sold,
disposed of, or transferred is deemed to have relied upon this information in good faith if

the broker neither knows nor has reason to know that the information is incorrect. See
§301.6724-1(c)(6) of this chapter.
(iii) Penalty relief for reporting information not subject to reporting--(A)
Noncovered securities. A broker is not required to report adjusted basis and the
character of any gain or loss for the sale of a noncovered security if the return identifies
the sale as a sale of a noncovered security. A broker that chooses to report this
information for a noncovered security is not subject to penalties under section 6721 or
6722 of the Code for failure to report this information correctly if the return identifies the
sale as a sale of a noncovered security. For purposes of this paragraph (d)(2)(iii)(A), a
broker must treat a security for which a broker makes the single-account election
described in §1.1012-1(e)(11)(i) as a covered security.
(B) Gross proceeds from digital assets sold before applicability date. A broker is
not required to report the gross proceeds from the sale of a digital asset as described in
paragraph (a)(9)(ii) of this section if the sale is effected prior to January 1, 2025. A
broker that chooses to report this information on either the Form 1099-B, or when
available the Form 1099-DA, pursuant to paragraph (d)(2)(i)(B) of this section is not
subject to penalties under section 6721 or 6722 for failure to report this information
correctly. See paragraph (d)(2)(iii)(A) of this section for the reporting of adjusted basis
and the character of any gain or loss for the sale of a noncovered security that is a
digital asset.
(iv) Information from other parties and other accounts--(A) Transfer and issuer
statements. When reporting a sale of a covered security, a broker must take into
account all information, other than the classification of the security (such as stock),
furnished on a transfer statement (as described in §1.6045A-1) and all information
furnished or deemed furnished on an issuer statement (as described in §1.6045B-1)
unless the statement is incomplete or the broker has actual knowledge that it is

incorrect. A broker may treat a customer as a minority shareholder when taking the
information on an issuer statement into account unless the broker knows that the
customer is a majority shareholder and the issuer statement reports the action's effect
on the basis of majority shareholders. A failure to report correct information that arises
solely from reliance on information furnished on a transfer statement or issuer statement
is deemed to be due to reasonable cause for purposes of penalties under sections 6721
and 6722. See §301.6724-1(a)(1) of this chapter.
(B) Other information with respect to securities. Except in the case of a covered
security that is described in paragraph (a)(15)(i)(H), (J), or (K) of this section, a broker is
permitted, but not required, to take into account information about a covered security
other than what is furnished on a transfer statement or issuer statement, including any
information the broker has about securities held by the same customer in other
accounts with the broker. For purposes of penalties under sections 6721 and 6722, a
broker that takes into account information with respect to securities described in the
previous sentence that is received from a customer or third party other than information
furnished on a transfer statement or issuer statement is deemed to have relied upon this
information in good faith if the broker neither knows nor has reason to know that the
information is incorrect. See §301.6724-1(c)(6) of this chapter.
(v) Failure to receive a complete transfer statement for securities. A broker that
has not received a complete transfer statement as required under §1.6045A-1(a)(3) for
a transfer of a specified security described in paragraphs (a)(14)(i) through (iv) of this
section must request a complete statement from the applicable person effecting the
transfer unless, under §1.6045A-1(a), the transferor has no duty to furnish a transfer
statement for the transfer. The broker is only required to make this request once. If the
broker does not receive a complete transfer statement after requesting it, the broker
may treat the security as a noncovered security upon its subsequent sale or transfer. A

transfer statement for a covered security is complete if, in the view of the receiving
broker, it provides sufficient information to comply with this section when reporting the
sale of the security. A transfer statement for a noncovered security is complete if it
indicates that the security is a noncovered security.
(vi) Reporting by other parties after a sale of securities--(A) Transfer statements.
If a broker receives a transfer statement indicating that a security is a covered security
after the broker reports the sale of the security, the broker must file a corrected return
within thirty days of receiving the statement unless the broker reported the required
information on the original return consistently with the transfer statement.
(B) Issuer statements. If a broker receives or is deemed to receive an issuer
statement after the broker reports the sale of a covered security, the broker must file a
corrected return within thirty days of receiving the issuer statement unless the broker
reported the required information on the original return consistently with the issuer
statement.
(C) Exception. A broker is not required to file a corrected return under this
paragraph (d)(2)(vi) if the broker receives the transfer statement or issuer statement
more than three years after the broker filed the return.
(vii) Examples. The following examples illustrate the rules of this paragraph
(d)(2). Unless otherwise indicated, all events and transactions described in paragraphs
(d)(2)(vii)(C) and (D) of this section (Examples 3 and 4) occur on or after January 1,
2026.
(A) Example 1--(1) Facts. On February 22, 2012, K sells 100 shares of stock of
C, a corporation, at a loss in an account held with F, a broker. On March 15, 2012, K
purchases 100 shares of C stock for cash in an account with G, a different broker.
Because K acquires the stock purchased on March 15, 2012, for cash in an account
after January 1, 2012, under paragraph (a)(15) of this section, the stock is a covered
security. K asks G to increase K's adjusted basis in the stock to account for the
application of the wash sale rules under section 1091 to the loss transaction in the
account held with F.

(2) Analysis. Under paragraph (d)(2)(iv)(B) of this section, G is not required to
take into account the information provided by K when subsequently reporting the
adjusted basis and whether any gain or loss on the sale is long-term or short-term. If G
chooses to take this information into account, under paragraph (d)(2)(iv)(B) of this
section, G is deemed to have relied upon the information received from K in good faith
for purposes of penalties under sections 6721 and 6722 if G neither knows nor has
reason to know that the information provided by K is incorrect.
(B) Example 2--(1) Facts. L purchases shares of stock of a single corporation in
an account with F, a broker, on April 17, 1969, April 17, 2012, April 17, 2013, and April
17, 2014. In January 2015, L sells all the stock.
(2) Analysis. Under paragraph (d)(2)(i)(A) of this section, F must separately
report the gross proceeds and adjusted basis attributable to the stock purchased in
2014, for which the gain or loss on the sale is short-term, and the combined gross
proceeds and adjusted basis attributable to the stock purchased in 2012 and 2013, for
which the gain or loss on the sale is long-term. Under paragraph (d)(2)(iii)(A) of this
section, F must also separately report the gross proceeds attributable to the stock
purchased in 1969 as the sale of noncovered securities in order to avoid treatment of
this sale as the sale of covered securities.
(C) Example 3: Ordering rule—(1) Facts. On August 1, Year 1, TP opens a
hosted wallet account at CRX, a digital asset broker that owns and operates a digital
asset trading platform, and purchases within the account 10 units of digital asset DE for
$9 per unit. On January 1, Year 2, TP opens a hosted wallet account at BEX, another
digital asset broker that owns and operates a digital asset trading platform, and
purchases within this account 20 units of digital asset DE for $5 per unit. On August 1,
Year 3, TP transfers the digital asset units held in TP’s hosted wallet account with CRX
into TP’s hosted wallet account with BEX. On September 1, Year 3, TP directs BEX to
sell 10 units of DE but does not specify which units are to be sold and does not provide
to BEX purchase date and time information with respect to the DE units transferred into
TP’s account with BEX. BEX has adequate transfer-in date records with respect to TP’s
transfer of the 10 units of DE on August 1, Year 3. BEX effects the sale on TP’s behalf
for $10 per unit.
(2) Analysis. TP did not make an adequate identification of the units to be sold in
a sale of DE units that was less than TP’s entire position in digital asset DE. Therefore,
BEX must treat the units of digital asset DE sold according to the ordering rule provided
in paragraph (d)(2)(ii)(B) of this section. Pursuant to that rule, because BEX has
adequate transfer-in date records with respect to TP’s transfer of the 10 units of DE on
August 1, Year 3, and because TP did not give BEX customer-provided acquisition
information as defined by paragraph (d)(2)(ii)(B)(4) of this section with respect to the
units transferred into TP’s account at BEX, the units sold must be attributed to the
earliest units of digital asset DE acquired by TP. Additionally, because TP did not give
BEX customer-provided acquisition information, BEX must treat those units as acquired
as of the date and time of the transfer (August 1, Year 3). Accordingly, the 10 units sold
must be attributed to 10 of the 20 DE units purchased by TP on January 1, Year 2, in
the BEX account because based on the information known to BEX these units were
purchased prior to the date (August 1, Year 3) when TP transferred the other units
purchased at CRX into the account. The DE units are digital assets that were acquired
on or after January 1, 2026, for TP by a broker (BEX) providing custodial services, and,
thus, constitute covered securities under paragraph (a)(15)(i)(J) of this section.

Accordingly, in addition to the gross proceeds and other information required to be
reported under paragraph (d)(2)(i)(B) of this section, BEX must also report the adjusted
basis of the DE units sold, the date the DE units were purchased, and whether any gain
or loss with respect to the DE units sold is long-term or short-term as required by
paragraph (d)(2)(i)(D) of this section. Finally, because TP did not give BEX customerprovided acquisition information, TP will be required to treat different units as sold under
the rules provided by §1.1012-1(j)(3) from those units that BEX treats as sold under this
section unless TP adopts a standing order to follow the ordering rule result required by
BEX. See §1.1012-1(j)(5)(iv) (Example 4).
(D) Example 4: Ordering rule—(1) Facts. The facts are the same as in paragraph
(d)(2)(vii)(C)(1) of this section (the facts in Example 3), except on September 1, Year 3,
TP’s agent (CRX) provides BEX with purchase confirmations showing that the 10 units
TP transferred into TP’s account at BEX were purchased on August 1, Year 1. BEX
neither knows nor has reason to know that the information supplied by CRX is incorrect
and chooses to take this information into account for purposes of identifying which of
the TP’s units are sold, disposed of, or transferred.
(2) Analysis. Because TP did not make an adequate identification of the units to
be sold in a sale of DE units that was less than TP’s entire position in digital asset DE,
BEX must treat the units of digital asset DE sold as the earliest units of digital asset DE
acquired by TP. The purchase confirmations (showing a purchase date of August 1,
Year 1) for the 10 units that were transferred into TP’s account at BEX constitute
customer-provided acquisition information under paragraph (d)(2)(ii)(B)(4) of this
section, which BEX is permitted, but not required, to take into account. Accordingly,
BEX is permitted to treat the 10 units sold by TP as the 10 DE units TP purchased on
August 1, Year 1 (and transferred into BEX’s account on August 1, Year 3), because
these were the earliest units of digital asset DE acquired by TP. The DE units are digital
assets that were acquired on or after January 1, 2026, for TP by a broker (CRX)
providing custodial services, and, thus, constitute covered securities under paragraph
(a)(15)(i)(J) of this section. However, because these covered securities were not
acquired and thereafter held by the selling broker (BEX), BEX is not required to report
the acquisition information required by paragraph (d)(2)(i)(D) of this section. Finally,
because TP provided the purchase information with respect to the transferred in units to
BEX, the units determined as sold by BEX are the same units that TP must treat as sold
under §1.1012-1(j)(3)(i). See §1.1012-1(j)(5)(iv) (Example 4).
*****
(4) Sale date--(i) In general. For sales of property that are reportable under this
section other than digital assets, a broker must report a sale as occurring on the date
the sale is entered on the books of the broker.
(ii) Special rules for digital asset sales. For sales of digital assets that are
effected when digitally recorded using cryptographically secured distributed ledger
technology, such as a blockchain or similar technology, the broker must report the date
of sale as the date when the transactions are recorded on the ledger. For sales of digital

assets that are effected by a broker and recorded in the broker’s books and records
(commonly referred to as an off-chain transaction) and not directly on a distributed
ledger or similar technology, the broker must report the date of sale as the date when
the transactions are recorded on its books and records without regard to the date that
the transactions may be later recorded on the distributed ledger or similar technology.
(5) Gross proceeds--(i) In general. Except as otherwise provided in paragraph
(d)(5)(ii) of this section with respect to digital asset sales, for purposes of this section,
gross proceeds on a sale are the total amount paid to the customer or credited to the
customer's account as a result of the sale reduced by the amount of any qualified stated
interest reported under paragraph (d)(3) of this section and increased by any amount
not paid or credited by reason of repayment of margin loans. In the case of a closing
transaction (other than a closing transaction related to an option) that results in a loss,
gross proceeds are the amount debited from the customer's account. For sales before
January 1, 2014, a broker may, but is not required to, reduce gross proceeds by the
amount of commissions and transfer taxes, provided the treatment chosen is consistent
with the books of the broker. For sales on or after January 1, 2014, a broker must
reduce gross proceeds by the amount of commissions and transfer taxes related to the
sale of the security. For securities sold pursuant to the exercise of an option granted or
acquired before January 1, 2014, a broker may, but is not required to, take the option
premiums into account in determining the gross proceeds of the securities sold,
provided the treatment chosen is consistent with the books of the broker. For securities
sold pursuant to the exercise of an option granted or acquired on or after January 1,
2014, or for the treatment of an option granted or acquired on or after January 1, 2014,
see paragraph (m) of this section. A broker must report the gross proceeds of identical
stock (within the meaning of §1.1012-1(e)(4)) by averaging the proceeds of each share
if the stock is sold at separate times on the same calendar day in executing a single

trade order and the broker executing the trade provides a single confirmation to the
customer that reports an aggregate total price or an average price per share. However,
a broker may not average the proceeds if the customer notifies the broker in writing of
an intent to determine the proceeds of the stock by the actual proceeds per share and
the broker receives the notification by January 15 of the calendar year following the year
of the sale. A broker may extend the January 15 deadline but not beyond the due date
for filing the return required under this section.
(ii) Sales of digital assets. The rules contained in paragraphs (d)(5)(ii)(A) and (B)
of this section apply solely for purposes of this section.
(A) Determining gross proceeds. Except as otherwise provided in this section,
gross proceeds from the sale of a digital asset are equal to the sum of the total cash
paid to the customer or credited to the customer’s account from the sale plus the fair
market value of any property or services received (including services giving rise to
digital asset transaction costs), reduced by the amount of digital asset transaction costs,
as defined and allocated under paragraph (d)(5)(iv) of this section. In the case of a debt
instrument issued in exchange for the digital asset and subject to §1.1001-1(g), the
amount realized attributable to the debt instrument is determined under §1.10017(b)(1)(iv) rather than by reference to the fair market value of the debt instrument. See
paragraph (d)(5)(iv)(C) of this section for a special rule setting forth how cascading
digital asset transaction costs are to be allocated in certain exchanges of one digital
asset for a different digital asset.
(1) Determining fair market value. Fair market value is measured at the date and
time the transaction was effected. Except as provided in the next sentence, in
determining the fair market value of services or property received or credited in
exchange for a digital asset, the broker must use a reasonable valuation method that
looks to contemporaneous evidence of value, such as the purchase price of the

services, goods or other property, the exchange rate, and the U.S. dollar valuation
applied by the broker to effect the exchange. In determining the fair market value of
services giving rise to digital asset transaction costs, the broker must look to the fair
market value of the digital assets used to pay for such transaction costs. In determining
the fair market value of a digital asset, the broker may perform its own valuations or rely
on valuations performed by a digital asset data aggregator as defined in paragraph
(d)(5)(ii)(B) of this section, provided such valuations apply a reasonable valuation
method for digital assets as described in paragraph (d)(5)(ii)(A)(3) of this section.
(2) Consideration value not readily ascertainable. When valuing services or
property (including digital assets) received in exchange for a digital asset, the value of
what is received should ordinarily be identical to the value of the digital asset
exchanged. If there is a disparity between the value of services or property received and
the value of the digital asset exchanged, the gross proceeds received by the customer
is the fair market value at the date and time the transaction was effected of the services
or property, including digital assets, received. If the broker or digital asset data
aggregator, in the case of digital assets, reasonably determines that the fair market
value of the services or property received cannot be determined with reasonable
accuracy, the fair market value of the received services or property must be determined
by reference to the fair market value of the transferred digital asset at the time of the
exchange. See §1.1001-7(b)(4). If the broker or digital asset data aggregator, in the
case of a digital asset, reasonably determines that neither the value of the received
services or property nor the value of the transferred digital asset can be determined with
reasonable accuracy, the broker must report that the received services or property has
an undeterminable value.
(3) Reasonable valuation method for digital assets. A reasonable valuation
method for digital assets is a method that considers and appropriately weighs the

pricing, trading volumes, market capitalization and other factors relevant to the valuation
of digital assets traded through digital asset trading platforms. A valuation method is not
a reasonable valuation method for digital assets if it, for example, gives an underweight
effect to exchange prices lying near the median price value, an overweight effect to
digital asset trading platforms having low trading volume, or otherwise inappropriately
weighs factors associated with a price that would make that price an unreliable indicator
of value.
(B) Digital asset data aggregator. A digital asset data aggregator is an
information service provider that provides valuations of digital assets based on any
reasonable valuation method.
(iii) Digital asset transactions effected by processors of digital asset payments.
The amount of gross proceeds under paragraph (d)(5)(ii) of this section received by a
party who sells a digital asset under paragraph (a)(9)(ii)(D) of this section (effected by a
processor of digital asset payments) is equal to: the sum of the amount paid in cash,
and the fair market value of the amount paid in digital assets by that processor to a
second party, plus any digital asset transaction costs and other fees charged to the
second party that are withheld (whether withheld from the digital assets transferred by
the first party or withheld from the amount due to the second party); and reduced by the
amount of digital asset transaction costs paid by or withheld from the first party, as
defined and allocated under the rules of paragraph (d)(5)(iv) of this section.
(iv) Definition and allocation of digital asset transaction costs--(A) Definition. The
term digital asset transaction costs means the amount paid in cash or property
(including digital assets) to effect the sale, disposition, or acquisition of a digital asset.
Digital asset transaction costs include transaction fees, transfer taxes, and
commissions.

