Internal Revenue Bulletin 2023-38 (PDF rendition): IRS Notices

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Bulletin No. 2023–38
September 18, 2023
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Notice 2023-56, page 824.
This notice describes the rules that the Internal Revenue
Service (IRS) applies in determining the Federal income tax
consequences of refunds of State or local taxes and cer-
tain other payments made by State or local governments
(States) to individuals (State payments) and includes exam-
ples illustrating the application of these rules. This notice
also describes the applicable Federal information reporting
requirements. Section 5 of this notice requests comments,
including comments on the application of the rules described
in this notice.
REG-122793-19, page 829.
This NPRM proposes rules regarding information reporting,
determining amount realized and basis, and backup with-
holding, for sales and exchanges of digital assets. Based on
existing authority and changes to the Internal Revenue Code
of 1986 made by the Infrastructure Investment and Jobs Act,
Pub. L. No. 117-58, the NPRM would require brokers, including
digital asset trading platforms, digital asset payment proces-
sors, and certain digital asset hosted wallets, to file informa-
tion returns, and furnish payee statements, reporting gross
proceeds for sales and certain exchanges of digital assets
effected for customers on or after 1/1/2025. Certain brokers
would also be required to report basis for sales and exchange
transactions effected for customers on or after 1/1/2026.
For real estate transactions that close on or after 1/1/2025,
the NPRM would require real estate reporting persons, such as
title companies, closing attorneys, mortgage lenders, and real
estate brokers, to report the disposition of digital assets paid
as consideration by real estate purchasers and to report on
Form 1099-S the fair market value of digital assets paid to real
estate sellers. The NPRM sets forth gain and loss computation
rules, basis determination rules, and backup withholding rules
applicable to digital asset sale and exchange transactions.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
September 18, 2023 Bulletin No. 2023–38

Part III
Federal Income Tax
Consequences of Certain
State Payments
Notice 2023-56
SECTION 1. PURPOSE
This notice describes the rules that the
Internal Revenue Service (IRS) applies
in determining the Federal income tax
consequences of refunds of State or local
taxes and certain other payments made
by State or local governments (States) to
individuals (State payments) and includes
examples illustrating the application of
these rules. This notice also describes the
applicable Federal information report-
ing requirements. Section 5 of this notice
requests comments, including comments
on the application of the rules described
in this notice.
SECTION 2. BACKGROUND
In 2022, a number of States imple-
mented programs to provide State pay-
ments to certain individuals residing in
their States. Many of these programs were
related, directly or indirectly, to the var-
ious consequences of the Coronavirus
Disease 2019 (COVID-19) pandemic, and
the programs varied in terms of the types
of payments, payment amounts, and eligi-
bility criteria.
In response to numerous requests for
guidance on how individuals should treat
these payments on their 2022 Federal
income tax returns, on February 10,
2023, the IRS issued IRS News Release
IR-2023-23
1
to provide certainty for the
2023 Federal income tax filing season.
After noting that determining whether
State payments qualify for the exclusion
from Federal gross income under the gen-
eral welfare doctrine or as disaster relief
payments is a complex and fact-intensive
inquiry that depends on a number of con-
siderations, the News Release stated as
follows:
The IRS has reviewed the types of
payments made by various states in
2022 that may fall in these categories
and given the complicated fact-specific
nature of determining the treatment of
these payments for federal tax purposes
balanced against the need to provide
certainty and clarity for individuals
who are now attempting to file their
federal income tax returns, the IRS has
determined that in the best interest of
sound tax administration and given the
fact that the pandemic emergency dec-
laration is ending in May, 2023 mak-
ing this an issue only for the 2022 tax
year, if a taxpayer does not include the
amount of one of these payments in its
2022 income for federal income tax
purposes, the IRS will not challenge
the treatment of the 2022 payment as
excludable from income on an original
or amended return.
The News Release identified 2022 pay-
ment programs in 17 States that qualified
for this treatment.
As the News Release made clear, the
guidance in the News Release applied
only for payments made in 2022. The
IRS has received requests for guidance
regarding the Federal income tax conse-
quences of State payments made in 2023
and future years, as well as requests that
States be allowed to provide comments
on the guidance. This notice is issued in
response to these requests.
SECTION 3. SUMMARY OF
APPLICABLE FEDERAL INCOME
TAX LAW
.01 Gross Income. Section 61(a) of the
Internal Revenue Code (Code)
2
provides
that, except as otherwise provided in subti-
tle A of the Code, gross income for Federal
income tax purposes “means all income
from whatever source derived” (Federal
gross income). See also § 1.61-1(a). The
U.S. Supreme Court has held that Federal
gross income includes any “undeniable
accession to wealth, clearly realized, over
which a taxpayer has complete dominion.”
Commissioner v. Glenshaw Glass Co.,
348 U.S. 426, 431 (1955), 1955-1 C.B.
207. State payments are subject to this
general rule unless an exception applies to
exclude such amounts from Federal gross
income. Relevant exceptions include cer-
tain refunds of previously paid State taxes
(State tax refunds), certain payments sub-
ject to the general welfare exclusion, and
certain disaster relief payments (including
certain payments made in connection with
the COVID-19 pandemic).
.02 State Tax Refunds. In determin-
ing whether a State payment constitutes
a State tax refund, as opposed to some
other type of State payment, the partic-
ular label given to the payment under
State law is not controlling for Federal
tax purposes. Instead, Federal tax law
looks to the substance of the payment to
determine its purpose and Federal income
tax characterization. See, e.g., Morgan v.
Commissioner, 309 U.S. 78, 81 (1940);
Maines v. Commissioner, 144 T.C. 123,
132 (2015). In Maines, the U.S. Tax Court
considered whether payments referred to
by the State as refunds for overpayment
of State taxes were properly viewed as
refunds for Federal income tax purposes.
