IRS Notice 2023-10: Delayed Reporting for Digital Assets

The Internal Revenue Service (IRS) issued Announcement 2023-2 in response to new reporting requirements for digital assets from the Infrastructure Investment and Jobs Act of 2021. This announcement provided transitional relief by delaying reporting obligations for brokers. The purpose of the delay was to grant the IRS and the Treasury Department time to finalize a regulatory framework for the digital asset market, ensuring the industry would not be burdened by rules that required further refinement.

Delayed Broker Reporting Requirements

The Infrastructure Investment and Jobs Act expanded the definition of a “broker” to include entities facilitating digital asset transfers, from centralized cryptocurrency exchanges to operators of decentralized platforms. These newly defined brokers were to become responsible for tracking and reporting customer transactions to the IRS. This requirement was delayed for transactions occurring in 2023 and 2024.

The primary requirement postponed was the issuance of Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” for sales of digital assets. This form details the gross proceeds from transactions, providing the IRS with third-party verification of taxpayer activities. A delay was necessary to address the complexities of applying existing reporting frameworks to digital assets.

Taxpayer Obligations for Digital Asset Transactions

The delay in broker reporting did not alter the tax obligations for individuals. Taxpayers remain responsible for reporting all income, gains, and losses from their digital asset activities. The IRS treats digital assets as property, so their sale or exchange is a taxable event.

This requires taxpayers to maintain personal records for every transaction. To calculate capital gains or losses, individuals must track:

• The cost basis (the original purchase price plus transaction fees)
• The date of acquisition
• The sale price
• The date of the sale

Because broker reporting was delayed, taxpayers did not receive a Form 1099-B for past digital asset sales and must use their own records. This information is reported on Form 8949, “Sales and Other Dispositions of Capital Assets,” and summarized on Schedule D of Form 1040.

Anticipating Future Regulations

The relief provided by the IRS was a temporary measure. Following the delay, the Treasury Department and the IRS issued final regulations in July 2024, establishing a framework for digital asset reporting.

These final rules create a standardized system for information reporting. The new regulations mandate that brokers must begin reporting gross proceeds from the sale of digital assets for transactions that occur on or after January 1, 2025. Reporting for the cost basis of assets sold will be required starting in 2026, marking the end of the temporary relief.