(B) General allocation rule. Except as provided in paragraph (d)(5)(iv)(C) of this
section, in the case of a sale or disposition of digital assets, the total digital asset
transaction costs paid by the customer are allocable to the sale or disposition of the
digital assets.
(C) Special rule for allocation of certain cascading digital asset transaction costs.
In the case of a sale of one digital asset in exchange for another digital asset differing
materially in kind or in extent (original transaction) and for which digital assets received
in the original transaction are withheld to pay digital asset transaction costs, the total
digital asset transaction costs paid by the taxpayer to effect both the original transaction
and the disposition of the withheld digital assets are allocable exclusively to the
disposition of digital assets in the original transaction.
(v) Examples. The following examples illustrate the rules of this paragraph (d)(5).
Unless otherwise indicated, all events and transactions in the following examples occur
on or after January 1, 2025.
(A) Example 1: Determination of gross proceeds when digital asset transaction
costs paid in digital assets—(1) Facts. CRX, a digital asset broker, buys, sells, and
exchanges various digital assets for cash or different digital assets on behalf of its
customers. For this service, CRX charges a transaction fee equal to 1 unit of CRX’s
proprietary digital asset CM per transaction. Using the services of CRX, customer K, an
individual not otherwise exempt from reporting, purchases 15 units of CM and 10 units
of digital asset DE. On April 28, Year 1, when the CM units have a value of $2 per unit,
the DE units have a value of $8 per unit, and digital asset ST units have a value of
$0.80 per unit, K instructs CRX to exchange K’s 10 units of DE for 100 units of digital
asset ST. CRX charges K one unit of CM as a transaction fee for the exchange.
(2) Analysis. Under paragraph (d)(5)(iv)(A) of this section, K has digital asset
transaction costs of $2, which is the value of 1 CM unit. Under paragraph (d)(5)(ii)(A) of
this section, the gross proceeds amount that CRX must report from K’s sale of the 10
units of DE is equal to the fair market value of the 100 units of ST that K received (less
the value of the CM unit sold to pay the digital asset transaction cost to CRX and
allocable to the sale of the DE units). The fair market value of the 100 units of ST at the
date and time the transaction was effected is equal to $80 (the product of $0.80 and 100
units). Accordingly, CRX must report gross proceeds of $78 from K’s sale of the 10 units
of DE. CRX must also report the gross proceeds from K’s sale of one CM unit to pay for
CRX’s services. Under paragraph (d)(5)(ii)(A) of this section, the gross proceeds from
K’s sale of one unit of CM is equal to the fair market value of the digital assets used to
pay for such transaction costs. Accordingly, CRX must report $2 as gross proceeds
from K’s sale of one unit of CM.

(B) Example 2: Determination of gross proceeds when digital asset transaction
costs are withheld from transferred digital assets—(1) Facts. K owns a total of 10 units
of digital asset A that K deposits with broker BEX that provides custodial services for
digital assets. K directs BEX to effect the exchange of 10 units of K’s digital asset A for
20 units of digital asset B. At the time of the exchange, each unit of digital asset A has a
fair market value of $2 and each unit of digital asset B has a fair market value of $1.
BEX charges a fee of $2 per transaction, which BEX withholds from the units of the
digital asset A transferred. At the time of the transaction, BEX withholds 1 unit of digital
asset A. TP exchanges the remaining 9 units of digital asset A for 18 units of digital
asset B.
(2) Analysis. The withholding of 1 unit of digital asset A is a sale of a digital asset
for BEX’s services within the meaning of paragraph (a)(9)(ii)(C) of this section. Under
paragraph (d)(5)(iv)(A) of this section, K has digital asset transaction costs of $2. Under
paragraph (d)(5)(iv)(C) of this section, TP must allocate such costs to the disposition of
the 10 units of digital asset A. Under paragraphs (d)(5)(ii)(A) and (d)(5)(iv)(C) of this
section, TP’s gross proceeds from the sale of the 10 units of digital asset A is $18,
which is the excess of the fair market value of the 18 units of digital asset B received
($18) and the fair market value of the broker services received ($2) as of the date and
time of the transaction over the allocated digital asset transaction costs ($2).
Accordingly, BEX must report $18 as gross proceeds from K’s sale of 10 units of digital
asset A.
(C) Example 3: Determination of gross proceeds when digital asset transaction
costs are withheld from acquired digital assets in an exchange of digital assets—(1)
Facts. The facts are the same as in paragraph (d)(5)(v)(B)(1) of this section (the facts in
Example 2), except that BEX requires its payment be withheld from the units of the
digital asset acquired. At the time of the transaction, BEX withholds 3 units of digital
asset B, two units of which effect the exchange of digital asset A for digital asset B and
one unit of which effects the disposition of digital asset B for payment of the transaction
fees.
(2) Analysis. The withholding of 3 units of digital asset B is a disposition of digital
assets for BEX’s services within the meaning of paragraph (a)(9)(ii)(C) of this section.
Under paragraph (d)(5)(iv)(A) of this section, K has digital asset transaction costs of $3.
Under paragraph (d)(5)(iv)(C) of this section, K must allocate such costs to the
disposition of the 10 units of digital asset A. Under paragraphs (d)(5)(ii)(A) and
(d)(5)(iv)(C) of this section, K’s gross proceeds from the sale of the 10 units of digital
asset A is $17, which is the excess of the fair market value of the 20 units of digital
asset B received ($20) as of the date and time of the transaction over the allocated
digital asset transaction costs ($3). K’s gross proceeds from the sale of the 3 units of
digital asset B used to pay digital asset transaction costs is $3, which is the fair market
value of BEX’s services received at the time of the transaction. Accordingly, BEX must
report $17 as gross proceeds from K’s sale of 10 units of digital asset A. Additionally,
pursuant to paragraph (c)(3)(ii)(C) of this section, BEX is not required to report K’s sale
of the 3 withheld units of digital asset B because the 3 units of digital asset B were units
withheld from digital assets received by K to pay for K’s digital asset transaction costs.
(D) Example 4: Determination of gross proceeds—(1) Facts. CPP, a processor of
digital asset payments, offers debit cards to its customers who hold digital asset FE in
their accounts with CPP. The debit cards allow CPP’s customers to use digital assets

held in accounts with CPP to make payments to merchants who do not accept digital
assets. CPP charges its card holders a 2% transaction fee for purchases made using
the debit card and sets forth in its terms and conditions the process CPP will use to
determine the exchange rate provided at the date and time of its customers’
transactions. CPP has issued a debit card to B, an individual not otherwise exempt from
reporting, who wants to make purchases using digital assets. B transfers 1,000 units of
FE into B’s account with CPP. B then uses the debit card to purchase merchandise from
a U.S. merchant STR for $1,000. An exchange rate of 1 FE = $2 USD is applied to
effect the transaction, based on the exchange rate at that date and time and pursuant to
B’s account agreement. To settle the transaction, CPP removes 510 units of FE from
B’s account equal to $1,020 ($1,000 plus a 2% transaction fee equal to $20). CPP then
pays STR $1,000 in cash.
(2) Analysis. B paid $20 of digital asset transaction costs as defined in paragraph
(d)(5)(iv)(A) of this section. Under paragraph (d)(5)(iii) of this section, the gross
proceeds amount that CPP must report with respect to B’s sale of the 510 units of FE to
purchase the merchandise is $1,000, which is the sum of the amount of cash paid by
CPP to STR plus the $20 digital asset transaction costs withheld by CPP, reduced by
the $20 digital asset transaction costs as allocated under paragraph (d)(5)(iv)(B) of this
section. CPP’s payment of cash to STR is also a payment card transaction under
§1.6050W-1(b) subject to reporting under §1.6050W-1(a).
(E) Example 5: Determination of gross proceeds—(1) Facts. STR, a U.S.
merchant corporation, advertises that it accepts digital asset FE as payment for its
merchandise that is not digital assets. Customers making purchases at STR using
digital asset FE are directed to create an account with CXX, a processor of digital asset
payments, which, pursuant to a preexisting agreement with STR, accepts digital asset
FE in return for payments in cash made to STR. CXX charges a 2% transaction fee,
which is paid by STR and not STR’s customers. S, an individual not otherwise exempt
from reporting, seeks to purchase merchandise from STR for $10,000. To effect
payment, S is directed by STR to CXX, with whom S has an account. An exchange rate
of 1 FE = $2 USD is applied to effect the purchase transaction. Pursuant to this
exchange rate, S then transfers 5,000 units of FE to CXX, which, in turn, pays STR
$9,800 ($10,000 less a 2% transaction fee equal to $200).
(2) Analysis. Under paragraph (d)(5)(iii) of this section, the gross proceeds
amount that CXX must report with respect to this sale is $10,000, which is the sum of
the amount in U.S. dollars paid by CPP to STR ($9,800) plus the $200 digital asset
transaction costs withheld from the payment due to STR. Because S does not have any
digital asset transaction costs, the $9,800 amount is not reduced by any digital asset
transaction costs charged to STR because that fee was not paid by S. In addition,
CXX’s payment of cash to STR (plus the withheld transaction fee) may be reportable
under §1.6050W-1(a) as a third party network transaction under §1.6050W-1(c) if CXX
is a third party settlement organization under the definition in §1.6050W-1(c)(2).
(F) Example 6: Determination of gross proceeds in a real estate transaction—(1)
Facts. J, an unmarried individual not otherwise exempt from reporting, enters into a
contractual agreement with B, an individual not otherwise exempt from reporting, to
exchange J’s principal residence, Blackacre, which has a fair market value of $300,000,
for cash in the amount of $75,000 and units of digital asset DE with a value of $225,000.
Prior to closing, B transfers the digital asset portion of the payment directly from B’s
wallet to J’s wallet. At closing, J certifies to the closing agent (CA) that J received the

DE units required to be paid under the contractual agreement. CA is also a real estate
reporting person under §1.6045-4, and a digital asset middleman under paragraph
(a)(21) of this section with respect to the transaction.
(2) Analysis. CA is required to report on Form 1099-DA the gross proceeds
received by B in exchange for B’s sale of digital assets in this transaction. The gross
proceeds amount to be reported under paragraph (d)(5)(ii)(A) of this section is equal to
$225,000, which is the $300,000 value of Blackacre less $75,000 that B paid in cash. In
addition, under §1.6045-4, CA is required to report on Form 1099-S the $300,000 of
gross proceeds received by J ($75,000 cash and $225,000 in digital assets) as
consideration for J’s disposition of Blackacre.
(6) * * *
(i) In general. For purposes of this section, the adjusted basis of a specified
security is determined from the initial basis under paragraph (d)(6)(ii) of this section as
of the date the specified security is acquired in an account, increased by the
commissions and transfer taxes related to its sale to the extent not accounted for in
gross proceeds as described in paragraph (d)(5) of this section. A broker is not required
to consider transactions or events occurring outside the account except for an
organizational action taken by an issuer of a specified security other than a digital asset
during the period the broker holds custody of the security (beginning with the date that
the broker receives a transferred security) reported on an issuer statement (as
described in §1.6045B-1) furnished or deemed furnished to the broker. Except as
otherwise provided in paragraph (n) of this section, a broker is not required to consider
customer elections. For rules related to the adjusted basis of a debt instrument, see
paragraph (n) of this section.
(ii) Initial basis--(A) Cost basis for specified securities acquired for cash. For a
specified security acquired for cash, the initial basis generally is the total amount of
cash paid by the customer or credited against the customer's account for the specified
security, increased by the commissions, transfer taxes, and digital asset transaction
costs related to its acquisition. A broker may, but is not required to, take option
premiums into account in determining the initial basis of securities purchased or

acquired pursuant to the exercise of an option granted or acquired before January 1,
2014. For rules related to options granted or acquired on or after January 1, 2014, see
paragraph (m) of this section. A broker may, but is not required to, increase initial basis
for income recognized upon the exercise of a compensatory option or the vesting or
exercise of other equity-based compensation arrangements, granted or acquired before
January 1, 2014. A broker may not increase initial basis for income recognized upon the
exercise of a compensatory option or the vesting or exercise of other equity-based
compensation arrangements, granted or acquired on or after January 1, 2014, or upon
the vesting or exercise of a digital asset-based compensation arrangement granted or
acquired on or after January 1, 2025. A broker must report the basis of identical stock
(within the meaning of §1.1012-1(e)(4)) by averaging the basis of each share if the
stock is purchased at separate times on the same calendar day in executing a single
trade order and the broker executing the trade provides a single confirmation to the
customer that reports an aggregate total price or an average price per share. However,
a broker may not average the basis if the customer timely notifies the broker in writing of
an intent to determine the basis of the stock by the actual cost per share in accordance
with §1.1012-1(c)(1)(ii).
(B) Basis of transferred securities--(1) In general. The initial basis of a security
transferred to an account is generally the basis reported on the transfer statement (as
described in §1.6045A-1).
(2) Securities acquired by gift. If a transfer statement indicates that the security is
acquired as a gift, a broker must apply the relevant basis rules for property acquired by
gift in determining the initial basis, but is not required to adjust basis for gift tax. A broker
must treat the initial basis as equal to the gross proceeds from the sale determined
under paragraph (d)(5) of this section if the relevant basis rules for property acquired by
gift prevent recognizing both gain and loss, or if the relevant basis rules treat the initial

basis of the security as its fair market value as of the date of the gift and the broker
neither knows nor can readily ascertain this value. If the transfer statement did not
report a date for the gift, the broker must treat the settlement date for the transfer as the
date of the gift.
(C) Digital assets acquired in exchange for property--(1) In general. This
paragraph (d)(6)(ii)(C) applies solely for purposes of this section. For a digital asset
acquired in exchange for property that is not a debt instrument described in §1.10121(h)(1)(v) or another digital asset differing materially in kind or extent, the initial basis of
the digital asset is the fair market value of the digital asset received at the time of the
exchange, increased by any digital asset transaction costs allocable to the acquisition of
the digital asset. The fair market value of the digital asset received must be determined
using a reasonable valuation method as of the date and time the exchange transaction
was effected. In valuing the digital asset received, the broker may perform its own
valuations or rely on valuations performed by a digital asset data aggregator as defined
in paragraph (d)(5)(ii)(B) of this section, provided such valuations apply a reasonable
valuation method for digital assets as described in paragraph (d)(5)(ii)(A)(3) of this
section. If the broker or digital asset data aggregator reasonably determines that the fair
market value of the digital asset received cannot be determined with reasonable
accuracy, the fair market value of the digital asset received must be determined by
reference to the property transferred at the time of the exchange. If the broker or digital
asset data aggregator reasonably determines that neither the value of the digital asset
received nor the value of the property transferred can be determined with reasonable
accuracy, the fair market value of the received digital asset must be treated as zero. For
a digital asset acquired in exchange for another digital asset differing materially in kind
or extent, see paragraph (d)(6)(ii)(C)(2) of this section. For a digital asset acquired in
exchange for a debt instrument described in §1.1012-1(h)(1)(v), the initial basis of the

digital asset attributable to the debt instrument is the amount determined under
§1.1012-1(h)(1)(v).
(2) Allocation of digital asset transaction costs. Except as provided in the
following sentence, in the case of a sale of one digital asset in exchange for another
digital asset differing materially in kind or extent, the total digital asset transaction costs
paid by the customer are allocable to the digital assets disposed. In the case of a
transaction described in paragraph (d)(5)(iv)(C) of this section, the digital asset
transaction costs paid by the customer to acquire the digital assets received are
allocable as provided therein.
(iii) * * *
(A) Securities in the same account or wallet--(1) In general. A broker must apply
the wash sale rules under section 1091 if both the sale and purchase transactions are of
covered securities, other than covered securities reportable as digital assets after the
application of paragraph (c)(8) of this section, with the same CUSIP number or other
security identifier number that the Secretary may designate by publication in the
Federal Register or in the Internal Revenue Bulletin (see §601.601(d)(2) of this
chapter). When reporting the sale transaction that triggered the wash sale, the broker
must report the amount of loss that is disallowed by section 1091 in addition to gross
proceeds and adjusted basis. The broker must increase the basis of the purchased
covered security by the amount of loss disallowed on the sale transaction.
(2) Special rules for covered securities that are also digital assets. In the case of
a purchase or sale of a tokenized security described in paragraph (c)(8)(i)(D) of this
section that is a stock or security for purposes of section 1091, a broker must apply the
wash sale rules under section 1091 if both the sale and purchase transactions are of
covered securities with the same CUSIP number or other security identifier number that
the Secretary may designate by publication in the Federal Register or in the Internal