The payments in question related to three
different types of refundable State income
tax credits. The court held that where the
refundable credit amount was limited to
State taxes actually paid by the taxpayer,
as in the case of one of the credits, the
payments constituted refunds for Federal
income tax purposes. In contrast, where
the credit amount was not so limited, the
court concluded that the payment was not
in substance a refund for overpayment of
State taxes and was therefore includable
in Federal gross income.
1
Available at https://www.irs.gov/newsroom/irs-issues-guidance-on-state-tax-payments-to-help-taxpayers.
2
Unless otherwise specified, all “section” or “§” references are to sections of the Code or to the Income Tax Regulations (26 CFR part 1).
September 18, 2023 824 Bulletin No. 2023–38

State payments that are properly treated
as State tax refunds generally are not
includible in the recipient’s Federal gross
income because, as the return of an over-
payment of the recipient’s State tax liabil-
ity, these refunds are not an accession to
wealth. See Rev. Rul. 70-86, 1970-1 C.B.
23 (holding that a refund by the State of
real property taxes previously paid by an
individual is a recovery of those taxes
and is generally not includible in Federal
gross income). However, certain State
payments that are properly treated as
State tax refunds may result in Federal
gross income due to the application of
the “tax benefit rule.” See § 111; see also
Rev. Rul. 2019-11, 2019-17 I.R.B. 1041;
Rev. Rul. 93-75, 1993-2 C.B. 63. The tax
benefit rule generally requires a taxpayer
to include in Federal gross income an
amount recovered during a taxable year
that the taxpayer deducted for Federal
income tax purposes in a prior taxable
year to the extent the Federal income tax
deduction reduced the taxpayer’s Federal
income tax liability in the prior taxable
year. Thus, an individual who receives a
State tax refund for a prior year tax pay-
ment that the individual did not previously
deduct for Federal income tax purposes
3

is not required to include the State tax
refund in Federal gross income because
it is simply a reduction in the individu-
al’s prior year State tax liability, with no
corresponding Federal income tax benefit.
Generally, if an individual deducted a pay-
ment of State taxes in a prior taxable year
for Federal income tax purposes that gives
rise to a State tax refund in any subsequent
taxable year, then the State tax refund is
included in the individual’s Federal gross
income during the taxable year in which
the State tax refund is received to the
extent that the Federal income tax deduc-
tion in the prior taxable year reduced the
individual’s Federal income tax liability in
the prior taxable year.
For most individuals, State tax refunds
will not be includible in Federal gross
income. For example, individuals who
claimed the standard deduction (as most
individuals do) will not include State tax
refunds in Federal gross income because
they would not have previously deducted
on their Federal income tax returns the
refunded amount of State taxes paid.
Individuals who itemized deductions and
deducted for Federal income tax purposes
the amounts of any State taxes paid, how-
ever, generally are required to include the
State tax refunds in gross income on their
Federal income tax returns to the extent
that they received a Federal income tax
benefit from the prior Federal income tax
deductions.
4
.03 General Welfare Exclusion. Despite
the general rule that Federal gross income
includes all income from whatever source
derived, payments made to, or on behalf
of, individuals by governmental units
under legislatively provided social benefit
programs for the promotion of the general
welfare are not includible in an individual
recipient’s Federal gross income (general
welfare exclusion). See, e.g., Rev. Rul.
78-170, 1978-1 C.B. 24 (concluding that
amounts paid under the laws of the State
of Ohio to low-income elderly and dis-
abled persons to help alleviate their cost
of winter energy consumption are made
for the promotion of general welfare, and
are not includible in the recipients’ gross
income for Federal income tax purposes);
see also Rev. Rul. 76-395, 1976-2 C.B. 16
(applying the general welfare exclusion
to home rehabilitation grants to low-in-
come families to correct substandard
conditions).
To qualify for the general welfare
exclusion, State payments must (1) be
paid from a governmental fund, (2) be
for the promotion of general welfare (that
is, based on the need of the individual
or family receiving such payments), and
(3) not represent compensation for ser-
vices absent a specific Federal income tax
exclusion. See Notice 2003-18, 2003-14
I.R.B. 699, and Rev. Rul. 76-229, 1976-2
C.B. 16.
Payments that are based on some cri-
teria other than individual or family need
do not qualify for the general welfare
exclusion. Compare Rev. Rul. 76-395,
1976-2 C.B. 16 (home rehabilitation
grants received by low-income home-
owners residing in a defined area of a city
under the city’s community development
program funded under the Housing and
Community Development Act of 1974 are
in the nature of general welfare and are not
includible in their gross income) with Rev.
Rul. 76-131, 1976-1 C.B. 16 (payments
made by the State of Alaska to individuals
at least 65 years of age who have main-
tained an Alaska domicile for at least 25
years to encourage them to continue their
residence in the State did not qualify under
the general welfare exclusion because the
payments were made to residents regard-
less of financial status, health, educational
background, or employment status).
.04 Disaster Relief. Section 139(a) pro-
vides that Federal gross income does not
include any amount received by an individ-
ual as a qualified disaster relief payment.
Section 139(b)(4) defines a “qualified
disaster relief payment” to include, among
other things, any amount paid to, or for the
benefit of, an individual if such amount is
paid by a Federal, State, or local govern-
ment, or agency or instrumentality thereof,
in connection with a qualified disaster
in order to promote the general welfare.
5

Under § 139(c)(2), a qualified disaster
includes a Federally declared disaster as
“defined by section 165(i)(5)(A).” Section
165(i)(5)(A) defines a Federally declared
disaster as “any disaster subsequently
determined by the President of the United
States to warrant assistance by the Federal
Government under the Robert T. Stafford
3
Section 164(a) generally allows a Federal income tax deduction for certain “State and local taxes” (as well as certain other taxes) for the taxable year within which paid or accrued.
