The implementation of digital asset reporting requirements, stemming from the changes to Internal Revenue Code (IRC) §6045 enacted by the Infrastructure Investment and Jobs Act (IIJA), marks a significant operational shift for brokers. Treasury and the IRS have published final regulations requiring reporting on dispositions of digital assets in certain sale or exchange transactions, effective for transactions occurring on or after January 1, 2025, utilizing Form 1099-DA. The Internal Revenue Service (IRS) recently issued Frequently Asked Questions (FAQs) that clarify several technical nuances relevant to compliance and implementation, particularly concerning the scope of reporting, utilization of customer acquisition data, and exceptions related to transaction fees and stablecoins.

Defining the Scope of Broker Reporting Obligations

A critical issue addressed by the guidance is what constitutes a "sale transaction that a broker effects."

Broker reporting obligations under IRC §6045 and Treas. Reg. §1.6045-1 are limited to sale transactions that the broker actually effects for its customers. For instance, a custodial service that transfers digital assets to an external exchange platform at the customer’s direction, without executing the sale itself or knowing the resulting gross proceeds, does not have a reporting obligation under this regulation.

Conversely, businesses operating digital asset kiosks that enable customers to sell or exchange digital assets for cash, stored-value cards, or different digital assets are expressly treated as digital asset middlemen, which fall under the definition of a broker subject to IRC §6045 reporting requirements. Such entities must file Form 1099-DA and provide the associated payee statement when effecting these sales or exchanges.

Handling Customer-Provided Acquisition Information and Lot Ordering

The FAQs offer specific instructions regarding a broker’s ability to use historical data provided by customers or transferring institutions.

Permitted Use for Lot Ordering: Under Treas. Reg. §1.6045-1(d)(2)(ii)(B)(4), a broker is permitted, but not required, to consider customer-provided acquisition information when identifying which units of digital assets are sold, disposed of, or transferred (known as lot ordering). Acquisition information statements and supporting purchase confirmations supplied by a transferring custodial broker are considered reasonably reliable information for this specific purpose.
Prohibition on Basis Reporting: Crucially, a broker may not rely on this customer-provided acquisition information (including data from a transferring broker) to report the customer’s basis on Form 1099-DA. The use of such information is strictly limited to lot ordering.
Reporting Reliance on Customer Data (Box 8): If a broker utilizes customer-provided acquisition information in determining lot ordering, they must check Box 8 ("Check if broker relied on customer-provided acquisition information") on Form 1099-DA. This requirement applies regardless of whether the provided information ultimately affected the ordering of the particular unit sold. Once all units related to the initial customer-provided acquisition information have been sold, the broker should cease checking Box 8 for subsequent sales of newly transferred-in units, unless the customer provides new information regarding those specific new units.

Aggregating Sales and Penalty Relief Considerations

Guidance was provided on how brokers should handle reporting when multiple lots are sold in a single transaction, especially concerning covered versus noncovered securities.

Reporting Multiple Transfer-In Dates: If multiple lots of transferred-in digital assets are sold in a single transaction, the sale may be reported on one Form 1099-DA. However, if the digital assets sold were transferred in on various dates, Box 12b ("If transferred in, provide transfer-in date") should be left blank, consistent with the 2025 instructions for Form 1099-DA.
Voluntary Basis Reporting and Penalty Exposure (IRC §§6721 and 6722): When a single transaction involves both covered and noncovered digital assets (e.g., one lot purchased before January 1, 2025, and one lot purchased after that date):
- If the broker reports the sale of all units on a single Form 1099-DA while voluntarily reporting the basis of the noncovered units, the broker may not check Box 9 ("Check if digital asset is a noncovered security"). This consolidated reporting subjects the broker to potential penalties under IRC §§6721 (Failure to File Correct Information Returns) and 6722 (Failure to Furnish Correct Payee Statements) if the voluntarily reported basis information is incorrect.
- To secure penalty relief for the voluntary reporting of noncovered security basis, the broker should file two separate Forms 1099-DA. The form covering the noncovered units may check Box 9, thereby gaining relief from penalties under IRC §§6721 or 6722 for incorrect voluntary basis reporting. Box 9 must not be checked for the covered securities.

Specific Guidance on Non-Fungible Tokens (NFTs) and Transaction Fees

Specified NFTs and Optional Reporting: When a broker utilizes the optional reporting method for specified NFTs and a customer sells both newly minted NFTs (first sale by the creator/minter) and previously acquired NFTs, two separate Forms 1099-DA are required.
- For sales of newly minted NFTs, the broker should leave Box 1f (Proceeds) blank and report the aggregated gross proceeds only in Box 11c.
- For sales of non-minted specified NFTs, aggregated gross proceeds should be reported only in Box 1f.
The optional reporting method for specified NFTs is permissible even if the customer sold only a single specified NFT, provided the proceeds exceeded the $600 threshold. When using this optional method, a broker may leave Boxes 1d (Date acquired), 1e (Date sold or disposed), 1g (Cost or other basis), 2, 5, 6, 8, and 9 blank.
Determining Basis for Transaction Fees:
- If a customer sells digital assets for cash and uses additional units of that same digital asset to pay the transaction fee, the basis of the fee unit sold is determined by following general lot selection rules, applying FIFO if the customer has not specifically identified the unit sold.
- If, however, an exchange of one digital asset for a different digital asset occurs, and the unit used to pay the transaction fee is withheld from the digital assets received, Treas. Reg. §1.6045-1(d)(2)(ii)(B)(3) provides that those withheld units are deemed adequately identified as coming from the units acquired, regardless of any other customer identification. Furthermore, the broker is not required to report the sale of that unit used for the transaction fee under Treas. Reg. §1.6045-1(c)(3)(ii)(C).

The Qualified Stablecoin Stabilization Mechanism Test

For a digital asset to be treated as a qualified stablecoin eligible for optional reporting, it must satisfy the stabilization mechanisms outlined in Treas. Reg. §1.6045-1(d)(10)(ii)(B).

One such mechanism, detailed in Treas. Reg. §1.6045-1(d)(10)(ii)(B)(1), requires that the unit value of the digital asset not fluctuate from the unit value of the convertible currency it tracks by more than 3% over any consecutive 10-day period during the calendar year.
The guidance clarifies that a single trade fluctuating by more than 3% does not cause the digital asset to fail this test. Failure occurs only if the unit value fluctuates by more than 3% for at least one trade on each day of a consecutive 10-day period.
A broker operating a platform that guarantees to purchase any unit of a stablecoin for a fixed convertible currency price (e.g., $1 cash) for the entire year may apply this stabilization mechanism test based solely on sales occurring on its own digital asset trading platform. This policy satisfies the stabilization mechanism test outlined in Treas. Reg. §1.6045-1(d)(10)(ii)(B)(1).

The IRS FAQ provides technical relief and clarifying definitions necessary for digital asset brokers to prepare for the 2025 reporting season. The distinction between using customer data for lot ordering versus prohibited use for basis reporting, along with the penalty relief considerations tied to segregating covered and noncovered securities, represents critical details for tax professionals advising these institutions. Compliance hinges on strict adherence to the specific citation requirements found within Treas. Reg. §1.6045-1 for activities ranging from custodial transfers to the application of the qualified stablecoin tests.

Prepared with assistance from NotebookLM.