Revenue Bulletin (see §601.601(d)(2) of this chapter). When reporting the sale
transaction that triggered the wash sale, the broker must report the amount of loss that
is disallowed by section 1091 in addition to gross proceeds and adjusted basis. The
broker must increase the basis of the purchased covered security by the amount of loss
disallowed on the sale transaction.
(B) Covered securities in different accounts or wallets. A broker is not required to
apply paragraph (d)(6)(iii)(A) of this section if the covered securities are purchased and
sold from different accounts or wallets, if the purchased covered security is transferred
to another account or wallet before the wash sale, or if the covered securities are
treated as held in separate accounts under §1.1012-1(e). A covered security is not
purchased in an account or wallet if it is purchased in another account or wallet and
transferred into the account or wallet.
*****
(v) Average basis method adjustments. For a covered security for which basis
may be determined by the average basis method, a broker must compute basis using
the average basis method if a customer validly elects that method for the covered
securities sold or, in the absence of any instruction from the customer, if the broker
chooses that method as its default basis determination method. See §1.1012-1(e). The
previous sentence applies to any stock that is also a tokenized security described in
paragraph (c)(8)(i)(D) of this section.
*****
(x) Examples. The following examples illustrate the rules of paragraph (d)(5) of
this section and this paragraph (d)(6) as applied to digital assets. Unless otherwise
indicated, all events and transactions in the following examples occur using the services
of CRX, an entity that owns and operates a digital asset trading platform and provides
digital asset broker and hosted wallet services. In performing these services, CRX holds

and records all customer purchase and sale transactions using CRX’s centralized
omnibus account. CRX does not record any of its customer’s purchase or sale
transactions on the relevant cryptographically secured distributed ledgers. Additionally,
unless otherwise indicated, all events and transactions in the following examples occur
on or after January 1, 2026.
(A) Example 1: Determination of gross proceeds and basis in digital assets—(1)
Facts. As a digital asset broker, CRX generally charges transaction fees equal to 1 unit
of CRX’s proprietary digital asset CM per transaction. CRX does not, however, charge
transaction fees for the purchase of CM. On March 9, Year 1, K, an individual not
otherwise exempt from reporting, purchases 20 units of CM for $20 in cash in K’s
account at CRX. A week later, on March 16, Year 1, K uses CRX’s services to purchase
10 units of digital asset DE for $80 in cash. To pay for CRX’s transaction fee, K directs
CRX to debit 1 unit of CM (worth $1 at the time of transfer) from K’s account.
(2) Analysis. Under paragraph (d)(2)(i)(B) of this section, CRX must report the
gross proceeds from K’s sale of 1 unit of CM. Additionally, because the units of CM
were purchased in K’s account at a broker providing custodial services for digital assets
that are specified securities described in paragraph (a)(14)(v) of this section, the units of
CM purchased by K are covered securities under paragraph (a)(15)(i)(J) of this section.
Accordingly, under paragraphs (d)(2)(i)(D)(1) and (2) of this section, CRX must report
K’s adjusted basis in the 1 unit of CM and whether any gain or loss with respect to the
CM unit sold is long-term or short-term. The gross proceeds from that sale is equal to
the fair market value of the CM units on March 16, Year 1 ($1), and the adjusted basis
of that unit is equal to the amount K paid in cash for the CM unit on March 9, Year 1
($1). This reporting is required regardless of the fact that there is $0 of gain or loss
associated with this sale. Additionally, K’s adjusted basis in the 10 units of DE acquired
is equal to the $81 initial basis in DE, which is $80 plus the $1 value of 1 unit of CM paid
as a digital asset transaction cost for the purchase of the DE units.
(B) Example 2: Determination of gross proceeds and basis in digital assets—(1)
Facts. The facts are the same as in paragraph (d)(6)(x)(A)(1) of this section (the facts in
Example 1), except that on June 12, Year 2, K instructs CRX to exchange K’s 10 units
of DE for 50 units of digital asset ST. CRX effects this exchange using its own omnibus
account holdings of ST at an exchange rate of 1 DE = 5 ST. The total value of the 50
units of ST received by K is $100. K directs CRX to debit 1 CM unit (worth $2 at the time
of the transfer) from K’s account to pay CRX for the transaction fee.
(2) Analysis. K has digital asset transaction costs of $2 as defined in paragraph
(d)(5)(iv)(A) of this section, which is the value of 1 unit of CM. Under paragraph
(d)(2)(i)(B) of this section, CRX must report the gross proceeds from K’s exchange of
DE for ST (as a sale of K’s 10 units of DE) and the gross proceeds from K’s disposition
of 1 unit of CM for CRX’s services. Additionally, because the units of DE and CM were
purchased in K’s account at a broker providing custodial services for digital assets that
are specified securities described in paragraph (a)(14)(v) of this section, the units of DE
and CM are covered securities under paragraph (a)(15)(i)(J) of this section, and,
pursuant to paragraphs (d)(2)(i)(D)(1) and (2) of this section, CRX must report K’s
adjusted basis in the 10 units of DE and 1 unit of CM and whether any gain or loss with

respect to the those units is long-term or short-term. Under paragraph (d)(5)(ii)(A) of this
section, the gross proceeds from K’s sale of the DE units is $98 (the fair market value of
the 50 units of ST that K received less the $2 digital asset transaction costs paid by K
using 1 unit of CM), that is allocable to the sale of the DE units. Under this paragraph
(d)(6), K’s adjusted basis in the 10 units of DE is $81 (which is $80 plus the $1 value of
1 unit of CM paid as a digital asset transaction cost for the purchase of the DE units),
resulting in a long-term capital gain to K of $17 ($98 - $81). The gross proceeds from
K’s sale of the single unit of CM is $2, and K’s adjusted basis in the single unit of CM is
$1, resulting in a long-term capital gain to K of $1 ($2 - $1). K’s adjusted basis in the ST
units under paragraph (d)(6)(ii)(C) of this section is equal to the initial basis in ST, which
is $100.
(C) Example 3: Determination of gross proceeds and basis when digital asset
transaction costs are withheld from transferred digital assets—(1) Facts. K has an
account with digital asset broker BEX. On December 20, Year 1, K acquired 10 units of
digital asset A, for $2 per unit, and 100 units of digital asset B, for $0.50 per unit.
(Assume that K did not incur any digital asset transaction costs on the units acquired on
December 20, Year 1.) On July 20, Year 2, K directs BEX to effect the exchange of 10
units of digital asset A for 50 units of digital asset B. At the time of the exchange, each
unit of digital asset A has a fair market value of $5 per unit and each unit of digital asset
B has a fair market value of $1 per unit. For the exchange of 10 units of digital asset A
for 50 units of digital asset B, BEX charges K a transaction fee equal to 2 units of digital
asset B, which BEX withholds from the units of the digital asset B credited to K’s
account on July 20, Year 2. For the disposition of 2 units of digital asset B withheld,
BEX charges an additional transaction fee equal to 1 unit of digital asset B, which BEX
also withholds from the units of digital asset B credited to K’s account on July 20, Year
2. K has a standing order with BEX for the specific identification of digital assets as from
the earliest units acquired.
(2) Reporting with respect to the disposition of the A units. The withholding of 3
units of digital asset B is a disposition of digital assets for BEX’s services within the
meaning of paragraph (a)(9)(ii)(C) of this section. Under paragraph (d)(5)(iv)(A) of this
section, K has digital asset transaction costs of $3. Under paragraph (d)(5)(iv)(C) of this
section, the exchange of 10 units of digital asset A for 50 units of digital asset B is the
original transaction. Accordingly, BEX must allocate the digital asset transaction costs of
$3 exclusively to the disposition of the 10 units of digital asset A. Additionally, because
the units of A are specified securities described in paragraph (a)(14)(v) of this section
and were purchased in K’s account at BEX by a broker providing custodial services for
such specified securities, the units of A are covered securities under paragraph
(a)(15)(i)(J) of this section, and BEX must report K’s adjusted basis in the 10 units of A.
Under paragraphs (d)(5)(ii)(A) and (d)(5)(iv)(C) of this section, K’s gross proceeds from
the sale of the 10 units of digital asset A is $47, which is the excess of the fair market
value of the 50 units of digital asset B received ($50) as of the date and time of the
transaction over the allocated digital asset transaction costs ($3). Under this paragraph
(d)(6), K’s adjusted basis in the 10 units of A is $20, resulting in a short-term capital gain
to K of $27 ($47 - $20).
(3) Reporting with respect to the disposition of the withheld B units. K’s gross
proceeds from the sale of the 3 units of digital asset B used to pay digital asset
transaction costs is $3, which is the fair market value of the digital assets used to pay
for such transaction costs. Pursuant to the special rule for the identification of units
withheld from digital assets received in a transaction to pay a customer’s digital asset

transaction costs under paragraph (d)(2)(ii)(B)(3) of this section and regardless of K’s
standing order, the withheld units sold are treated as from the units received in the
original (A for B) transaction. Accordingly, the basis of the 3 withheld units of digital
asset B is $3, which is the fair market value of the 3 units of digital asset B received.
Finally, pursuant to paragraph (c)(3)(ii)(C) of this section, BEX is not required to report
K’s sale of the 3 withheld units of digital asset B because the 3 units of digital asset B
were units withheld from digital assets received by K to pay for K’s digital asset
transaction costs.
(D) Example 4: Determination of gross proceeds and basis for digital assets—(1)
Facts. On August 26, Year 1, Customer P purchases 10 units of digital asset DE for $2
per unit in cash in an account at CRX. CRX charges P a fixed transaction fee of $5 in
cash for the exchange. On October 26, Year 2, P directs CRX to exchange P’s 10 units
of DE for units of digital asset FG. At the time of the exchange, CRX determines that
each unit of DE has a fair market value of $100 and each unit of FG has a fair market
value of $50. As a result of this determination, CRX effects an exchange of P’s 10 units
of DE for 20 units of FG. CRX charges P a fixed transaction fee of $20 in cash for the
exchange.
(2) Analysis. Under paragraph (d)(5)(iv)(B) of this section, P has digital asset
transaction costs of $20 associated with the exchange of DE for FG which must be
allocated to the sale of the DE units. For the transaction that took place on October 26,
Year 2, under paragraph (d)(2)(i)(B) of this section, CRX must report the amount of
gross proceeds from the sale of DE in the amount of $980 (the $1,000 fair market value
of FG received on the date and time of transfer, less all of the digital asset transaction
costs of $20 allocated to the sale). Under paragraph (d)(6)(ii)(C) of this section, the
adjusted basis of P’s DE units is equal to $25, which is the $20 paid in cash for the 10
units increased by the $5 digital asset transaction costs allocable to that purchase.
Finally, P’s adjusted basis in the 20 units of FG is equal to the fair market value of the
FG received, $1,000, because none of the $20 transaction fee may be allocated under
paragraph (d)(6)(ii)(C)(2) of this section to the acquisition of P’s FG units.
(7) * * *
(i) In general. In determining whether any gain or loss on the sale of a covered
security is long-term or short-term within the meaning of section 1222 for purposes of
this section, the following rules apply:
(A) A broker must consider the information reported on a transfer statement (as
described in §1.6045A-1).
(B) A broker is not required to consider transactions, elections, or events
occurring outside the account except for an organizational action taken by an issuer
during the period the broker holds custody of the covered security (beginning with the

date that the broker receives a transferred security) reported on an issuer statement (as
described in §1.6045B-1) furnished or deemed furnished to the broker.
(C) A broker is required to apply the relevant rules for property acquired from a
decedent or by gift for all covered securities.
(ii) * * *
(A) Securities in the same account or wallet--(1) In general. A broker must apply
the wash sale rules under section 1091 if both the sale and purchase transactions are of
covered securities, other than covered securities reportable as digital assets after the
application of paragraph (c)(8) of this section, with the same CUSIP number or other
security identifier number that the Secretary may designate by publication in the
Federal Register or in the Internal Revenue Bulletin (see §601.601(d)(2) of this
chapter).
(2) Special rules for covered securities that are also digital assets. In the case of
a purchase or sale of a tokenized security described in paragraph (c)(8)(i)(D) of this
section that is a stock or security for purposes of section 1091, a broker must apply the
wash sale rules under section 1091 if both the sale and purchase transactions are of
covered securities with the same CUSIP number or other security identifier number that
the Secretary may designate by publication in the Federal Register or in the Internal
Revenue Bulletin (see §601.601(d)(2) of this chapter).
(B) Covered securities in different accounts or wallets. A broker is not required to
apply paragraph (d)(7)(ii)(A) of this section if the covered securities are purchased and
sold from different accounts or wallets, if the purchased covered security is transferred
to another account or wallet before the wash sale, or if the covered securities are
treated as held in separate accounts under §1.1012-1(e). A covered security is not
purchased in an account or wallet if it is purchased in another account or wallet and
transferred into the account or wallet.

*****
(9) Coordination with the reporting rules for widely held fixed investment trusts
under §1.671-5. Information required to be reported under section 6045(a) for a sale of
a security or a digital asset in a widely held fixed investment trust (WHFIT) (as defined
under §1.671-5) and the sale of an interest in a WHFIT must be reported as provided by
this section unless the information is also required to be reported under §1.671-5. To
the extent that this section requires additional information under section 6045(g), those
requirements are deemed to be met through compliance with the rules in §1.671-5.
(10) Optional reporting methods for qualifying stablecoins and specified
nonfungible tokens. This paragraph (d)(10) provides optional reporting rules for sales of
qualifying stablecoins as defined in paragraph (d)(10)(ii) of this section and sales of
specified nonfungible tokens as defined in paragraph (d)(10)(iv) of this section. A broker
may report sales of qualifying stablecoins or report sales of specified nonfungible tokens
under the optional method provided in this paragraph (d)(10) instead of under
paragraphs (d)(2)(i)(B) and (D) of this section for some or all customers and may
change its reporting method for any customer from year to year; however, the method
chosen for a particular customer must be applied for the entire year of that customer’s
sales.
(i) Optional reporting method for qualifying stablecoins--(A) In general. In lieu of
reporting all sales of qualifying stablecoins under paragraphs (d)(2)(i)(B) and (D) of this
section, a broker may report designated sales of qualifying stablecoins, as defined in
paragraph (d)(10)(i)(C) of this section, on an aggregate basis as provided in paragraph
(d)(10)(i)(B) of this section. A broker reporting under this paragraph (d)(10)(i) is not
required to report sales of qualifying stablecoins under this paragraph (d)(10)(i) or under
paragraphs (d)(2)(i)(B) through (D) of this section if such sales are non-designated
sales of qualifying stablecoins or if the gross proceeds (after reduction for the allocable

digital asset transaction costs) from all designated sales effected by that broker of
qualifying stablecoins by the customer do not exceed $10,000 for the year as described
in paragraph (d)(10)(i)(B) of this section.
(B) Aggregate reporting method for designated sales of qualifying stablecoins. If
a customer’s aggregate gross proceeds (after reduction for the allocable digital asset
transaction costs) from all designated sales effected by that broker of qualifying
stablecoins exceed $10,000 for the year, the broker must make a separate return for
each qualifying stablecoin that includes the information set forth in this paragraph
(d)(10)(i)(B). If the aggregate gross proceeds reportable under the previous sentence
exceed $10,000, reporting is required with respect to each qualifying stablecoin for
which there are designated sales even if the aggregate gross proceeds for a particular
qualifying stablecoin does not exceed $10,000. A broker reporting under this paragraph
(d)(10)(i)(B) must report the following information with respect to designated sales of
each qualifying stablecoin on a separate Form 1099-DA or any successor form in the
manner required by such form or instructions—
(1) The name, address, and taxpayer identification number of the customer;
(2) The name of the qualifying stablecoin sold;
(3) The aggregate gross proceeds for the year from designated sales of the
qualifying stablecoin (after reduction for the allocable digital asset transaction costs as
defined and allocated pursuant to paragraph (d)(5)(iv) of this section);
(4) The total number of units of the qualifying stablecoin sold in designated sales
of the qualifying stablecoin;
(5) The total number of designated sale transactions of the qualifying stablecoin;
and
(6) Any other information required by the form or instructions.