4
Section 164(b)(6), as added by § 11042(a) of Public Law 115-97, 131 Stat. 2054 (December 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA), limits an individual’s
deduction under § 164(a) (SALT deduction limitation) to $10,000 ($5,000 in the case of a married individual filing a separate return) for the aggregate amount of certain “State and local taxes”
paid during the calendar year. This SALT deduction limitation applies to taxable years beginning after December 31, 2017, and before January 1, 2026.
5
This notice does not address, and no inference is intended with respect to, the Federal income tax treatment of Indian general welfare benefits provided pursuant to § 139E. The Treasury
Department and the IRS are actively working to develop proposed regulations under § 139E in coordination with the Department of the Treasury Tribal Advisory Committee established pur-
suant to § 3(a) of the Tribal General Welfare Exclusion Act of 2014, Public Law 113-168, 128 Stat. 1883 (2014). Those proposed regulations will be the subject of future Tribal Consultation
pursuant to Executive Order 13175, President Biden’s Presidential Memorandum for Tribal Consultation and Strengthening Nation to Nation Relationships, and the Treasury Department’s
Action Plan for Tribal Consultation and Collaboration.
Bulletin No. 2023–38 825 September 18, 2023

September 18, 2023 826 Bulletin No. 2023–38
Disaster Relief and Emergency Assistance
Act.”
On March 13, 2020, the President
declared that the novel COVID-19 out-
break in the United States constituted a
national emergency under the National
Emergencies Act (50 U.S.C. 1601 et
seq.).
6
On that same day, the President
determined that the COVID-19 pandemic
was of sufficient severity and magnitude
to warrant an emergency declaration
under § 501(b) of the Robert T. Stafford
Disaster Relief and Emergency Assistance
Act (42 U.S.C. 5121-5207).
7
Because the
President determined that the COVID-
19 pandemic warranted assistance by the
Federal Government under the Stafford
Act, on March 13, 2020, the COVID-19
pandemic was also a “Federally declared
disaster” under §§ 139(c)(2) and 165(i)(5)
(A). On February 24, 2021, the President
continued the national emergency con-
cerning the COVID-19 pandemic beyond
March 1, 2021.
8
On February 10, 2023, the President
announced that he anticipated terminating
the national emergency concerning the
COVID-19 pandemic on May 11, 2023.
9

On April 10, 2023, the President signed
into law a Joint Resolution of Congress
terminating the national emergency
concerning the COVID-19 pandemic.
10

Accordingly, the related “Federally
declared disaster,” as defined by §§ 139(c)
(2) and 165(i)(5)(A), terminated on May
11, 2023.
The remaining criteria for disaster
relief payments under § 139(b)(4) are
that the payments be made “in connec-
tion with” a qualified disaster and that
they are made in order to “promote the
general welfare.” In the context of a qual-
ified disaster such as the COVID-19 pan-
demic, payments made in connection with
the disaster are presumed to be made in
order to promote the general welfare (that
is, based on individual or family need) for
all individuals affected by the disaster. See
Notice 2002-76, 2002-2 C.B. 917. As in
the case of the general welfare exclusion
outside of § 139(b)(4), payments cannot
represent compensation for services.
.05 Information Reporting. Section
6041(a) generally requires that all persons
engaged in a trade or business and mak-
ing payment in the course of such trade
or business to another person of rent; sal-
aries; wages; premiums; annuities; com-
pensations; remunerations; emoluments;
or other fixed or determinable gains, prof-
its, and income, of $600 or more in any
taxable year, must make a true and accu-
rate return to the Secretary of the Treasury
or her delegate (Secretary).
Section 6041(d) provides that every
person required to make a return under
§ 6041(a) must furnish to each per-
son with respect to whom such return is
required a written statement showing the
name, address, and phone number of the
contact information of the person required
to make such return, and the aggregate
amount of payments to the person required
to be shown on the return. Section 1.6041-
1(b)(1) provides that the term “all persons
engaged in a trade or business,” as used
in § 6041(a), includes organizations the
activities of which are not for the purpose
of gain or profit. Thus, that term includes
the organizations referred to in § 1.6041-
1(i). Section 1.6041-1(i) provides that the
United States or a State, or political subdi-
vision thereof, or the District of Columbia,
or any agency or instrumentality of any one
or more of the foregoing must file Form
1099 Series information returns to report
payments of $600 or more and Form W-2,
Wage and Tax Statement, to report wages
paid to employees under the provisions of
§ 1.6041-2. The information returns must
be made by the officer or employee having
control of such payments or by the officer
or employee appropriately designated to
make such returns. Form 1099-G, Certain
Government Payments, is used by States
to report the amount of grants that are
included in the Federal gross income of
the recipient.
Section 6050E(a) provides that every
person who, with respect to any individ-
ual, during any calendar year makes pay-
ments of refunds of State income taxes
(or allows credits or offsets with respect
to such taxes) aggregating $10 or more
must make a return according to forms or
regulations prescribed by the Secretary
setting forth the aggregate amount of such
payments, credits, or offsets, and the name
and address of the individual with respect
to whom such payment, credit, or offset
was made. Section 6050E and § 1.6050E-
1(k)(1) provide that every person required
to make a return under § 6050E(a) and §
1.6050E-1(c) must furnish to each indi-
vidual whose name is required to be set
forth in such return a written statement
showing the name of the State or political
subdivision thereof, and the information
required to be shown on the return with
respect to refunds, credits, and offsets to
the individual. Section 1.6050E-1(k)(2)
provides that a State refund officer need
not furnish a statement to an individual
under § 1.6050E-1(k)(1) if the refund
officer verifies that the individual did not
claim itemized deductions for Federal
income tax purposes for the taxable year
giving rise to the State tax refund. Form
1099-G is used by States to report State
tax refunds.