(C) Designated sale of a qualifying stablecoin. For purposes of this paragraph
(d)(10), the term designated sale of a qualifying stablecoin means: any sale as defined
in paragraphs (a)(9)(ii)(A) through (D) of this section of a qualifying stablecoin other
than a sale of a qualifying stablecoin in exchange for different digital assets that are not
qualifying stablecoins. In addition, the term designated sale of a qualifying stablecoin
includes the delivery of a qualifying stablecoin pursuant to the settlement of any
executory contract which would be treated as a designated sale of the qualifying digital
asset under the previous sentence if the contract had not been executory. Finally, the
term non-designated sale of a qualifying stablecoin means any sale of a qualifying
stablecoin other than a designated sale of a qualifying stablecoin as defined in this
paragraph (d)(10)(i)(C).
(D) Examples. For purposes of the following examples, assume that digital asset
WW and digital asset YY are qualifying stablecoins, and digital asset DL is not a
qualifying stablecoin. Additionally, assume that the transactions set forth in each
example include all sales of qualifying stablecoins on behalf of the customer during
Year 1, and that no transaction costs were imposed on the sales described therein.
(1) Example 1: Optional reporting method for qualifying stablecoins—(i) Facts.
CRX is a digital asset broker that provides services to customer K, an individual not
otherwise exempt from reporting. CRX effects the following sales on behalf of K: sale of
1,000 units of WW in exchange for cash of $1,000; sale of 5,000 units of WW in
exchange for YY, with a value of $5,000; sale of 10,000 units of WW in return for DL,
with a value of $10,000; and sale of 3,000 units of YY in exchange for cash of $3,000.
(ii) Analysis. In lieu of reporting all of K’s sales of WW and YY under paragraph
(d)(2)(i)(B) of this section, CRX may report K’s designated sales of WW and YY under
the optional reporting method set forth in paragraph (d)(10)(i)(B) of this section. In this
case, K’s designated sales of qualifying stablecoins resulted in total gross proceeds of
$9,000, which is the total of $1,000 from sale of WW for cash, $5,000 from the sale of
WW in exchange for YY, and $3,000 from the sale of YY for cash. Because K’s
designated sales of WW and YY did not exceed $10,000, CRX is not required to make a
return of information under this section for any of K’s qualifying stablecoin sales. The
$10,000 of gross proceeds from the sale of WW for DL, which is not a qualifying
stablecoin, is not included in this calculation to determine if the de minimis threshold has
been exceeded because that sale is not a designated sale and, as such, is not
reportable.

(2) Example 2: Optional reporting method for qualifying stablecoins—(i) Facts.
The facts are the same as in paragraph (d)(10)(i)(D)(1)(i) of this section (the facts in
Example 1), except that CRX also effects an additional sale of 4,000 units of YY in
exchange for cash of $4,000 on behalf of K.
(ii) Analysis. In lieu of reporting all of K’s sales of WW and YY under paragraph
(d)(2)(i)(B) of this section, CRX may report K’s designated sales of WW and YY under
the optional reporting method set forth in paragraph (d)(10)(i)(B) of this section. In this
case, K’s designated sales of qualifying stablecoins resulted in total gross proceeds of
$13,000, which is the total of $1,000 from sale of WW for cash, $5,000 from the sale of
WW for YY, $3,000 from the sale of YY for cash, and $4,000 from the sale of YY for
cash. Because K’s designated sales of all types of qualifying stablecoins exceeds
$10,000, CRX must make two returns of information under this section: one for all of K’s
designated sales of WW and another for all of K’s designated sales of YY.
(ii) Qualifying stablecoin. For purposes of this section, the term qualifying
stablecoin means any digital asset that satisfies the conditions set forth in paragraphs
(d)(10)(ii)(A) through (C) of this section for the entire calendar year.
(A) Designed to track certain other currencies. The digital asset is designed to
track on a one-to-one basis a single convertible currency issued by a government or a
central bank (including the U.S. dollar).
(B) Stabilization mechanism. Either:
(1) The digital asset uses a stabilization mechanism that causes the unit value of
the digital asset not to fluctuate from the unit value of the convertible currency it was
designed to track by more than 3 percent over any consecutive 10-day period,
determined using Coordinated Universal Time (UTC), during the calendar year; or
(2) The issuer of the digital asset is required by regulation to redeem a unit of the
digital asset at any time on a one-to-one basis for the same convertible currency that
the digital asset was designed to track.
(C) Accepted as payment. The digital asset is generally accepted as payment by
persons other than the issuer. A digital asset that satisfies the conditions set forth in
paragraphs (d)(10)(ii)(A) and (B) of this section that is accepted by a broker pursuant to
a sale of another digital asset, or that is accepted by a second party pursuant to a sale

effected by a processor of digital asset payments described in paragraph (a)(9)(ii)(D) of
this section, meets the condition set forth in this paragraph (d)(10)(ii)(C).
(D) Examples--(1) Example 1—(i) Facts. Y is a privately held corporation that
issues DL1, a digital asset designed to track the value of the U.S. dollar. Pursuant to
regulatory requirements, DL1 is backed in full by U.S. dollars and other liquid short-term
U.S. dollar-denominated assets held by Y, and Y offers to redeem units of DL1 for U.S.
dollars at par at any time. Y’s retention of U.S. dollars and other liquid short-term U.S.
dollar-denominated assets as collateral and Y’s offer to redeem units of DL for U.S.
dollars at par at any time are intended to cause DL1 to track the U.S. dollar on a one-toone basis. Broker B accepts DL1 as payment in return for sales of other digital assets.
(ii) Analysis. DL1 satisfies the three conditions set forth in paragraphs
(d)(10)(ii)(A) through (C) of this section. First, DL1 was designed to track on a one-toone basis the U.S. dollar, which is a single convertible currency issued by a government
or a central bank. Second, DL1 uses a stabilization mechanism, as described in
paragraph (d)(10)(ii)(B)(2) of this section, that pursuant to regulatory requirements
requires Y to offer to redeem one unit of DL1 for one U.S. dollar at any time. Finally,
because B accepts DL1 as payment for sales of other digital assets, DL1 is generally
accepted as payment by persons other than Y. Accordingly, DL1 is a qualifying
stablecoin under this paragraph (d)(10)(ii).
(2) Example 2—(i) Facts. Z is a privately held corporation that issues DL2, a
digital asset designed to track the value of the U.S. dollar on a one-to-one basis that
has a mechanism that is intended to effect that tracking. On April 28, Year X, Broker B
effects the sale of units of DL2 for cash on behalf of customer C. During Year X, the unit
value of DL2 did not fluctuate from the U.S. dollar by more than 3 percent over any
consecutive 10-day period. Merchant M accepts payment in DL2 in return for goods and
services in connection with sales effected by processors of digital asset payments.
(ii) Analysis. DL2 satisfies the three conditions set forth in paragraphs
(d)(10)(ii)(A) through (C) of this section. First, DL2 was designed to track on a one-toone basis the U.S. dollar, which is a single convertible currency issued by a government
or a central bank. Second, DL2 uses a stabilization mechanism, as described in
paragraph (d)(10)(ii)(B)(2) of this section, that results in the unit value of DL2 not
fluctuating from the U.S. dollar by more than 3 percent over any consecutive 10-day
period during the calendar year (Year X). Third, Merchant M accepts payment in DL2 in
return for goods and services in connection with sales effected by processors of digital
asset payments DL2 is generally accepted as payment by persons other than Z.
Accordingly, DL2 is a qualifying stablecoin under this paragraph (d)(10)(ii).
(iii) Optional reporting method for specified nonfungible tokens--(A) In general. In
lieu of reporting sales of specified nonfungible tokens under the reporting rules provided
under paragraph (d)(2)(i)(B) of this section, a broker may report sales of specified
nonfungible tokens as defined in paragraph (d)(10)(iv) of this section on an aggregate
basis as provided in this paragraph (d)(10)(iii). Other digital assets, including

nonfungible tokens that are not specified nonfungible tokens, are not eligible for the
optional reporting method in this paragraph (d)(10)(iii).
(B) Reporting method for specified nonfungible tokens. A broker reporting under
this paragraph (d)(10)(iii) must report sales of specified nonfungible tokens if the
customer’s aggregate gross proceeds (after reduction for the allocable digital asset
transaction costs) from all sales of specified nonfungible tokens exceed $600 for the
year. If the customer’s aggregate gross proceeds (after reduction for the allocable digital
asset transaction costs) from such sales effected by that broker do not exceed $600 for
the year, no report is required. A broker reporting under this paragraph (d)(10)(iii)(B)
must report on a Form 1099-DA or any successor form in the manner required by such
form or instructions the following information with respect to the customer’s sales of
specified nonfungible tokens—
(1) The name, address, and taxpayer identification number of the customer;
(2) The aggregate gross proceeds for the year from all sales of specified
nonfungible tokens (after reduction for the allocable digital asset transaction costs as
defined and allocated pursuant to paragraph (d)(5)(iv) of this section);
(3) The total number of specified nonfungible token sales;
(4) To the extent ordinarily known by the broker, the aggregate gross proceeds
that is attributable to the first sale by a creator or minter of the specified nonfungible
token; and
(5) Any other information required by the form or instructions.
(C) Examples. The following examples illustrate the rules of this paragraph
(d)(10)(iii).
(1) Example 1: Optional reporting method for specified nonfungible tokens—(i)
Facts. CRX is a digital asset broker that provides services to customer J, an individual
not otherwise exempt from reporting. In Year 1, CRX sells on behalf of J, ten specified
nonfungible tokens for a gross proceeds amount equal to $1,500. CRX does not sell
any other specified nonfungible tokens for J during Year 1.

(ii) Analysis. In lieu of reporting J’s sales of the ten specified nonfungible tokens
under paragraph (d)(2)(i)(B) of this section, CRX may report these sales under the
reporting method set forth in this paragraph (d)(10)(iii). In this case, J’s sales of the ten
specified nonfungible tokens gave rise to total gross proceeds of $1,500 for Year 1.
Because the total gross proceeds from J’s sales of the ten specified nonfungible tokens
exceeds $600, CRX must make a single return of information under this section for
these sales.
(2) Example 2: Optional reporting method for specified nonfungible tokens—(i)
Facts. The facts are the same as in paragraph (d)(10)(iii)(C)(1)(i) of this section (the
facts in Example 1), except that the total gross proceeds from the sale of J’s ten
specified nonfungible tokens is $500.
(ii) Analysis. Because J’s sales of the specified nonfungible tokens result in total
gross proceeds of $500, CRX is not required to make a return of information under this
section for J’s sales of the specified nonfungible tokens.
(iv) Specified nonfungible token. For purposes of this section, the term specified
nonfungible token means a digital asset that satisfies the conditions set forth in
paragraphs (d)(10)(iv)(A) through (C) of this section.
(A) Indivisible. The digital asset cannot be subdivided into smaller units without
losing its intrinsic value or function.
(B) Unique. The digital asset itself includes a unique digital identifier, other than a
digital asset address, that distinguishes that digital asset from all other digital assets.
(C) Excluded property. The digital asset is not and does not directly or through
one or more other digital assets that satisfy the conditions described in paragraphs
(d)(10)(iv)(A) and (B) of this section, provide the holder with any interest in any of the
following excluded property—
(1) A security under paragraph (a)(3) of this section;
(2) A commodity under paragraph (a)(5) of this section;
(3) A regulated futures contract under paragraph (a)(6) of this section;
(4) A forward contract under paragraph (a)(7) of this section; or
(5) A digital asset that does not satisfy the conditions described in paragraphs
(d)(10)(iv)(A) and (B) of this section.

(D) Examples. The following examples illustrate the rules of this paragraph
(d)(10)(iv).
(1) Example 1: Specified nonfungible token—(i) Facts. Individual J is an artist in
the business of creating and selling digital assets that reference J’s artwork. J creates a
unique digital asset (DA-J) that represents J’s artwork. The digital asset includes a
unique digital identifier, other than a digital asset address, that distinguishes DA-J from
all other digital assets. DA-J cannot be subdivided into smaller units.
(ii) Analysis. DA-J is a digital asset that satisfies the three conditions described in
paragraphs (d)(10)(iv)(A) through (C) of this section. DA-J cannot be subdivided into
smaller units without losing its intrinsic value or function. Additionally, DA-J includes a
unique digital identifier that distinguishes DA-J from all other digital assets. Finally, DA-J
does not provide the holder with any interest in excluded property listed in paragraphs
(d)(10)(iv)(C)(1) through (5) of this section Accordingly, DA-J is a specified nonfungible
token under this paragraph (d)(10)(iv).
(2) Example 2: Specified nonfungible token—(i) Facts. K creates a unique digital
asset (DA-K) that provides the holder with the right to redeem DA-K for 100 units of
digital asset DE. Units of DE can be subdivided into smaller units and do not include a
unique digital identifier, other than a digital asset address, that distinguishes one unit of
DE from any other unit of DE. DA-K cannot be subdivided into smaller units and
includes a unique digital identifier, other than a digital asset address, that distinguishes
DA-K from all other digital assets.
(ii) Analysis. DA-K provides its holder with an interest in 100 units of digital asset
DE, which is excluded property, as described in paragraph (d)(10)(iv)(C)(5) of this
section, because DE units can be subdivided into smaller units and do not include
unique digital identifiers that distinguishes one unit of DE from any other unit of DE.
Accordingly, DA-K is not a specified nonfungible token under this paragraph (d)(10)(iv).
(3) Example 3: Specified nonfungible token—(i) Facts. The facts are the same as
in paragraph (d)(10)(iv)(D)(2)(i) of this section (the facts in Example 2) except that in
addition to providing its holder with an interest in the 100 units of DE, DA-K also
provides rights to or access to a unique work of art.
(ii) Analysis. Because DA-K provides its holder with an interest in excluded
property described in paragraph (d)(10)(iv)(C)(5) of this section, it is not a specified
nonfungible token under paragraph this (d)(10)(iv) without regard to whether it also
references property that is not excluded property.
(4) Example 4: Specified nonfungible token—(i) Facts. B creates a unique digital
asset (DA-B) that provides the holder with the right to redeem DA-B for physical
merchandise in B’s store. DA-B cannot be subdivided into smaller units and includes a
unique digital identifier, other than a digital asset address, that distinguishes DA-B from
all other digital assets.
(ii) Analysis. DA-B is a digital asset that satisfies the three conditions described in
paragraphs (d)(10)(iv)(A) through (C) of this section. DA-B cannot be subdivided into
smaller units without losing its intrinsic value or function. Additionally, DA-B includes a
unique digital identifier that distinguishes DA-B from all other digital assets. Finally, DA-

B does not provide the holder with any interest in excluded property listed in paragraphs
(d)(10)(iv)(C)(1) through (5) of this section. Accordingly, DA-B is a specified nonfungible
token under this paragraph (d)(10)(iv).
(v) Joint accounts. For purposes of determining if the gross proceeds thresholds
set forth in paragraphs (d)(10)(i)(B) and (d)(10)(iii)(B) of this section have been met for
the customer, the customer is the person whose tax identification number would be
required to be shown on the information return (but for the application of the relevant
threshold) after the application of the backup withholding rules under §31.3406(h)-2(a)
of this chapter.
(11) Collection and retention of additional information with respect to the sale of a
digital asset. A broker required to make an information return under paragraph (c) of this
section with respect to the sale of a digital asset must collect the following additional
information, retain it for seven years from the date of the due date for the information
return required to be filed under this section, and make it available for inspection upon
request by the Internal Revenue Service:
(i) The transaction ID as defined in paragraph (a)(24) of this section in connection
with the sale, if any; and the digital asset address as defined in paragraph (a)(20) of this
section (or digital asset addresses if multiple) from which the digital asset was
transferred in connection with the sale, if any;
(ii) For each sale of a digital asset that was held by the broker in a hosted wallet
on behalf of a customer and was previously transferred into an account at the broker
(transferred-in digital asset), the transaction ID of such transfer in and the digital asset
address (or digital asset addresses if multiple) from which the digital asset was
transferred, if any.
(e) * * *
(2) * * *

(iii) Coordination rules for exchanges of digital assets made through barter
exchanges. Exchange transactions involving the exchange of one digital asset held by
one customer of a broker for a different digital asset held by a second customer of the
same broker must be treated as a sale under paragraph (a)(9)(ii) of this section subject
to reporting under paragraphs (c) and (d) of this section, and not as an exchange of
personal property through a barter exchange subject to reporting under this paragraph
(e) and paragraph (f) of this section, with respect to both customers involved in the
exchange transaction. In the case of an exchange transaction that involves the transfer
of a digital asset for personal property or services that are not also digital assets, if the
digital asset payment also is a reportable payment transaction subject to reporting by
the barter exchange under §1.6050W-1(a)(1), the exchange transaction must be treated
as a reportable payment transaction and not as an exchange of personal property
through a barter exchange subject to reporting under this paragraph (e) and paragraph
(f) of this section with respect to the member or client disposing of personal property or
services. Additionally, an exchange transaction described in the previous sentence must
be treated as a sale under paragraph (a)(9)(ii)(D) of this section subject to reporting
under paragraphs (c) and (d) of this section and not as an exchange of personal
property through a barter exchange subject to reporting under this paragraph (e) and
paragraph (f) of this section with respect to the member or client disposing of the digital
asset. Nothing in this paragraph (e)(2)(iii) may be construed to mean that any broker is
or is not properly classified as a barter exchange.
*****
(g) Exempt foreign persons--(1) Brokers. No return of information is required to
be made by a broker with respect to a customer who is considered to be an exempt
foreign person under paragraphs (g)(1)(i) through (iii) or paragraph (g)(4) of this section.
See paragraph (a)(1) of this section for when a person is not treated as a broker under

this section for a sale effected at an office outside the United States. See paragraphs
(g)(1)(i) through (g)(3) of this section for rules relating to sales as defined in paragraph
(a)(9)(i) of this section and see paragraph (g)(4) of this section for rules relating to sales
of digital assets as defined in paragraph (a)(9)(ii) of this section.
(i) With respect to a sale as defined in paragraph (a)(9)(i) of this section (relating
to sales other than sales of digital assets) that is effected at an office of a broker either
inside or outside the United States, the broker may treat the customer as an exempt
foreign person if the broker can, prior to the payment, reliably associate the payment
with documentation upon which it can rely in order to treat the customer as a foreign
beneficial owner in accordance with §1.1441-1(e)(1)(ii), as made to a foreign payee in
accordance with §1.6049-5(d)(1), or presumed to be made to a foreign payee under
§1.6049-5(d)(2) or (3). For purposes of this paragraph (g)(1)(i), the provisions in
§1.6049-5(c) regarding rules applicable to documentation of foreign status shall apply
with respect to a sale when the broker completes the acts necessary to effect the sale
at an office outside the United States, as described in paragraph (g)(3)(iii)(A) of this
section, and no office of the same broker within the United States negotiated the sale
with the customer or received instructions with respect to the sale from the customer.
The provisions in §1.6049-5(c) regarding the definitions of U.S. payor, U.S. middleman,
non-U.S. payor, and non-U.S. middleman shall also apply for purposes of this
paragraph (g)(1)(i). The provisions of §1.1441-1 shall apply by substituting the terms
broker and customer for the terms withholding agent and payee, respectively, and
without regard for the fact that the provisions apply to amounts subject to withholding
under chapter 3 of the Code. The provisions of §1.6049-5(d) shall apply by substituting
the terms broker and customer for the terms payor and payee, respectively. For
purposes of this paragraph (g)(1)(i), a broker that is required to obtain, or chooses to
obtain, a beneficial owner withholding certificate described in §1.1441-1(e)(2)(i) from an

individual may rely on the withholding certificate only to the extent the certificate
includes a certification that the beneficial owner has not been, and at the time the
certificate is furnished, reasonably expects not to be present in the United States for a
period aggregating 183 days or more during each calendar year to which the certificate
pertains. The certification is not required if a broker receives documentary evidence
under §1.6049-5(c)(1) or (4).
(ii) With respect to a redemption or retirement of stock or an obligation (the
interest or original issue discount on, which is described in §1.6049-5(b)(6), (7), (10), or
(11) or the dividends on, which are described in §1.6042-3(b)(1)(iv)) that is effected at
an office of a broker outside the United States by the issuer (or its paying or transfer
agent), the broker may treat the customer as an exempt foreign person if the broker is
not also acting in its capacity as a custodian, nominee, or other agent of the payee.
(iii) With respect to a sale as defined in paragraph (a)(9)(i) of this section (relating
to sales other than sales of digital assets) that is effected by a broker at an office of the
broker either inside or outside the United States, the broker may treat the customer as
an exempt foreign person for the period that those proceeds are assets blocked as
described in §1.1441-2(e)(3). For purposes of this paragraph (g)(1)(iii) and section
3406, a sale is deemed to occur in accordance with paragraph (d)(4) of this section. The
exemption in this paragraph (g)(1)(iii) shall terminate when payment of the proceeds is
deemed to occur in accordance with the provisions of §1.1441-2(e)(3).
(2) Barter exchange. No return of information is required by a barter exchange
under the rules of paragraphs (e) and (f) of this section with respect to a client or a
member that the barter exchange may treat as an exempt foreign person pursuant to
the procedures described in paragraph (g)(1) of this section.
(3) Applicable rules--(i) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt from reporting

under paragraph (g)(1)(i) or (g)(2) of this section are presumed made to U.S. payees
who are not exempt recipients if, prior to payment, the broker or barter exchange cannot
reliably associate the payment either with a Form W-9 furnished by one of the joint
owners in the manner required in §§31.3406(d)-1 through 31.3406(d)-5 of this chapter,
or with documentation described in paragraph (g)(1)(i) of this section furnished by each
joint owner upon which it can rely to treat each joint owner as a foreign payee or foreign
beneficial owner. For purposes of applying this paragraph (g)(3)(i), the grace period
described in §1.6049-5(d)(2)(ii) shall apply only if each payee qualifies for such grace
period.
(ii) Special rules for determining who the customer is. For purposes of paragraph
(g)(1) of this section, the determination of who the customer is shall be made on the
basis of the provisions in §1.6049-5(d) by substituting in that section the terms payor
and payee with the terms broker and customer.
(iii) Place of effecting sale--(A) Sale outside the United States. For purposes of
this paragraph (g), a sale as defined in paragraph (a)(9)(i) of this section (relating to
sales other than sales of digital assets) is considered to be effected by a broker at an
office outside the United States if, in accordance with instructions directly transmitted to
such office from outside the United States by the broker's customer, the office
completes the acts necessary to effect the sale outside the United States. The acts
necessary to effect the sale may be considered to have been completed outside the
United States without regard to whether—
(1) Pursuant to instructions from an office of the broker outside the United States,
an office of the same broker within the United States undertakes one or more steps of
the sale in the United States; or
(2) The gross proceeds of the sale are paid by a draft drawn on a United States
bank account or by a wire or other electronic transfer from a United States account.

(B) Sale inside the United States. For purposes of this paragraph (g), a sale that
is considered to be effected by a broker at an office outside the United States under
paragraph (g)(3)(iii)(A) of this section shall nevertheless be considered to be effected by
a broker at an office inside the United States if either—
(1) The customer has opened an account with a United States office of that
broker;
(2) The customer has transmitted instructions concerning this and other sales to
the foreign office of the broker from within the United States by mail, telephone,
electronic transmission or otherwise (unless the transmissions from the United States
have taken place in isolated and infrequent circumstances);
(3) The gross proceeds of the sale are paid to the customer by a transfer of funds
into an account (other than an international account as defined in §1.6049-5(e)(4))
maintained by the customer in the United States or mailed to the customer at an
address in the United States;
(4) The confirmation of the sale is mailed to a customer at an address in the
United States; or
(5) An office of the same broker within the United States negotiates the sale with
the customer or receives instructions with respect to the sale from the customer.
(iv) Special rules where the customer is a foreign intermediary or certain U.S.
branches. A foreign intermediary, as defined in §1.1441-1(c)(13), is an exempt foreign
person, except when the broker has actual knowledge (within the meaning of §1.60495(c)(3)) that the person for whom the intermediary acts is a U.S. person that is not
exempt from reporting under paragraph (c)(3) of this section or the broker is required to
presume under §1.6049-5(d)(3) that the payee is a U.S. person that is not an exempt
recipient. If a foreign intermediary, as described in §1.1441-1(c)(13), or a U.S. branch
that is not treated as a U.S. person receives a payment from a payor or middleman (as

defined in §1.6049-4(a) and (f)(4)), which payment the payor or middleman can reliably
associate with a valid withholding certificate described in §1.1441-1(e)(3)(ii), (iii) or (v),
respectively, furnished by such intermediary or branch, then the intermediary or branch
is not required to report such payment when it, in turn, pays the amount, unless, and to
the extent, the intermediary or branch knows that the payment is required to be reported
under this section and was not so reported. For example, if a U.S. branch described in
§1.1441-1(b)(2)(iv) fails to provide information regarding U.S. persons that are not
exempt from reporting under paragraph (c)(3) of this section to the person from whom
the U.S. branch receives the payment, the U.S. branch must report the payment on an
information return. See, however, paragraph (c)(3)(ii) of this section for when reporting
under section 6045 is coordinated with reporting under chapter 4 of the Code or an
applicable IGA (as defined in §1.6049-4(f)(7)). The exception of this paragraph (g)(3)(iv)
for amounts paid by a foreign intermediary shall not apply to a qualified intermediary
that assumes reporting responsibility under chapter 61 of the Code except as provided
under the agreement described in §1.1441-1(e)(5)(iii).
(4) Rules for sales of digital assets. The rules of this paragraph (g)(4) apply to a
sale of a digital asset as defined in paragraph (a)(9)(ii) of this section. See paragraph
(a)(1) of this section for when a person is treated as a broker under this section with
respect to a sale of a digital asset. See paragraph (c) of this section for rules requiring
brokers to report sales. See paragraph (g)(1) of this section providing that no return of
information is required to be made by a broker effecting a sale of a digital asset for a
customer who is considered to be an exempt foreign person under this paragraph
(g)(4).
(i) Definitions. The following definitions apply for purposes of this section.
(A) U.S. digital asset broker. A U.S. digital asset broker is a person that effects
sales of digital assets on behalf of others and that is—

(1) A U.S. payor or U.S. middleman as defined in §1.6049-5(c)(5)(i)(A) that is not
a foreign branch or office of such person, §1.6049-5(c)(5)(i)(B) or (F) that is not a
territory financial institution described in §1.1441-1(b)(2)(iv).
(2) [Reserved]
(B) [Reserved]
(ii) Rules for U.S. digital asset brokers--(A) Place of effecting sale. For purposes
of this section, a sale of a digital asset that is effected by a U.S. digital asset broker is
considered a sale effected at an office inside the United States.
(B) Determination of foreign status. A U.S. digital asset broker may treat a
customer as an exempt foreign person with respect to a sale effected at an office inside
the United States provided that, prior to the payment to such customer of the gross
proceeds from the sale, the broker has a beneficial owner withholding certificate
described in §1.1441-1(e)(2)(i) that the broker may treat as valid under §1.14411(e)(2)(ii) and that satisfies the requirements of paragraph (g)(4)(vi) of this section.
Additionally, a U.S. digital asset broker may treat a customer as an exempt foreign
person with respect to a sale effected at an office inside the United States under an
applicable presumption rule as provided in paragraph (g)(4)(vi)(A)(2)(i) of this section. A
beneficial owner withholding certificate provided by an individual must include a
certification that the beneficial owner has not been, and at the time the certificate is
furnished reasonably expects not to be, present in the United States for a period
aggregating 183 days or more during each calendar year to which the certificate
pertains. See paragraphs (g)(4)(vi)(A) through (D) of this section for additional rules
applicable to withholding certificates, when a broker may rely on a withholding
certificate, presumption rules that apply in the absence of documentation, and rules for
customers that are joint account holders. See paragraph (g)(4)(vi)(E) of this section for
the extent to which a U.S. digital asset broker may treat a customer as an exempt

foreign person with respect to a payment treated as made to a foreign intermediary,
flow-through entity or certain U.S. branches. See paragraph (g)(4)(vi)(F) of this section
for a transition rule for preexisting accounts.
(iii) Rules for CFC digital asset brokers not conducting activities as money
services businesses.
(iv) Rules for non-U.S. digital asset brokers not conducting activities as money
services businesses.
(A) [Reserved]
(B) Sale treated as effected at an office inside the United States--(1) [Reserved]
(2) U.S. indicia. The U.S. indicia relevant for purposes of this paragraph
(g)(4)(iv)(B) are as follows—
(i) A permanent residence address (as defined in §1.1441-1(c)(38)) in the U.S. or
a U.S. mailing address for the customer, a current U.S. telephone number and no nonU.S. telephone number for the customer, or the broker’s classification of the customer
as a U.S. person in its records;
(ii) An unambiguous indication of a U.S. place of birth for the customer; or
(v) [Reserved]
(vi) Rules applicable to brokers that obtain or are required to obtain
documentation for a customer and presumption rules--(A) In general. Paragraph
(g)(4)(vi)(A)(1) of this section describes rules applicable to documentation permitted to
be used under this paragraph (g)(4) to determine whether a customer may be treated as
an exempt foreign person. Paragraph (g)(4)(vi)(A)(2) of this section provides
presumption rules that apply if the broker does not have documentation on which the
broker may rely to determine a customer’s status. Paragraph (g)(4)(vi)(A)(3) of this
section provides a grace period for obtaining documentation in circumstances where
there are indicia that a customer is a foreign person. Paragraph (g)(4)(vi)(A)(4) of this

section provides rules relating to blocked income. Paragraph (g)(4)(vi)(B) of this section
provides rules relating to reliance on beneficial ownership withholding certificates to
determine whether a customer is an exempt foreign person. Paragraph (g)(4)(vi)(C) of
this section provides rules relating to reliance on documentary evidence to determine
whether a customer is an exempt foreign person. Paragraph (g)(4)(vi)(D) of this section
provides rules relating to customers that are joint account holders. Paragraph
(g)(4)(vi)(E) of this section provides special rules for a customer that is a foreign
intermediary, a flow-through entity, or certain U.S. branches. Paragraph (g)(4)(vi)(F) of
this section provides a transition rule for obtaining documentation to treat a customer as
an exempt foreign person.
(1) Documentation of foreign status. A broker may treat a customer as an exempt
foreign person when the broker obtains valid documentation permitted to support a
customer’s foreign status as described in paragraph (g)(4)(ii), (iii), or (iv) of this section
(as applicable) that the broker can reliably associate (within the meaning of §1.14411(b)(2)(vii)(A)) with a payment of gross proceeds, provided that the broker is not
required to treat the documentation as unreliable or incorrect under paragraph
(g)(4)(vi)(B) or (C) of this section. For rules regarding the validity period of a withholding
certificate, or of documentary evidence (when permitted to be relied upon under
paragraph (g)(4)(vi)(C) of this section), retention of documentation, electronic
transmission of documentation, information required to be provided on a withholding
certificate, who may sign a withholding certificate, when a substitute withholding
certificate may be accepted, and general reliance rules on documentation (including
when a prior version of a withholding certificate may be relied upon), the provisions of
§§1.1441-1(e)(4)(i) through (ix) and 1.6049-5(c)(1)(ii) apply, with the following
modifications—

(i) The provisions in §1.1441-1(e)(4)(i) through (ix) apply by substituting the terms
broker and customer for the terms withholding agent and payee, respectively, and
disregarding the fact that the provisions under §1.1441-1 apply only to amounts subject
to withholding under chapter 3 of the Code;
(ii) The provisions of §1.6049-5(c)(1)(ii) (relating to general requirements for
when a payor may rely upon and must maintain documentary evidence with respect to a
payee) apply (as applicable to the broker) by substituting the terms broker and customer
for the terms payor and payee, respectively;
(iii) To apply §1.1441-1(e)(4)(viii) (reliance rules for documentation), the
reference to §1.1441-7(b)(4) through (6) is replaced by the provisions of paragraph
(g)(4)(vi)(B) or (C) of this section, as applicable, and the reference to §1.1441-6(c)(2) is
disregarded; and
(iv) To apply §1.1441-1(e)(4)(viii) (reliance rules for documentation) and (ix)
(certificates to be furnished to a withholding agent for each obligation unless an
exception applies), the provisions applicable to a financial institution apply to a broker
described in this paragraph (g)(4) whether or not it is a financial institution.
(2) Presumption rules--(i) In general. If a broker is not permitted to treat a
customer as an exempt foreign person under paragraph (g)(4)(vi)(A)(1) of this section
because the broker has not collected the documentation permitted to be collected under
this paragraph (g)(4) or is not permitted to rely on the documentation it has collected,
the broker must determine the classification of a customer (as an individual, entity, etc.)
by applying the presumption rules of §1.1441-1(b)(3)(ii), except that references in
§1.1441-1(b)(3)(ii)(B) to exempt recipient categories under section 6049 are replaced by
the exempt recipient categories in paragraph (c)(3)(i) of this section. With respect to a
customer that a broker has classified as an entity, the broker must determine the status
of the customer as U.S. or foreign by applying §§1.1441-1(b)(3)(iii)(A) and 1.1441-5(d)

and (e)(6), except that §1.1441-1(b)(3)(iii)(A)(1)(iv) does not apply. For presumption
rules to treat a payment as made to an intermediary or flow-through entity and whether
the payment is also treated as made to an exempt foreign person, see paragraph
(g)(4)(vi)(E) of this section. Notwithstanding the provisions of this paragraph
(g)(4)(vi)(A)(2), a broker may not treat a customer as a foreign person under this
paragraph (g)(4)(vi)(A)(2) if the broker has actual knowledge or reason to know that the
customer is a U.S. person. For purposes of applying the presumption rules of this
paragraph (g)(4)(vi)(A)(2), a broker must identify its customer by applying the rules of
§1.6049-5(d)(1), substituting the terms customer and broker for the terms payee and
payor, respectively.
(ii) Presumption rule specific to U.S. digital asset brokers. With respect to a
customer that a U.S. digital asset broker has classified as an individual, the broker must
treat the customer as a U.S. person.
(3) Grace period to collect valid documentation in the case of indicia of a foreign
customer. If a broker has not obtained valid documentation that it can reliably associate
with a payment of gross proceeds to a customer to treat the customer as an exempt
foreign person, or if the broker is unable to rely upon documentation under the rules
described in paragraph (g)(4)(vi)(A)(1) of this section or is required to treat
documentation obtained for a customer as unreliable or incorrect (after applying
paragraphs (g)(4)(vi)(B) and (C) of this section), the broker may apply the grace period
described in §1.6049-5(d)(2)(ii) (generally allowing in certain circumstances a payor to
treat an account as owned by a foreign person for a 90 day period). In applying
§1.6049-5(d)(2)(ii), references to securities described in §1.1441-6(c)(2) are replaced
with digital assets.