SECTION 4. GUIDANCE FOR
INDIVIDUALS RECEIVING AND
STATES MAKING CERTAIN STATE
PAYMENTS
.01 State Income Tax Refunds. If an indi-
vidual claimed the standard deduction on
the individual’s Federal income tax return
for the taxable year in which the individual
paid State taxes, a State income tax refund
(related to the prior payment of those
State taxes) in a subsequent taxable year
is not includible in the individual’s gross
6
Proclamation 9994 of March 13, 2020, Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak, 85 Fed. Reg. 15337 (March 18, 2020), available
at https://www.federalregister.gov/documents/2020/03/18/2020-05794/declaring-a-national-emergency-concerning-the-novel-coronavirus-disease-covid-19-outbreak.
7
Letter from the President on Emergency Determination Under the Stafford Act, available at https://trumpwhitehouse.archives.gov/wp-content/uploads/2020/03/LetterFromThePresident.pdf.
8
See Presidential Notice, 86 Fed. Reg. 11599 (February 24, 2021).
9
See Notice of February 10, 2023, Continuation of the National Emergency Concerning the Coronavirus Disease 2019 (COVID-19) Pandemic, 88 Fed. Reg. 9385 (February 14, 2023), avail-
able at https://www.federalregister.gov/documents/2023/02/14/2023-03218/continuation-of-the-national-emergency-concerning-the-coronavirus-disease-2019-covid-19-pandemic.
10
See Joint Resolution relating to a national emergency declared by the President on March 13, 2020, Public Law 118-3, 137 Stat. 6 (April 10, 2023), available at https://www.congress.
gov/118/plaws/publ3/PLAW-118publ3.pdf.

Bulletin No. 2023–38 827 September 18, 2023
income for Federal income tax purposes.
An individual who itemized deductions
and deducted amounts of State income
taxes paid, however, is required to include
the State tax refund in gross income on the
individual’s Federal income tax return to
the extent that the individual received a
Federal income tax benefit from the prior
Federal income tax deduction.
Example. In January 2023, State A enacted a stat-
ute providing that certain State A funds be returned
to certain individuals as a refund of State A income
taxes paid in 2021. Pursuant to that statute, State A
will pay up to $250 to individuals who filed State A
income tax returns for taxable year 2021 as single
filers and up to $500 to spouses who filed as mar-
ried, filing jointly, but the payment cannot exceed
an individual’s State A income tax liability for tax-
able year 2021. B, a single individual, filed a State
A income tax return in 2022 for taxable year 2021 as
a single filer. B reported State A income tax liability
of $2,500, all of which B paid through income tax
withholding in 2021. B filed B’s Federal income tax
return in 2022 for taxable year 2021 and claimed the
standard deduction. In 2023, State A paid B $250 as
a refund of B’s State A income taxes paid for taxable
year 2021.
State A’s payment of $250 to B is a State tax
refund of B’s State A income taxes paid for taxable
year 2021. B claimed the standard deduction on B’s
Federal income tax return for taxable year 2021.
Thus, B did not deduct State A income taxes paid
on B’s Federal income tax return for taxable year
2021. Accordingly, B is not required to include the
$250 State A income tax refund in B’s Federal gross
income on B’s Federal income tax return for taxable
year 2023.
Section 6050E requires State A to file with the
IRS and furnish to B a Form 1099-G that includes
the $250 payment in Box 2, State or local income tax
refunds, credits, or offsets, unless the State A refund
officer (as defined in § 1.6050E-1(b)(1)) verifies
that B did not claim itemized deductions for Federal
income tax purposes. Thus, B may receive a Form
1099-G from State A that includes the $250 payment
even though B is not required to include the payment
on B’s Federal income tax return for taxable year
2023.
.02 State Property Tax Refunds. If an
individual claimed the standard deduction
on the individual’s Federal income tax
return for the taxable year in which the
individual paid State taxes, a State prop-
erty tax refund (related to the prior pay-
ment of those State taxes) in a subsequent
taxable year is not includible in the indi-
vidual’s gross income for Federal income
tax purposes. An Individual who item-
ized deductions and deducted amounts
of State property taxes paid, however, is
required to include the State tax refund in
gross income on the individual’s Federal
income tax returns to the extent that the
individual received a Federal income tax
benefit from the prior Federal income tax
deduction.
Example. In March 2023, State C enacted a stat-
ute providing that certain State C funds be returned
to certain individuals who paid State C property
taxes in 2021. Pursuant to that statute, State C will
pay individuals a refund equal to the lesser of 10%
of State C property taxes paid or $300. D, an individ-
ual, was liable for State C property taxes of $2,800
for taxable year 2021, which D paid in 2021. D filed
D’s Federal income tax return in 2022 for taxable
year 2021 and claimed itemized deductions totaling
$9,000, which included the $2,800 property tax pay-
ment and which reduced D’s Federal income tax lia-
bility for the year. In 2023, State C paid D $280 as a
refund of D’s State C property taxes paid for taxable
year 2021 and made no other payments to D.
State C’s payment of $280 to D is a State tax
refund of D’s State C property taxes paid for taxable
year 2021. D claimed the $2,800 property tax pay-
ment as a deduction on D’s Federal income tax return
for taxable year 2021, with a corresponding reduc-
tion in D’s Federal income tax liability for the year.
Accordingly, D is required to include the $280 State
C property tax refund in D’s Federal gross income on
D’s Federal income tax return for taxable year 2023.
State C is not required to file or furnish an infor-
mation return with respect to the $280 payment to D.
Section 6050E does not apply because the payment
is a refund of State property taxes paid, not a refund
of State income taxes. Section 6041 does not apply
because the total payments from State C to D in 2023
were less than $600. The fact that no information
return is required does not relieve D of the obligation
to include the $280 in D’s Federal gross income.
.03 Spillover Payments under 2022
Programs Covered by IRS News Release
IR-2023-23. Some of the 2022 programs
covered by the guidance in IRS News
Release IR-2023-23 provided for certain
State payments under the program to be
made in early 2023. To the extent that the
News Release provided that an individual
taxpayer could exclude such a State pay-
ment received in 2022, individual taxpay-
ers who did not receive a payment under
the program during 2022 may exclude a
State payment received in 2023 under the
2022 program from Federal gross income.