(4) Blocked income. A broker may apply the provisions in paragraph (g)(1)(iii) of
this section to treat a customer as an exempt foreign person when the proceeds are
blocked income as described in §1.1441-2(e)(3).
(B) Reliance on beneficial ownership withholding certificates to determine foreign
status. For purposes of determining whether a customer may be treated as an exempt
foreign person under this section, except as otherwise provided in this paragraph
(g)(4)(vi)(B), a broker may rely on a beneficial owner withholding certificate described in
paragraph (g)(4)(ii)(B) of this section unless the broker has actual knowledge or reason
to know that the certificate is unreliable or incorrect. With respect to a U.S. digital asset
broker described in paragraph (g)(4)(i)(A)(1) of this section, reason to know is limited to
when the broker has any of the U.S. indicia set forth in paragraph (g)(4)(iv)(B)(2)(i) or (ii)
of this section in its account opening files or other files pertaining to the account
(account information), including documentation collected for purposes of an AML
program or the beneficial owner withholding certificate. A broker will not be considered
to have reason to know that a certificate is unreliable or incorrect based on
documentation collected for an AML program until the date that is 30 days after the
account is opened. A broker may rely, however, on a beneficial owner withholding
certificate notwithstanding the presence of any of the U.S. indicia set forth in paragraph
(g)(4)(iv)(B)(2)(i) or (ii) of this section on the withholding certificate or in the account
information for a customer in the circumstances described in paragraphs (g)(4)(vi)(B)(1)
and (2) of this section.
(1) Collection of information other than U.S. place of birth--(i) In general. With
respect to any of the U.S. indicia described in paragraph (g)(4)(iv)(B)(2)(i) of this
section, the broker has in its possession for a customer who is an individual
documentary evidence establishing foreign status (as described in §1.1471-3(c)(5)(i))
that does not contain a U.S. address and the customer provides the broker with a

reasonable explanation (as defined in §1.1441-7(b)(12)) from the customer, in writing,
supporting the claim of foreign status. Notwithstanding the preceding sentence, in a
case in which the broker classified an individual customer as a U.S. person in its
account information, the broker may treat the customer as an exempt foreign person
only if it has in its possession documentary evidence described in §1.1471-3(c)(5)(i)(B)
evidencing citizenship in a country other than the United States. In the case of a
customer that is an entity, the broker may treat the customer as an exempt foreign
person if it has in its possession documentation establishing foreign status that
substantiates that the entity is actually organized or created under the laws of a foreign
country.
(ii) [Reserved]
(2) Collection of information showing U.S. place of birth. With respect to the U.S.
indicia described in paragraph (g)(4)(iv)(B)(2)(ii) of this section, the broker has in its
possession documentary evidence described in §1.1471-3(c)(5)(i)(B) evidencing
citizenship in a country other than the United States and the broker has in its
possession either a copy of the customer’s Certificate of Loss of Nationality of the
United States or a reasonable written explanation of the customer’s renunciation of U.S.
citizenship or the reason the customer did not obtain U.S. citizenship at birth.
(C) [Reserved]
(D) Joint owners. In the case of amounts paid to customers that are joint account
holders for which a certificate or documentation is required as a condition for being
exempt from reporting under this paragraph (g)(4), such amounts are presumed made
to U.S. payees who are not exempt recipients (as defined in paragraph (c)(3)(i)(B) of
this section) when the conditions of paragraph (g)(3)(i) of this section are met.
(E) Special rules for customer that is a foreign intermediary, a flow-through
entity, or certain U.S. branches--(1) Foreign intermediaries in general. For purposes of

this paragraph (g)(4), a broker may determine the status of a customer as a foreign
intermediary (as defined in §1.1441-1(c)(13)) by reliably associating (under §1.14411(b)(2)(vii)) a payment of gross proceeds with a valid foreign intermediary withholding
certificate described in §1.1441-1(e)(3)(ii) or (iii), without regard to whether the
withholding certificate contains a withholding statement and withholding certificates or
other documentation for each account holder. In the case of a payment of gross
proceeds from a sale of a digital asset that a broker treats as made to a foreign
intermediary under this paragraph (g)(4)(vi)(E)(1), the broker must treat the foreign
intermediary as an exempt foreign person except to the extent required by paragraph
(g)(3)(iv) of this section (rules for when a broker is required to treat a payment as made
to a U.S. person that is not an exempt recipient under paragraph (c)(3) of this section
and for reporting that may be required by the foreign intermediary).
(i) Presumption rule specific to U.S. digital asset brokers. A U.S. digital asset
broker that does not have a valid foreign intermediary withholding certificate or a valid
beneficial owner withholding certificate described in paragraph (g)(4)(ii)(B) of this
section for the customer applies the presumption rules in §1.1441-1(b)(3)(ii)(B) (which
would presume that the entity is not an intermediary). For purposes of applying the
presumption rules referenced in the preceding sentence, a U.S. digital asset broker
must identify its customer by applying the rules of §1.6049-5(d)(1), substituting the
terms customer and U.S. digital asset broker for the terms payee and payor,
respectively. See §1.1441-1(b)(3)(iii) for presumption rules relating to the U.S. or foreign
status of a customer.
(ii) [Reserved]
(2) Foreign flow-through entities. For purposes of this paragraph (g)(4), a broker
may determine the status of a customer as a foreign flow-through entity (as defined in
§1.1441-1(c)(23)) by reliably associating (under §1.1441-1(b)(2)(vii)) a payment of gross

proceeds with a valid foreign flow-through withholding certificate described in §1.14415(c)(3)(iii) (relating to nonwithholding foreign partnerships) or §1.1441-5(e)(5)(iii)
(relating to foreign simple trusts and foreign grantor trusts that are nonwithholding
foreign trusts), without regard to whether the withholding certificate contains a
withholding statement and withholding certificates or other documentation for each
partner. A broker may alternatively determine the status of a customer as a foreign flowthrough entity based on the presumption rules in §§1.1441-1(b)(3)(ii)(B) (relating to
entity classification), 1.1441-5(d) (relating to partnership status as U.S. or foreign) and
1.1441-5(e)(6) (relating to the status of trusts and estates as U.S. or foreign). For
purposes of applying the presumption rules referenced in the preceding sentence, a
broker must identify its customer by applying the rules of §1.6049-5(d)(1), substituting
the terms customer and broker for the terms payee and payor, respectively. In the case
of a payment of gross proceeds from a sale of a digital asset that a broker treats as
made to a foreign flow-through entity under this paragraph (g)(4)(vi)(E)(2), the broker
must treat the foreign flow-through entity as an exempt foreign person except to the
extent required by §1.6049-5(d)(3)(ii) (rules for when a broker is required to treat a
payment as made to a U.S. person other than an exempt recipient (substituting exempt
recipient under §1.6045-1(c)(3) for exempt recipient described in §1.6049-4(c))).
(3) U.S. branches that are not beneficial owners. For purposes of this paragraph
(g)(4), a broker may determine the status of a customer as a U.S. branch (as described
in §1.1441-1(b)(2)(iv)) that is not a beneficial owner (as defined in §1.1441-1(c)(6)) of a
payment of gross proceeds by reliably associating (under §1.1441-1(b)(2)(vii)) the
payment with a valid U.S. branch withholding certificate described in §1.1441-1(e)(3)(v)
without regard to whether the withholding certificate contains a withholding statement
and withholding certificates or other documentation for each person for whom the
branch receives the payment. If a U.S. branch certifies on a U.S. branch withholding

certificate described in the preceding sentence that it agrees to be treated as a U.S.
person under §1.1441-1(b)(2)(iv)(A), the broker provided the certificate must treat the
U.S. branch as an exempt foreign person. If a U.S. branch does not certify as
described in the preceding sentence on its U.S. branch withholding certificate, the
broker provided the certificate must treat the U.S. branch as an exempt foreign person
except to the extent required by paragraph (g)(3)(iv) of this section (rules for when a
broker is required to treat a payment as made to a U.S. person that is not an exempt
recipient under paragraph (c)(3) of this section and for reporting that may be required
by the U.S. branch). In a case in which a broker cannot reliably associate a payment of
gross proceeds made to a U.S. branch with a U.S. branch withholding certificate
described in §1.1441-1(e)(3)(v) or a valid beneficial owner withholding certificate
described in paragraph (g)(4)(ii)(B) of this section, see paragraph (g)(4)(vi)(E)(1) of this
section for determining the status of the U.S. branch as a beneficial owner or
intermediary.
(F) Transition rule for obtaining documentation to treat a customer as an exempt
foreign person. Notwithstanding the rules of this paragraph (g)(4) for determining the
status of a customer as an exempt foreign person, for a sale of a digital asset effected
before January 1, 2027, that was held in an account established for the customer by a
broker before January 1, 2026, the broker may treat the customer as an exempt foreign
person provided that the customer has not previously been classified as a U.S. person
by the broker, and the information that the broker has in the account opening files or
other files pertaining to the account, including documentation collected for purposes of
an AML program, includes a residence address for the customer that is not a U.S.
address.
(vii) Barter exchanges. No return of information is required by a barter exchange
under the rules of paragraphs (e) and (f) of this section with respect to a client or a

member that the barter exchange may treat as an exempt foreign person pursuant to
the procedures described in this paragraph (g)(4).
(5) Examples. The application of the provisions of paragraphs (g)(1) through (3)
of this section may be illustrated by the following examples:
(i) Example 1. FC is a foreign corporation that is not a U.S. payor or U.S.
middleman described in §1.6049-5(c)(5) that regularly issues and retires its own debt
obligations. A is an individual whose residence address is inside the United States, who
holds a bond issued by FC that is in registered form (within the meaning of section
163(f) and the regulations under that section). The bond is retired by FP, a foreign
corporation that is a broker within the meaning of paragraph (a)(1) of this section and
the designated paying agent of FC. FP mails the proceeds to A at A's U.S. address. The
sale would be considered to be effected at an office outside the United States under
paragraph (g)(3)(iii)(A) of this section except that the proceeds of the sale are mailed to
a U.S. address. For that reason, the sale is considered to be effected at an office of the
broker inside the United States under paragraph (g)(3)(iii)(B) of this section. Therefore,
FC is a broker under paragraph (a)(1) of this section with respect to this transaction
because, although it is not a U.S. payor or U.S. middleman, as described in §1.60495(c)(5), it is deemed to effect the sale in the United States. FP is a broker for the same
reasons. However, under the multiple broker exception under paragraph (c)(3)(iii) of this
section, FP, rather than FC, is required to report the payment because FP is
responsible for paying the holder the proceeds from the retired obligations. Under
paragraph (g)(1)(i) of this section, FP may not treat A as an exempt foreign person and
must make an information return under section 6045 with respect to the retirement of
the FC bond, unless FP obtains the certificate or documentation described in paragraph
(g)(1)(i) of this section.
(ii) Example 2. The facts are the same as in paragraph (g)(5)(i) of this section
(the facts in Example 1) except that FP mails the proceeds to A at an address outside
the United States. Under paragraph (g)(3)(iii)(A) of this section, the sale is considered to
be effected at an office of the broker outside the United States. Therefore, under
paragraph (a)(1) of this section, neither FC nor FP is a broker with respect to the
retirement of the FC bond. Accordingly, neither is required to make an information
return under section 6045.
(iii) Example 3. The facts are the same as in paragraph (g)(5)(ii) of this section
(the facts in Example 2) except that FP is also the agent of A. The result is the same as
in paragraph (g)(5)(ii) of this section (Example 2). Neither FP nor FC are brokers under
paragraph (a)(1) of this section with respect to the sale since the sale is effected outside
the United States and neither of them are U.S. payors (within the meaning of §1.60495(c)(5)).
(iv) Example 4. The facts are the same as in paragraph (g)(5)(i) of this section
(the facts in Example 1) except that the registered bond held by A was issued by DC, a
domestic corporation that regularly issues and retires its own debt obligations. Also, FP
mails the proceeds to A at an address outside the United States. Interest on the bond is
not described in paragraph (g)(1)(ii) of this section. The sale is considered to be
effected at an office outside the United States under paragraph (g)(3)(iii)(A) of this
section. DC is a broker under paragraph (a)(1)(i)(B) of this section. DC is not required to

report the payment under the multiple broker exception under paragraph (c)(3)(iii) of this
section. FP is not required to make an information return under section 6045 because
FP is not a U.S. payor described in §1.6049-5(c)(5) and the sale is effected outside the
United States. Accordingly, FP is not a broker under paragraph (a)(1) of this section.
(v) Example 5. The facts are the same as in paragraph (g)(5)(iv) of this section
(the facts in Example 4) except that FP is also the agent of A. DC is a broker under
paragraph (a)(1) of this section. DC is not required to report under the multiple broker
exception under paragraph (c)(3)(iii) of this section. FP is not required to make an
information return under section 6045 because FP is not a U.S. payor described in
§1.6049-5(c)(5) and the sale is effected outside the United States and therefore FP is
not a broker under paragraph (a)(1) of this section.
(vi) Example 6. The facts are the same as in paragraph (g)(5)(iv) of this section
(the facts in Example 4) except that the bond is retired by DP, a broker within the
meaning of paragraph (a)(1) of this section and the designated paying agent of DC. DP
is a U.S. payor under §1.6049-5(c)(5). DC is not required to report under the multiple
broker exception under paragraph (c)(3)(iii) of this section. DP is required to make an
information return under section 6045 because it is the person responsible for paying
the proceeds from the retired obligations unless DP obtains the certificate or
documentary evidence described in paragraph (g)(1)(i) of this section.
(vii) Example 7—(A) Facts. Customer A owns U.S. corporate bonds issued in
registered form after July 18, 1984, and carrying a stated rate of interest. The bonds are
held through an account with foreign bank, X, and are held in street name. X is a whollyowned subsidiary of a U.S. company and is not a qualified intermediary within the
meaning of §1.1441-1(e)(5)(ii). X has no documentation regarding A. A instructs X to
sell the bonds. In order to effect the sale, X acts through its agent in the United States,
Y. Y sells the bonds and remits the sales proceeds to X. X credits A's account in the
foreign country. X does not provide documentation to Y and has no actual knowledge
that A is a foreign person but it does appear that A is an entity (rather than an
individual).
(B) Analysis with respect to Y's obligations to withhold and report. Y treats X as
the customer, and not A, because Y cannot treat X as an intermediary because it has
received no documentation from X. Y is not required to report the sales proceeds under
the multiple broker exception under paragraph (c)(3)(iii) of this section, because X is an
exempt recipient. Further, Y is not required to report the amount of accrued interest paid
to X on Form 1042-S under §1.1461-1(c)(2)(ii) because accrued interest is not an
amount subject to reporting under chapter 3 unless the withholding agent knows that
the obligation is being sold with a primary purpose of avoiding tax.
(C) Analysis with respect to X's obligations to withhold and report. Although X
has effected, within the meaning of paragraph (a)(1) of this section, the sale of a
security at an office outside the United States under paragraph (g)(3)(iii) of this section,
X is treated as a broker, under paragraph (a)(1) of this section, because as a whollyowned subsidiary of a U.S. corporation, X is a controlled foreign corporation and
therefore is a U.S. payor. See §1.6049-5(c)(5). Under the presumptions described in
§1.6049-5(d)(2) (as applied to amounts not subject to withholding under chapter 3), X
must apply the presumption rules of §1.1441-1(b)(3)(i) through (iii), with respect to the
sales proceeds, to treat A as a partnership that is a U.S. non-exempt recipient because
the presumption of foreign status for offshore obligations under §1.1441-1(b)(3)(iii)(D)

does not apply. See paragraph (g)(1)(i) of this section. Therefore, unless X is an FFI (as
defined in §1.1471-1(b)(47)) that is excepted from reporting the sales proceeds under
paragraph (c)(3)(ii) of this section, the payment of proceeds to A by X is reportable on a
Form 1099 under paragraph (c)(2) of this section. X has no obligation to backup
withhold on the payment based on the exemption under §31.3406(g)-1(e) of this
chapter, unless X has actual knowledge that A is a U.S. person that is not an exempt
recipient. X is also required to separately report the accrued interest (see paragraph
(d)(3) of this section) on Form 1099 under section 6049 because A is also presumed to
be a U.S. person who is not an exempt recipient with respect to the payment because
accrued interest is not an amount subject to withholding under chapter 3 and, therefore,
the presumption of foreign status for offshore obligations under §1.1441-1(b)(3)(iii)(D)
does not apply. See §1.6049-5(d)(2)(i).
(viii) Example 8—(A) Facts. The facts are the same as in paragraph (g)(5)(vii) of
this section (the facts in Example 7) except that X is a foreign corporation that is not a
U.S. payor under §1.6049-5(c).
(B) Analysis with respect to Y's obligations to withhold and report. Y is not
required to report the sales proceeds under the multiple broker exception under
paragraph (c)(3)(iii) of this section, because X is the person responsible for paying the
proceeds from the sale to A.
(C) Analysis with respect to X's obligations to withhold and report. Although A is
presumed to be a U.S. payee under the presumptions of §1.6049-5(d)(2), X is not
considered to be a broker under paragraph (a)(1) of this section because it is a not a
U.S. payor under §1.6049-5(c)(5). Therefore, X is not required to report the sale under
paragraph (c)(2) of this section.
*****
(j) Time and place for filing; cross-references to penalty and magnetic media
filing requirements. Forms 1096 and 1099 required under this section shall be filed after
the last calendar day of the reporting period elected by the broker or barter exchange
and on or before February 28 of the following calendar year with the appropriate Internal
Revenue Service Center, the address of which is listed in the instructions for Form
1096. For a digital asset sale effected prior to January 1, 2025, for which a broker
chooses under paragraph (d)(2)(iii)(B) of this section to file an information return, Form
1096 and the Form 1099-B, Proceeds From Broker and Barter Exchange Transactions,
or the Form 1099-DA, Digital Asset Proceeds from Broker Transactions, must be filed
on or before February 28 of the calendar year following the year of that sale. See
paragraph (l) of this section for the requirement to file certain returns on magnetic
media. For provisions relating to the penalty provided for the failure to file timely a

correct information return under section 6045(a), see §301.6721-1 of this chapter. See
§301.6724-1 of this chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
*****
(m) * * *
(1) In general. This paragraph (m) provides rules for a broker to determine and
report the information required under this section for an option that is a covered security
under paragraph (a)(15)(i)(E) or (H) of this section.
(2) * * *
(ii) * * *
(C) Notwithstanding paragraph (m)(2)(i) of this section, if an option is an option
on a digital asset or an option on derivatives with a digital asset as an underlying
property, this paragraph (m) applies to the option if it is granted or acquired on or after
January 1, 2026.
*****
(n) * * *
(6) * * *
(i) Sale. A broker must report the amount of market discount that has accrued on
a debt instrument as of the date of the instrument’s sale, as defined in paragraph
(a)(9)(i) of this section. See paragraphs (n)(5) and (n)(11)(i)(B) of this section to
determine whether the amount reported should take into account a customer election
under section 1276(b)(2). See paragraph (n)(8) of this section to determine the accrual
period to be used to compute the accruals of market discount. This paragraph (n)(6)(i)
does not apply if the customer notifies the broker under the rules in paragraph (n)(5) of
this section that the customer elects under section 1278(b) to include market discount in
income as it accrues.

*****
(q) Applicability dates. Except as otherwise provided in paragraphs (d)(6)(ix),
(m)(2)(ii), and (n)(12)(ii) of this section, and in this paragraph (q), this section applies on
or after January 6, 2017. Paragraphs (k)(4) and (l) of this section apply with respect to
information returns required to be filed and payee statements required to be furnished
on or after January 1, 2024. (For rules that apply after June 30, 2014, and before
January 6, 2017, see 26 CFR 1.6045–1, as revised April 1, 2016.) Except in the case of
a sale of digital assets for real property as described in paragraph (a)(9)(ii)(B) of this
section, this section applies to sales of digital assets on or after January 1, 2025. In the
case of a sale of digital assets for real property as described in paragraph (a)(9)(ii)(B) of
this section, this section applies to sales of digital assets on or after January 1, 2026.
For assets that are commodities pursuant to the Commodity Futures Trading
Commission’s certification procedures described in 17 CFR 40.2, this section applies to
sales of such commodities on or after January 1, 2025, without regard to the date such
certification procedures were undertaken.
(r) Cross-references. For provisions relating to backup withholding for reportable
transactions under this section, see §31.3406(b)(3)-2 of this chapter for rules treating
gross proceeds as reportable payments, §31.3406(d)-1 of this chapter for rules with
respect to backup withholding obligations, and §31.3406(h)-3 of this chapter for the
prescribed form for the certification of information required under this section.
Par. 7. Section 1.6045-4 is amended by:
1. Revising the section heading and paragraph (b)(1);
2. Removing the period at the end of paragraph (c)(2)(i) and adding a semicolon
in its place;
3. Removing the word “or” from the end of paragraph (c)(2)(ii);

4. Removing the period at the end of paragraph (c)(2)(iii) and adding “; or” in its
place;
5. Adding paragraph (c)(2)(iv);
6. Revising paragraph (d)(2)(ii)(A);
7. In paragraphs (e)(3)(iii)(A) and (B), adding the words “or digital asset” after the
word “cash”;
8. Revising and republishing paragraphs (g) and (h)(1);
9. Adding paragraphs (h)(2)(iii) and (h)(3);
10. Revising paragraphs (i)(1) and (2), (i)(3)(ii), and (o);
11. In paragraph (r):
a. Redesignating Examples 1 through 9 as paragraphs (r)(1) through (9),
respectively;
b. In newly redesignated paragraph (r)(3), removing “section (b)(1)” and
adding “paragraph (b)(1)” in its place;
c. Removing the heading in newly redesignated reserved paragraph (r)(5);
d. Revising newly redesignated paragraph (r)(7);
e. In the first sentence of newly redesignated paragraph (r)(8), removing
“example (6)” and adding “paragraph (r)(6) of this section (the facts in
Example 6)” in its place;
f. In the first sentence of newly redesignated paragraph (r)(9), removing
“example (8)” and adding “paragraph (r)(8) of this section (the facts in
Example 8)” in its place; and
g. Adding paragraph (r)(10).
12. Adding a sentence to the end of paragraph (s).
The revisions and additions read as follows:
§1.6045-4 Information reporting on real estate transactions.

*****
(b) * * *
(1) In general. A transaction is a real estate transaction under this section if the
transaction consists in whole or in part of the sale or exchange of reportable real estate
(as defined in paragraph (b)(2) of this section) for money, indebtedness, property other
than money, or services. The term sale or exchange shall include any transaction
properly treated as a sale or exchange for Federal income tax purposes, whether or not
the transaction is currently taxable. Thus, for example, a sale or exchange of a principal
residence is a real estate transaction under this section even though the transferor may
be entitled to the special exclusion of gain up to $250,000 (or $500,000 in the case of
married persons filing jointly) from the sale or exchange of a principal residence
provided by section 121 of the Code.
*****
(c) * * *
(2) * * *
(iv) A principal residence (including stock in a cooperative housing corporation)
provided the reporting person obtain from the transferor a written certification consistent
with guidance that the Secretary has designated or may designate by publication in the
Federal Register or in the Internal Revenue Bulletin (see §601.601(d)(2) of this
chapter). If a residence has more than one owner, a real estate reporting person must
either obtain a certification from each owner (whether married or not) or file an
information return and furnish a payee statement for any owner that does not make the
certification. The certification must be retained by the reporting person for four years
after the year of the sale or exchange of the residence to which the certification applies.
A reporting person who relies on a certification made in compliance with this paragraph
(c)(2)(iv) will not be liable for penalties under section 6721 of the Code for failure to file

an information return, or under section 6722 of the Code for failure to furnish a payee
statement to the transferor, unless the reporting person has actual knowledge or reason
to know that any assurance is incorrect.
(d) * * *
(2) * * *
(ii) * * *
(A) The United States or a State, the District of Columbia, the Commonwealth of
Puerto Rico, Guam, the Commonwealth of Northern Mariana Islands, the U.S. Virgin
Islands, or American Samoa, a political subdivision of any of the foregoing, or any
wholly owned agency or instrumentality of any one or more of the foregoing; or
*****
(g) Prescribed form. Except as otherwise provided in paragraph (k) of this
section, the information return required by paragraph (a) of this section shall be made
on Form 1099-S, Proceeds From Real Estate Transactions or any successor form.
(h) * * *
(1) In general. The following information must be set forth on the Form 1099-S
required by this section:
(i) The name, address, and taxpayer identification number (TIN) of the transferor
(see also paragraph (f)(2) of this section);
(ii) A general description of the real estate transferred (in accordance with
paragraph (h)(2)(i) of this section);
(iii) The date of closing (as defined in paragraph (h)(2)(ii) of this section);
(iv) To the extent required by the Form 1099-S and its instructions, the entire
gross proceeds with respect to the transaction (as determined under the rules of
paragraph (i) of this section), and, in the case of multiple transferors, the gross

proceeds allocated to the transferor (as determined under paragraph (i)(5) of this
section);
(v) To the extent required by the Form 1099-S and its instructions, an indication
that the transferor—
(A) Received (or will, or may, receive) property (other than cash, consideration
treated as cash, and digital assets in computing gross proceeds) or services as part of
the consideration for the transaction; or
(B) May receive property (other than cash and digital assets) or services in
satisfaction of an obligation having a stated principal amount; or
(C) May receive, in connection with a contingent payment transaction, an amount
of gross proceeds that cannot be determined with certainty using the method described
in paragraph (i)(3)(iii) of this section and is therefore not included in gross proceeds
under paragraphs (i)(3)(i) and (iii) of this section;
(vi) The real estate reporting person’s name, address, and TIN;
(vii) In the case of a payment made to the transferor using digital assets, the
name and number of units of the digital asset, and the date the payment was made;
(viii) [Reserved]
(ix) Any other information required by the Form 1099-S or its instructions.
(2) * * *
(iii) Digital assets. For purposes of this section, a digital asset has the meaning
set forth in §1.6045-1(a)(19).
(3) Limitation on information provided. The information required in the case of
payment made to the transferor using digital assets under paragraph (h)(1)(vii) of this
section and the portion of any gross proceeds attributable to that payment required to
be reported by paragraph (h)(1)(iv) of this section is not required unless the real estate
reporting person has actual knowledge or ordinarily would know that digital assets were

received by the transferor as payment. For purposes of this limitation, a real estate
reporting person is considered to have actual knowledge that payment was made to the
transferor using digital assets if the terms of the real estate contract provide for payment
using digital assets.
(i) * * *
(1) In general. Except as otherwise provided in this paragraph (i), the term gross
proceeds means the total cash received, including cash received from a processor of
digital asset payments as described in §1.6045-1(a)(22), consideration treated as cash
received, and the value of any digital asset received by or on behalf of the transferor in
connection with the real estate transaction.
(i) Consideration treated as cash. For purposes of this paragraph (i),
consideration treated as cash received by or on behalf of the transferor in connection
with the real estate transaction includes the following amounts:
(A) The stated principal amount of any obligation to pay cash to or for the benefit
of the transferor in the future (including any obligation having a stated principal amount
that may be satisfied by the delivery of property (other than cash) or services);
(B) The amount of any liability of the transferor assumed by the transferee as
part of the consideration for the transfer or of any liability to which the real estate
acquired is subject (whether or not the transferor is personally liable for the debt); and
(C) In the case of a contingent payment transaction, as defined in paragraph
(i)(3)(ii) of this section, the maximum determinable proceeds, as defined in paragraph
(i)(3)(iii) of this section.
(ii) Digital assets received. For purposes of this paragraph (i), the value of any
digital asset received means the fair market value in U.S. dollars of the digital asset
actually received. Additionally, if the consideration received by the transferor includes
an obligation to pay a digital asset to, or for the benefit of, the transferor in the future,

the value of any digital asset received includes the fair market value, as of the date and
time the obligation is entered into, of the digital assets to be paid as stated principal
under such obligation. The fair market value of any digital asset received must be
determined based on the valuation rules provided in §1.6045-1(d)(5)(ii).
(iii) Other property. Gross proceeds does not include the value of any property
(other than cash, consideration treated as cash, and digital assets) or services received
by, or on behalf of, the transferor in connection with the real estate transaction. See
paragraph (h)(1)(v) of this section for the information that must be included on the Form
1099-S required by this section in cases in which the transferor receives (or will, or may,
receive) property (other than cash, consideration treated as cash, and digital assets) or
services as part of the consideration for the transfer.
(2) Treatment of sales commissions and similar expenses. In computing gross
proceeds, the total cash, consideration treated as cash, and digital assets received by
or on behalf of the transferor shall not be reduced by expenses borne by the transferor
(such as sales commissions, amounts paid or withheld from consideration received to
effect the digital asset transfer as described in §1.1001-7(b)(2), expenses of advertising
the real estate, expenses of preparing the deed, and the cost of legal services in
connection with the transfer).
(3) * * *
(ii) Contingent payment transaction. For purposes of this section, the term
contingent payment transaction means a real estate transaction with respect to which
the receipt, by or on behalf of the transferor, of cash, consideration treated as cash
under paragraph (i)(1)(i)(A) of this section, or digital assets under paragraph (i)(1)(ii) of
this section is subject to a contingency.
*****

(o) No separate charge. A reporting person may not separately charge any
person involved in a real estate transaction for complying with any requirements of this
section. A reporting person may, however, take into account its cost of complying with
such requirements in establishing its fees (other than in charging a separate fee for
complying with such requirements) to any customer for performing services in the case
of a real estate transaction.
*****
(r) * * *
(7) Example 7: Gross proceeds (contingencies). The facts are the same as in
paragraph (r)(6) of this section (the facts in Example 6), except that the agreement does
not provide for adequate stated interest. The result is the same as in paragraph (r)(6) of
this section (the results in Example 6).
*****
(10) Example 10: Gross proceeds (exchange involving digital assets)—(i) Facts.
K, an individual, agrees in a contract for sale to pay 140 units of digital asset DE with a
total fair market value of $280,000 to J, an unmarried individual who is not an exempt
transferor, in exchange for Whiteacre, which has a fair market value of $280,000. No
liabilities are involved in the transaction. P is the reporting person with respect to both
sides of the transaction.
(ii) Analysis. P has actual knowledge that payment was made to J using digital
assets because the terms of the real estate contract provide for payment using digital
assets. Accordingly, with respect to the payment by K of 140 units of digital asset DE to
J, P must report gross proceeds received by J of $280,000 (140 units of DE) on Form
1099-S, Proceeds From Real Estate Transactions. Additionally, to the extent K is not an
exempt recipient under §1.6045-1(c) or an exempt foreign person under §1.6045-1(g), P
is required to report gross proceeds paid to K on Form 1099-DA, Digital Asset Proceeds
from Broker Transactions, with respect to K’s sale of 140 units of digital asset DE, in the
amount of $280,000 pursuant to §1.6045-1.
(s) * * * The amendments to paragraphs (b)(1), (c)(2)(iv), (d)(2)(ii), (e)(3)(iii),
(h)(1)(v) through (ix), (h)(2)(iii), (i)(1) and (2), (i)(3)(ii), (o), and (r) of this section apply to
real estate transactions with dates of closing occurring on or after January 1, 2026.
Par. 8. Section 1.6045A-1 is amended by:

1. In paragraph (a)(1)(i), in the first sentence, removing “paragraphs (a)(1)(ii)
through (v) of this section,” and adding “paragraphs (a)(1)(ii) through (vi) of this section,”
in its place; and
2. Adding paragraph (a)(1)(vi).
The addition reads as follows:
§1.6045A-1 Statements of information required in connection with transfers of
securities.
(a) * * *
(1) * * *
(vi) Exception for transfers of specified securities that are reportable as digital
assets. No transfer statement is required under paragraph (a)(1)(i) of this section with
respect to a specified security, the sale of which is reportable as a digital asset after the
application of the special coordination rules under §1.6045-1(c)(8). A transferor that
chooses to provide a transfer statement with respect to a specified security described in
the preceding sentence that is a tokenized security described in §1.6045-1(c)(8)(i)(D)
that reports some or all of the information described in paragraph (b) of this section is
not subject to penalties under section 6722 of the Code for failure to report this
information correctly.
*****

Par. 9. Section 1.6045B-1 is amended by:
1. Revising paragraph (a)(1) introductory text;
2. Adding paragraph (a)(6);
3. Removing the word “and” from the end of paragraph (j)(5);
4. Removing the period from the end of paragraph (j)(6) and adding in its place “;
and”;
5. Adding paragraph (j)(7).