Example. In 2022, State E enacted a program to
make State payments to its residents who met certain
requirements (2022 program). Under the 2022 pro-
gram, each State E resident who filed a 2021 State E
income tax return was entitled to receive $750. State
E made most of the State payments under the 2022
program on or before December 31, 2022. Under
the 2022 program, State E may make remaining
2022 program State payments in early 2023. State
E made a 2022 program State payment of $750 to
F on January 15, 2023. State E’s 2022 program was
listed in IRS News Release IR-2023-23 as one of
the programs that would be treated as qualifying for
an exclusion from Federal gross income for 2022
payments.
Because State E’s January 15, 2023, State pay-
ment to F resulted from the 2022 program, which
was listed in IRS News Release IR-2023-23 as qual-
ifying for an exclusion from Federal gross income, F
may exclude this State payment from Federal gross
income on F’s Federal income tax return for taxable
year 2023. Because the State payment from the 2022
program is not Federal gross income to F, § 6041 and
§ 1.6041-1 do not require State E to file with the IRS
or furnish to F a Form 1099-MISC, Miscellaneous
Information.
.04 State Payments Excluded Under
the General Welfare Exclusion. State pay-
ments made under a State program for
the promotion of the general welfare are
not includible in an individual’s Federal
gross income. To qualify under the gen-
eral welfare exclusion, State payments
must be made from a governmental fund;
be for the promotion of the general wel-
fare (that is, based on individual or family
need); and not represent compensation for
services.
Example. In 2023, State G makes State pay-
ments to eligible residents under an “Energy Relief
Payment Program” to help those low-income resi-
dents who may not otherwise be able to afford to pay
their heating bills. Eligible residents were limited to
those who lived in State G full time in 2021 and filed
a State G income tax return for taxable year 2021 no
later than October 31, 2022. State G pays $650 to
low-income taxpayers who filed as single or married,
filing separately, for taxable year 2021. Individual H
filed a State G income tax return for taxable year
2021 as a single filer. State G paid a $650 State pay-
ment to H in 2023.
State payments that State G makes under its
Energy Relief Payment Program are made for the
promotion of general welfare and are excluded
from Federal gross income under the general wel-
fare exclusion. Thus, H may exclude the $650 State
payment from Federal gross income for taxable year
2023 under the general welfare exclusion. Section
6041 and § 1.6041-1 do not require State G to fur-
nish to H an information return that includes the
$650 State payment.
SECTION 5. REQUEST FOR
COMMENTS
.01 In General. Comments are requested
on the application of the rules described in
this notice. Comments are also requested
on specific aspects of State payment pro-
grams or additional situations with respect
to which the issuance of Federal income
tax guidance would be helpful. Comments
are specifically requested on the Federal
income tax treatment of payments that are
characterized under State law as State sales
tax refunds in light of the fact that it may
not be practicable to determine the amount
of State sales tax an individual paid during

September 18, 2023 828 Bulletin No. 2023–38
a particular taxable year. After consider-
ing the comments, the Department of the
Treasury (Treasury Department) and the
IRS intend to issue further guidance on the
Federal income tax consequences of State
payments.
.02 Procedures for Submitting
Comments.
(1) Timing. Comments should be sub-
mitted in writing on or before October 16,
2023. Consideration will be given, how-
ever, to any written comments submitted
after October 16, 2023, if such consider-
ation will not delay the issuance of further
guidance.
(2) Form and manner. The subject
line for the comments should include a
reference to Notice 2023-56. All com-
menters are strongly encouraged to sub-
mit comments electronically. However,
comments may be submitted in one of two
ways:
(a) Electronically via the Federal
eRulemaking Portal at https://www.reg-
ulations.gov (type IRS-2023-0033 in the
search field on the https://www.regula-
tions.gov homepage to find this notice and
submit comments); or
(b) By mail to: Internal Revenue Service,
CC:PA:LPD:PR (Notice 2023-56), Room
5203, P.O. Box 7604, Ben Franklin Station,
Washington, D.C., 20044.
(3) Publication of comments. The
Treasury Department and the IRS will
publish for public availability any com-
ment submitted electronically or on paper
to its public docket on https://www.regu-
lations.gov.
SECTION 6. DRAFTING AND
CONTACT INFORMATION
The principal author of this notice
is Jonathan Hauck of the Office of the
Associate Chief Counsel (Income Tax
and Accounting). Other personnel from
the Treasury Department and the IRS par-
ticipated in its development. For further
information regarding this notice contact
Jonathan Hauck at (202) 317-7009 (not a
toll-free number).

Bulletin No. 2023–38 829 September 18, 2023
Part IV
Notice of Proposed
Rulemaking
REG-122793-19
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: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations regarding infor-
mation reporting, the determination of
amount realized and basis, and backup
withholding, for certain digital asset sales
and exchanges. Based on existing author-
ity as well as changes to the applicable tax
law made by the Infrastructure Investment
and Jobs Act, these proposed regulations
would require brokers, including digi-
tal asset trading platforms, digital asset
payment processors, and certain digital
asset hosted wallets, to file information
returns, and furnish payee statements, on
dispositions of digital assets effected for
customers in certain sale or exchange
transactions. These proposed regulations
would also require real estate reporting
persons, who are treated as brokers with
respect to reportable real estate trans-
actions, to include on filed information
returns and furnished payee statements
the fair market value of digital asset con-
sideration received by real estate sell-
ers in reportable real estate transactions.
Additionally, these real estate reporting
persons would also be required to file
information returns and furnish payee
statements with respect to real estate pur-
chasers who use digital assets to acquire
real estate in these transactions.
DATES: Written or electronic comments
must be received by October 30, 2023. A
public hearing on this proposed regulation
has been scheduled for November 7, 2023,
at 10 a.m. ET. If the number of requests to
speak at the hearing exceed the number
that can be accommodated in one day, a
second public hearing date for this pro-
posed regulation will be held on November
8, 2023. Requests to speak and outlines of
topics to be discussed at the public hear-
ing must be received by October 30, 2023.