The revision and additions read as follows:
§1.6045B-1 Returns relating to actions affecting basis of securities.
(a) * * *
(1) Information required. Except as provided in paragraphs (a)(4) and (5) of this
section, an issuer of a specified security within the meaning of §1.6045-1(a)(14)(i)
through (iv) that takes an organizational action that affects the basis of the security must
file an issuer return setting forth the following information and any other information
specified in the return form and instructions:
*****
(6) Reporting for certain specified securities that are digital assets. Unless
otherwise excepted under this section, an issuer of a specified security described in
paragraph (a)(1) of this section is required to report under this section without regard to
whether the specified security is also described in §1.6045-1(a)(14)(v) or (vi). If a
specified security is described in §1.6045-1(a)(14)(v) or (vi) but is not also described in
§1.6045-1(a)(14)(i), (ii), (iii) or (iv), the issuer of that specified security is permitted, but
not required, to report under this section. An issuer that chooses to provide the reporting
and furnish statements for a specified security described in the previous sentence is not
subject to penalties under section 6721 or 6722 of the Code for failure to report this
information correctly.
*****
(j) * * *
(7) Organizational actions occurring on or after January 1, 2025, that affect the
basis of digital assets described in §1.6045-1(a)(14)(v) or (vi) that are also described in
one or more paragraphs of §1.6045-1(a)(14)(i) through (iv).
Par. 10. Section 1.6050W-1 is amended by adding a sentence to the end of
paragraph (a)(2), adding paragraph (c)(5), and revising paragraph (j) to read as follows:

§1.6050W-1 Information reporting for payments made in settlement of payment
card and third party network transactions.
(a) * * *
(2) * * * In the case of a third party settlement organization that has the contractual
obligation to make payments to participating payees, a payment in settlement of a
reportable payment transaction includes the submission of instructions to a purchaser to
transfer funds directly to the account of the participating payee for purposes of settling
the reportable payment transaction.
*****
(c) * * *
(5) Coordination with information returns required under section 6045 of the
Code--(i) Reporting on exchanges involving digital assets. Notwithstanding the
provisions of this paragraph (c), the reporting of a payment made in settlement of a third
party network transaction in which the payment by a payor is made using digital assets
as defined in §1.6045-1(a)(19) or the goods or services provided by a payee are digital
assets must be as follows:
(A) Reporting on payors with respect to payments made using digital assets. If a
payor makes a payment using digital assets and the exchange of the payor’s digital
assets for goods or services is a sale of digital assets by the payor under §1.60451(a)(9)(ii), the amount paid to the payor in settlement of that exchange is subject to the
rules as described in §1.6045-1 (including any exemption from reporting under §1.60451) and not this section.
(B) Reporting on payees with respect to the sale of goods or services that are
digital assets. If the goods or services provided by a payee in an exchange are digital
assets, the exchange is a sale of digital assets by the payee under §1.6045-1(a)(9)(ii),
and the payor is a broker under §1.6045-1(a)(1) that effected the sale of such digital

assets, the amount paid to the payee in settlement of that exchange is subject to the
rules as described in §1.6045-1 (including any exemption from reporting under §1.60451) and not this section.
(ii) Examples. The following examples illustrate the rules of this paragraph (c)(5).
(A) Example 1—(1) Facts. CRX is a shared-service organization that performs
accounts payable services for numerous purchasers that are unrelated to CRX. A
substantial number of sellers of goods and services, including Seller S, have
established accounts with CRX and have agreed to accept payment from CRX in
settlement of their transactions with purchasers. The agreement between sellers and
CRX includes standards and mechanisms for settling the transactions and guarantees
payment to the sellers, and the arrangement enables purchasers to transfer funds to
providers. Pursuant to this seller agreement, CRX accepts cash from purchasers as
payment as well as digital assets, which it exchanges into cash for payment to sellers.
Additionally, CRX is a processor of digital asset payments as defined in §1.60451(a)(22) and a broker under §1.6045-1(a)(1). P, an individual not otherwise exempt from
reporting, purchases one month of services from S through CRX’s organization. S is
also an individual not otherwise exempt from reporting. S’s services are not digital
assets under §1.6045-1(a)(19). To effect this transaction, P transfers 100 units of DE, a
digital asset as defined in §1.6045-1(a)(19), to CRX. CRX, in turn, exchanges the 100
units of DE for $1,000, based on the fair market value of the DE units, and pays $1,000
to S.
(2) Analysis with respect to CRX’s status. CRX's arrangement constitutes a third
party payment network under paragraph (c)(3) of this section because a substantial
number of persons that are unrelated to CRX, including S, have established accounts
with CRX, and CRX is contractually obligated to settle transactions for the provision of
goods or services by these persons to purchasers, including P. Thus, under paragraph
(c)(2) of this section, CRX is a third party settlement organization and the transaction
involving P’s purchase of S’s services using 100 units of digital asset DE is a third party
network transaction under paragraph (c)(1) of this section.
(3) Analysis with respect to the reporting on P. P’s payment of 100 units of DE to
CRX in return for the payment by CRX of $1,000 in cash to S is a sale of the DE units
as defined in §1.6045-1(a)(9)(ii)(D) that is effected by CRX, a processor of digital asset
payments and broker under §1.6045-1(a)(1). Accordingly, pursuant to the rules under
paragraph (c)(5)(i)(A) of this section, CRX must file an information return under
§1.6045-1 with respect to P’s sale of the DE units and is not required to file an
information return under paragraph (a)(1) of this section with respect to P.
(4) Analysis with respect to the reporting on S. S’s services are not digital assets
as defined in §1.6045-1(a)(19). Accordingly, pursuant to the rules under paragraph
(c)(5)(i)(B) of this section, CRX’s payment of $1,000 to S in settlement of the reportable
payment transaction is subject to the reporting rules under paragraph (a)(1) of this
section and not the reporting rules as described in §1.6045-1.
(B) Example 2—(1) Facts. CRX is an entity that owns and operates a digital
asset trading platform and provides digital asset custodial services and digital asset
broker services under §1.6045-1(a)(1). CRX also exchanges on behalf of customers

digital assets under §1.6045-1(a)(19), including nonfungible tokens, referred to as
NFTs, representing ownership in unique digital artwork, video, or music. Exchange
transactions undertaken by CRX on behalf of its customers are considered sales under
§1.6045-1(a)(9)(ii) that are effected by CRX and subject to reporting by CRX under
§1.6045-1. A substantial number of NFT sellers have accounts with CRX, into which
their NFTs are deposited for sale. None of these sellers are related to CRX, and all
have agreed to settle transactions for the sale of their NFTs in digital asset DE, or other
forms of consideration, and according to the terms of their contracts with CRX. Buyers
of NFTs also have accounts with CRX, into which digital assets are deposited for later
use as consideration to acquire NFTs. Once a buyer decides to purchase an NFT for a
price agreed to by the NFT seller, CRX effects the requested exchange of the buyer’s
consideration for the NFT, which allows CRX to guarantee delivery of the bargained for
consideration to both buyer and seller. CRX charges a transaction fee on every NFT
sale, which is paid by the buyer in additional units of digital asset DE. Seller J, an
individual not otherwise exempt from reporting, sells NFTs representing digital artwork
on CRX’s digital asset trading platform. J does not perform any other services with
respect to these transactions. Buyer B, also an individual not otherwise exempt from
reporting, seeks to purchase J’s NFT-4 using units of DE. Using CRX’s platform, buyer
B and seller J agree to exchange J’s NFT-4 for B’s 100 units of DE (with a value of
$1,000). At the direction of J and B, CRX executes this exchange, with B paying CRX’s
transaction fee using additional units of DE.
(2) Analysis with respect to CRX’s status. CRX's arrangement with J and the
other NFT sellers constitutes a third party payment network under paragraph (c)(3) of
this section because a substantial number of providers of goods or services who are
unrelated to CRX, including J, have established accounts with CRX, and CRX is
contractually obligated to settle transactions for the provision of goods or services, such
as NFTs representing goods or services, by these persons to purchasers. Thus, under
paragraph (c)(2) of this section, CRX is a third party settlement organization and the
sale of J’s NFT-4 for 100 units of DE is a third party network transaction under
paragraph (c)(1) of this section. Therefore, CRX is a payment settlement entity under
paragraph (a)(4)(i)(B) of this section.
(3) Analysis with respect to the reporting on B. The exchange of B’s 100 units of
DE for J’s NFT-4 is a sale under §1.6045-1(a)(9)(ii)(A)(2) by B of the 100 DE units that
was effected by CRX. Accordingly, under paragraph (c)(5)(i)(A) of this section, the
amount paid to B in settlement of the exchange is subject to the rules as described in
§1.6045-1, and CRX must file an information return under §1.6045-1 with respect to B’s
sale of the 100 DE units. CRX is not required to also file an information return under
paragraph (a)(1) of this section with respect to the amount paid to B even though CRX
is a third party settlement organization.
(4) Analysis with respect to the reporting on J. The exchange of J’s NFT-4 for
100 units of DE is a sale under §1.6045-1(a)(9)(ii) by J of a digital asset under §1.60451(a)(19) that was effected by CRX. Accordingly, under paragraph (c)(5)(i)(B) of this
section, the amount paid to J in settlement of the exchange is subject to the rules as
described in §1.6045-1, and CRX must file an information return under §1.6045-1 with
respect to J’s sale of the NFT-4. CRX is not required to also file an information return
under paragraph (a)(1) of this section with respect to the amount paid to J even though
CRX is a third party settlement organization.
*****

(j) Applicability date. Except with respect to payments made using digital assets,
the rules in this section apply to returns for calendar years beginning after December
31, 2010. For payments made using digital assets, this section applies on or after
January 1, 2025.
PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT
SOURCE
Par. 11. The authority citation for part 31 continues to read in part as follows:
Authority: 26 U.S.C. 7805.
Par. 12. Section 31.3406-0 is amended by:
1. Revising the heading for the entry for §31.3406(b)(3)-2;
2. Adding entries for §§31.3406(b)(3)-2(b)(6), 31.3406(g)-1(e)(1) and (2); and
3. Revising the entry for §31.3406(g)-1(f).
The additions and revision read as follows:
§31.3406-0 Outline of the backup withholding regulations.
*****
31.3406(b)(3)-2 Reportable barter exchanges and gross proceeds of sales of securities,
commodities, or digital assets by brokers.
*****
(b) * * *
(6) Amount subject to backup withholding in the case of reporting under §1.60451(d)(2)(i)(C) and (d)(10) of this chapter.
(i) Optional reporting method for sales of qualifying stablecoins and specified
nonfungible tokens.
(A) In general.
(B) Backup withholding on non-designated sales of qualifying stablecoins.
(1) In general.
(2) Non-qualifying events.
(ii) Applicable threshold for sales by processors of digital asset payments.
*****
§31.3406(g)-1 Exception for payments to certain payees and certain other payments.
*****

(e) * * *
(1) Reportable payments other than gross proceeds from sales of digital assets.
(2) Reportable payments of gross proceeds from sales of digital assets.
(i) [Reserved]
(ii) [Reserved]
(f) Applicability date.
*****
Par. 13. Section 31.3406(b)(3)-2 is amended by revising the section heading and
adding paragraphs (b)(6) and (c) to read as follows:
§31.3406(b)(3)-2. Reportable barter exchanges and gross proceeds of sales of
securities, commodities, or digital assets by brokers.
*****
(b) * * *
(6) Amount subject to backup withholding in the case of reporting under §1.60451(d)(2)(i)(C) and (d)(10) of this chapter--(i) Optional reporting method for sales of
qualifying stablecoins and specified nonfungible tokens--(A) In general. The amount
subject to withholding under section 3406 for a broker that reports sales of digital assets
under the optional method for reporting qualifying stablecoins or specified nonfungible
tokens under §1.6045-1(d)(10) of this chapter is the amount of gross proceeds from
designated sales of qualifying stablecoins as defined in §1.6045-1(d)(10)(i)(C) of this
chapter and sales of specified nonfungible tokens without regard to the amount which
must be paid to the broker’s customer before reporting is required.
(B) Backup withholding on non-designated sales of qualifying stablecoins--(1) In
general. A broker is not required to withhold under section 3406 on non-designated
sales of qualifying stablecoins as defined under §1.6045-1(d)(10)(i)(C) of this chapter.
(2) Non-qualifying events. In the case of a digital asset that would satisfy the
definition of a non-designated sale of a qualifying stablecoin as defined under §1.60451(d)(10)(i)(C) of this chapter for a calendar year but for a non-qualifying event during
that year, a broker is not required to withhold under section 3406 on such sale if it

occurs no later than the end of the day that is 30 days after the first non-qualifying event
with respect to such digital asset during such year. A non-qualifying event is the first
date during a calendar year on which the digital asset no longer satisfies all three
conditions described in §1.6045-1(d)(10)(ii)(A) through (C) of this chapter to be a
qualifying stablecoin. For purposes of this paragraph (b)(6)(i)(B)(2), the date on which a
non-qualifying event has occurred with respect to a digital asset and the date that is no
later than 30 days after such non-qualifying event must be determined using
Coordinated Universal Time (UTC).
(ii) Applicable threshold for sales by processors of digital asset payments. For
purposes of determining the amount subject to withholding under section 3406, the
amount subject to reporting under section 6045 is determined without regard to the
minimum gross proceeds which must be paid to the customer under §1.60451(d)(2)(i)(C) of this chapter before reporting is required.
(c) Applicability date. This section applies to reportable payments made on or
after January 1, 2025. For the rules applicable to reportable payments made prior to
January 1, 2025, see §31.3406(b)(3)-2 in effect and contained in 26 CFR part 1 revised
April 1, 2024.
Par. 14. Section 31.3406(g)-1 is amended by revising paragraphs (e) and (f) to
read as follows:
§31.3406(g)-1 Exception for payments to certain payees and certain other
payments.
*****
(e) Certain reportable payments made outside the United States by foreign
persons, foreign offices of United States banks and brokers, and others--(1) Reportable
payments other than gross proceeds from sales of digital assets. For reportable
payments made after June 30, 2014, other than gross proceeds from sales of digital

assets (as defined in §1.6045-1(a)(19) of this chapter), a payor or broker is not required
to backup withhold under section 3406 of the Code on a reportable payment that is paid
and received outside the United States (as defined in §1.6049-4(f)(16) of this chapter)
with respect to an offshore obligation (as defined in §1.6049-5(c)(1) of this chapter) or
on the gross proceeds from a sale effected at an office outside the United States as
described in §1.6045-1(g)(3)(iii) of this chapter (without regard to whether the sale is
considered effected inside the United States under §1.6045-1(g)(3)(iii)(B) of this
chapter). The exception to backup withholding described in the preceding sentence
does not apply when a payor or broker has actual knowledge that the payee is a United
States person. Further, no backup withholding is required on a reportable payment of an
amount already withheld upon by a participating FFI (as defined in §1.1471-1(b)(91) of
this chapter) or another payor in accordance with the withholding provisions under
chapter 3 or 4 of the Code and the regulations under those chapters even if the payee is
a known U.S. person. For example, a participating FFI is not required to backup
withhold on a reportable payment allocable to its chapter 4 withholding rate pool (as
defined in §1.6049-4(f)(5) of this chapter) of recalcitrant account holders (as described
in §1.6049-4(f)(11) of this chapter), if withholding was applied to the payment (either by
the participating FFI or another payor) pursuant to §1.1471-4(b) or §1.1471-2(a) of this
chapter. For rules applicable to notional principal contracts, see §1.6041-1(d)(5) of this
chapter. For rules applicable to reportable payments made before July 1, 2014, see
§31.3406(g)-1(e) in effect and contained in 26 CFR part 1 revised April 1, 2013.
(2) [Reserved]
(f) Applicability date. This section applies to payments made on or after January
1, 2025. (For payments made before January 1, 2025, see §31.3406(g)-1 in effect and
contained in 26 CFR part 1 revised April 1, 2024.)

Par. 15. Section 31.3406(g)-2 is amended by adding a sentence to the end of
paragraphs (e) and (h) to read as follows:
§31.3406(g)-2 Exception for reportable payment for which withholding is
otherwise required.
*****
(e) * * * Notwithstanding the previous sentence, a real estate reporting person
must withhold under section 3406 of the Code and pursuant to the rules under
§31.3406(b)(3)-2 on a reportable payment made in a real estate transaction with
respect to a purchaser that exchanges digital assets for real estate to the extent that the
exchange is treated as a sale of digital assets subject to reporting under §1.6045-1 of
this chapter.
*****
(h) * * * For sales of digital assets, this section applies on or after January 1,
2026.
PART 301— PROCEDURE AND ADMINISTRATION
Par. 16. The authority citation for part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805.
Par. 17. Section 301.6721-1 is amended by revising paragraph (h)(3)(iii) and
adding a sentence to the end of paragraph (j) to read as follows:
§301.6721-1 Failure to file correct information returns.
*****
(h) * * *
(3) * * *
(iii) Section 6045(a) or (d) of the Code (relating to returns of brokers, generally
reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions,
for broker transactions not involving digital assets; Form 1099-DA, Digital Asset

Proceeds from Broker Transactions for broker transactions involving digital assets;
Form 1099-S, Proceeds From Real Estate Transactions, for gross proceeds from the
sale or exchange of real estate; and Form 1099-MISC, Miscellaneous Income, for
certain substitute payments and payments to attorneys); and
*****
(j) * * * Paragraph (h)(3)(iii) of this section applies to returns required to be filed
on or after January 1, 2026.
Par. 18. Section 301.6722-1 is amended by revising paragraph (e)(2)(viii) and
adding a sentence to the end of paragraph (g) to read as follows:
§301.6722-1 Failure to furnish correct payee statements.
*****
(e) * * *
(2) * * *
(viii) Section 6045(a) or (d) (relating to returns of brokers, generally reported on
Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for broker
transactions not involving digital assets; Form 1099-DA, Digital Asset Proceeds From
Broker Transactions, for broker transactions involving digital assets; Form 1099-S,
Proceeds From Real Estate Transactions, for gross proceeds from the sale or exchange
of real estate; and Form 1099-MISC, Miscellaneous Income, for certain substitute
payments and payments to attorneys);
*****

(g) * * * Paragraph (e)(2)(viii) of this section applies to payee statements required
to be furnished on or after January 1, 2026.

Douglas W. O' Donnell,
Deputy Commissioner.

Approved: June 17, 2024.

Aviva R. Aron-Dine,
Acting Assistant Secretary of the Treasury (Tax Policy).

[FR Doc. 2024-14004 Filed: 6/28/2024 4:15 pm; Publication Date: 7/9/2024]