If no outlines are received by October 30,
2023, the public hearing will be cancelled.
Requests to attend the public hearing must
be received by 5 p.m. ET on November
3, 2023. The public hearing will be made
accessible to people with disabilities.
Requests for special assistance during the
public hearing must be received by 5 p.m.
ET on November 2, 2023.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS
and REG-122793-19) by following the
online instructions for submitting com-
ments. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn. The Department of
the Treasury (Treasury Department) and
the IRS will publish any comments sub-
mitted electronically or on paper to the
public docket. Send paper submissions
to: CC:PA:LPD:PR (REG-122793-19),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4
p.m. to CC:PA:LPD:PR (REG-122793-
19), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW,
Washington, DC 20224.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations under sections 1001 and 1012,
Kyle Walker, (202) 317-4718, or Harith
Razaa, (202) 317-7006, of the Office of
the Associate Chief Counsel (Income Tax
and Accounting); concerning the inter-
national sections of the proposed regu-
lations 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 proposed
regulations under sections 3406, 6045,
6045A, 6045B, 6050W, 6721, and 6722,
Roseann Cutrone of the Office of the
Associate Chief Counsel (Procedure and
Administration) at (202) 317-5436 (not
toll-free numbers). Concerning submis-
sions of comments and requests to partici-
pate in the public hearing, Vivian Hayes at
publichearings@irs.gov (preferred) or at
(202) 317-5306 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
These proposed regulations extend the
information reporting rules in §1.6045-1
to brokers who, in the ordinary course of a
trade or business, act as agents, principals,
or digital asset middlemen for others to
effect sales or exchanges of digital assets
for cash, broker services, or property of
a type that is subject to reporting by the
brokers (including different digital assets,
securities, and real estate) under section
6045 of the Internal Revenue Code (Code)
or effect on behalf of customers payments
of digital assets associated with payment
card and third party network transactions
subject to reporting under section 6050W
of the Code. These proposed regulations
also clarify that the definition of broker
for purposes of section 6045 includes dig-
ital asset trading platforms, digital asset
payment processors, certain digital asset
hosted wallet providers, and persons who
regularly offer to redeem digital assets
that were created or issued by that per-
son. In addition, these proposed regula-
tions would require real estate reporting
persons to report on real estate purchas-
ers who use digital assets to acquire real
estate in a reportable real estate transac-
tion and extend the information that must
be reported under §1.6045-4 with respect
to sellers of real estate to include the fair
market value of digital assets received
by sellers in exchange for real estate.
Additionally, in the case of a transaction
involving the exchange of digital assets

September 18, 2023 830 Bulletin No. 2023–38
for goods (other than digital assets) or
services, these proposed regulations treat
the provision of the goods or services as
reportable under section 6050W and the
disposition of the digital assets as report-
able under proposed §1.6045-1 and not
under section 6050W. These proposed
regulations also provide that exchanges
of digital assets for property or services
are generally not reportable as barter
exchange transactions under the existing
rules under §1.6045-1(e). Finally, these
proposed regulations provide specific
rules under section 1001 for determining
the amount realized in a sale, exchange,
or other disposition of digital assets and
under section 1012 for calculating the
basis of digital assets.
These proposed regulations con-
cern Federal tax laws under the Internal
Revenue Code only. No inference is
intended with respect to any other legal
regime, including the Federal securi-
ties laws and the Commodity Exchange
Act, which are outside the scope of these
regulations.
I. Background on Digital Assets and
Virtual Currency
Digital assets are digital representations
of value that use cryptography to secure
transactions that are digitally recorded
using distributed ledger technology on a
distributed ledger, such as a blockchain or
similar technology. Digital assets do not
exist in physical form. Depending on the
particular digital asset, individual units of
a digital asset may be referred to as coins
or tokens. Some digital assets are referred
to as virtual currency or as cryptocurrency.
Virtual currency is defined in Notice
2014-21, 2014-16 I.R.B. 938 (April 14,
2014) (Notice 2014-21 or Notice), for
Federal income tax purposes as a digital
representation of value that functions as a
medium of exchange, a unit of account, or
a store of value other than the U.S. dol-
lar or a foreign currency (fiat currency).
The Notice provides that convertible vir-
tual currency (that is, virtual currency that
has an equivalent value in real currency or
that acts as a substitute for real currency)
is treated as property for Federal income
tax purposes.
A digital asset account or wallet gener-
ally provides its owner or custodian with
the ability to store the public and private
keys to digital asset holdings. These keys
are required to conduct transactions with
the digital assets associated with those
keys and thus to control the ability to
transfer those digital assets. References
in this preamble and these proposed reg-
ulations to an owner holding digital assets
generally or holding digital assets in a
wallet or account are meant to refer to
holding or controlling, whether directly or
indirectly through a custodian, the keys to
the digital assets and, thus, the ability to
transfer those digital assets.
Some wallets may provide additional
or different capabilities beyond storing
keys. Wallets can be digital (software) or
physical (hardware) and can be connected
to the Internet (hot) or disconnected from
the Internet (cold). Wallets can be custo-
dial (hosted) or non-custodial (unhosted).
Unhosted wallets are sometimes referred
to as self-hosted or self-custodial wallets.
Some owners use the services of a hosted
wallet provider that stores their public and
private keys. A hosted wallet provider may
also maintain balance information, pro-
vide cybersecurity services, and facilitate
the owners’ ability to own, and conduct
transactions using, digital assets. These
services may also include providing own-
ers with online platforms that directly link
owners to third party services that allow
owners to buy and sell digital assets held
in their hosted wallets. Other owners do
not use the services of a hosted wallet pro-
vider and instead store private keys in a
software program or written record, often
referred to as an unhosted wallet. In gen-
eral, only the user of an unhosted wallet
has access to both the public and private
keys necessary to effect transactions in the
digital assets associated with those keys.
Additionally, some providers of unhosted
wallets also provide their unhosted wallet
users with online platform services, which
may include links or other mechanisms for
direct access to third party services that
allow users to buy and sell digital assets
held in their unhosted wallets.
A person that operates a trading plat-
form or website that allows users to
exchange digital assets in return for dif-
ferent digital assets or cash (meaning
the U.S. dollar or foreign currency) is
referred to in this preamble as a digital
asset trading platform. Some digital asset
trading platforms also offer hosted wal-
let services. In some circumstances, the
custodial digital asset trading platform
will match up buy and sell orders from
separate users, whereas in other circum-
stances, the digital asset trading platform
will settle users’ orders using the digital
asset trading platform’s own account.
In either circumstance, the digital asset
trading platform could elect to require
users to deposit with the trading platform
the digital assets traded on the platform.
Users typically pay these digital asset
trading platforms a transaction fee (some-
times in digital assets). A custodial digital
asset trading platform might often record
its users’ digital asset sale and exchange
transactions on a centralized, omnibus
ledger without also recording the trans-
actions on the relevant distributed ledgers
of the digital asset sold or exchanged. In
other instances, however, the custodial
digital asset trading platform might record
user transactions directly on the distrib-
uted ledgers of the applicable digital
assets involved in the transaction. These
custodial digital asset trading platforms
may provide users with valuations (in fiat
currency) of the digital asset involved in
these exchanges and keep records of each
user’s exchange activity.
Some digital asset trading platforms do
not have access to the private keys and,
therefore, do not take custody of their
users’ digital assets.
1
Owners of digital
assets using these non-custodial trading
platforms can buy, sell, and trade digital
assets directly with others using automati-
cally executing contracts (so-called smart
contracts) to ensure that transactions are
executed as agreed. For example, some
peer-to-peer trading platforms facilitate
1
Some digital asset trading platforms that do not claim to offer custodial services may be able to exercise effective control over a user’s digital assets. See Treasury Department, Illicit Finance
Risk Assessment of Decentralized Finance (April 2023), https://home.treasury.gov/system/files/136/DeFi-Risk-Full-Review.pdf. No inference is intended as to the meaning or significance of
custody under any other legal regime, which are outside the scope of these regulations.

Bulletin No. 2023–38 831 September 18, 2023
transactions between owners of digital
assets by matching buyers and sellers
without holding the funds or digital assets
of buyers or sellers. Some peer-to-peer
trading platforms use software that con-
nects buyers and sellers, who then effect
the desired transactions off the platform.
Other non-custodial trading platforms use
automated market maker (AMM) sys-
tems that rely on liquidity pools or liquid-
ity providers to automatically facilitate
buy and sell orders on a platform. Some
non-custodial trading platforms involve
persons (operators) who provide services
beyond that provided by software that
merely facilitates digital asset trading. For
example, to enhance secure transactions,
non-custodial trading platform operators
might process a transaction by commu-
nicating (or providing software that will
communicate) with the wallets of buyers
and sellers. Operators of non-custodial
trading platforms may charge fees for
some or all of these services, which may
also include advertising or other services
closely related to the facilitation of sales
of digital assets.
In addition to buying, selling, and
exchanging digital assets, taxpayers can
participate in an increasing number and
type of transactions that involve digital
assets. For example, taxpayers can pur-
chase or enter into derivative transactions
involving digital assets, such as options,
regulated futures contracts, and forward
contracts. Some digital asset owners
also use digital assets to make payments,
including to purchase goods or services
from merchants or to pay taxes or other
fees to government entities. Digital assets
may also be used as payment in consider-
ation for the purchase of real estate. These
payment transactions can be made directly
to the seller through the use of smart con-
tracts that can execute a transaction with-
out an intermediary party, or through an
intermediary that can process payments
in digital assets (digital asset payment
processor). To effect payment transac-
tions using digital assets, some digital
asset payment processors will, for a fee,
accept digital assets directly from payors
in exchange for the payment of cash at
predetermined exchange rates to payment
recipients or will facilitate the transfer
of the payor’s digital assets as part of a
payment transaction. In some instances,
digital asset payment processors will
instead direct payors to transfer the digital
asset payment directly to payment recipi-
ents, who may have the right to exchange
the received digital asset for cash with the
digital asset payment processors at prede-
termined fixed exchange rates.
II. Application of Existing Information
Reporting Rules to Virtual Currency or
Other Digital Assets
Notice 2014-21 provides guidance on
the application of the current informa-
tion reporting requirements when virtual
currency is used to pay wages (requir-
ing the filing of Forms W-2, Wage and
Tax Statement), to make miscellaneous
payments (requiring the filing of Forms
1099-MISC, Miscellaneous Income), and
to settle third party network transactions
(requiring the filing of Forms 1099-K,
Payment Card and Third Party Network
Transactions). The guidance provided
by the Notice, however, focuses only on
information reporting for virtual currency
payments received by payees. The guid-
ance does not address the information
reporting requirements for income real-
ized by persons who dispose of virtual
currency or other digital assets. Although
there are several existing information
reporting provisions in the Code that do,
or may, apply to dispositions of virtual
currency and other digital assets, those
provisions do not provide clear and com-
prehensive rules for consistent reporting
of these dispositions.
A. Sections 1001 and 1012
Section 1001 of the Code provides
rules for determining the amount of gain
or loss recognized in a sale or exchange
transaction. Under section 1001(a), gain
from the sale or other disposition of
property equals the excess of the amount
realized from the transaction over the
adjusted basis of the property, and loss
from the sale or other disposition of prop-
erty equals the excess of the adjusted basis
of the property over the amount realized.
Section 1.1001-1(a) provides that “[e]
xcept as otherwise provided in subtitle A
of the Code, the gain or loss realized from
the conversion of property into cash, or
from the exchange of property for other
property differing materially either in kind
or in extent, is treated as income or as loss
sustained.” These regulations do not spe-
cifically address the determination of gain
or loss with respect to digital assets.
Section 1012 of the Code provides
that the basis of property is the cost of
the property. The existing regulations
under section 1012 provide special rules
regarding the calculation of basis for cer-
tain types of property. These regulations
do not expressly address the calculation of
basis for digital assets.
B. Section 6041
Section 6041 of the Code requires any
person who, in the course of a trade or
business, makes payments of $600 or more
that are deemed to be fixed or determin-
able income to file information returns,
and furnish statements to the payee (payee
statements), setting forth the amount of
gains, profits, and income resulting from
that payment and the name and address of
the recipient of that payment. Published
guidance states that the amount of gains,
profits, or income resulting from a pay-
ment made in consideration for a capital
asset is not fixed or determinable under
section 6041 if the payor has no way of
ascertaining the payee’s basis in that asset.
See, for example, Rev. Rul. 80-22, 1980-1
C.B. 286 (January 21, 1980). Thus, a payor
otherwise required to report on a payment
made in exchange for digital assets is
required to report the payee’s gain from
that transaction under section 6041 if the
payor has a way to ascertain the payee’s
basis and if the gain (in addition to any
other payments made by that payor to the
payee during the calendar year) is equal
to $600 or more. Reporting under section
6041, however, does not apply to brokers
with respect to payments made to custom-
ers. See §1.6041-3(b). If a payment that
is reportable under section 6041 is also
subject to the information reporting rules
under section 6050W, §1.6041-1(a)(1)(iv)
provides that the transaction must instead
be reported under section 6050W.
C. Sections 6045, 6045A, and 6045B
Section 6045 and the regulations there-
under require a person doing business as
a broker to file information returns, and

September 18, 2023 832 Bulletin No. 2023–38
furnish payee statements, in accordance
with regulations, for each customer for
whom the broker has sold stocks, certain
commodities, options, regulated futures
contracts, securities futures contracts,
forward contracts or debt instruments, in
exchange for cash, showing each custom-
er’s name and address, details regarding
gross proceeds, the adjusted basis of certain
categories of assets sold, and other infor-
mation as the Secretary of the Treasury or
her delegate (Secretary) may require by
forms or regulations. Section 80603 of the
Infrastructure Investment and Jobs Act,
Pub. L. 117-58, 135 Stat. 429, 1339 (2021)
(Infrastructure Act) made several changes
to the broker reporting provisions under
section 6045 to clarify the rules regard-
ing 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. These changes are discussed
below in Part III of this Background. This
Part II.C. of this Background discusses the
rules in place prior to the changes made by
the Infrastructure Act.
The term broker is defined by section
6045(c)(1) to include a dealer, a barter
exchange, and any other person who (for a
consideration) regularly acts as a middle-
man with respect to property or services.
The existing regulations under section
6045 (existing regulations), further refine
the meaning of a broker. Under existing
§1.6045-1(a)(1), a broker is defined to
mean “any person . . ., 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 oth-
ers.” The term effect, as defined under
existing §1.6045-1(a)(10), means either to
act as a principal with respect to a sale (for
example, a dealer in securities who buys a
security from one customer and then sells
that security to another customer) or to
act as 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. Accordingly, the term broker
for purposes of gross proceeds reporting
includes persons that may not otherwise
be considered to act as a broker, includ-
ing certain securities custodians, escrow
agents, and stock transfer agents. The term
broker for this purpose also includes per-
sons that are not custodians. For example,
a non-custodial executing broker that acts
as an agent for customers to effect sales
of securities is included in this defini-
tion. Finally, an obligor that regularly
issues and retires its own debt obliga-
tions and a corporation (such as a mutual
fund described in existing §1.6045-1(b)
Example 1 (i)) that regularly redeems
its own stock also are treated as brokers
under existing §1.6045-1(a)(1).
The term commodity is defined in
existing §1.6045-1(a)(5) to mean any
type of personal property (or interest
therein), the trading of regulated futures
contracts in which has been approved
by the Commodities Futures Trading
Commission (CFTC). At the time existing
§1.6045-1(a)(5) was promulgated, affir-
mative CFTC approval was required to list
new regulated futures contracts on a com-
modities exchange. Since that time, how-
ever, the CFTC has revised its approval
procedures pursuant to the Commodity
Futures Modernization Act (“CFMA”),
Pub. L. 106-554, 114 Stat. 2763 (2000).
The CFTC now also allows new contracts
to be listed if the listing market self-cer-
tifies that the new contracts comply with
the Commodity Exchange Act, 7 U.S.C.
1 et seq., and the CFTC’s regulations.
See CFTC, Listing of New Contracts
by Self-Certification, https://cftc.gov/
IndustryOversight/ContractsProducts/
index.htm and 17 CFR 40.2. Section
1.6045-1(a)(5) does not explicitly address
whether digital assets, the trading of
regulated futures contracts in which is
permitted pursuant to the CFTC’s self-cer-
tification procedures, are commodities
subject to reporting.
For brokers required to file an infor-
mation return with respect to the sale of a
covered security, section 6045(g) requires
that the return include the adjusted basis of
the security and whether any gain or loss
with respect to the security is long-term
or short-term (adjusted basis reporting).
With the exception of stock, covered secu-
rities are defined under section 6045(g)(3)
as specified securities that are acquired on
or after January 1, 2013, or such later date
as determined by the Secretary. For stock
to be included in the definition of cov-
ered securities, it must be acquired on or
after either January 1, 2011, or January 1,
2012, depending on whether the average
basis method is permissible with respect
to the stock under section 1012. Under
section 6045(g)(3)(B), specified securities
generally include: (i) shares of corporate
stock, (ii) notes, bonds, debentures, and
other evidence of indebtedness, (iii) com-
modities, contracts, or derivatives with
respect to commodities, if the Secretary
determines that adjusted basis reporting
is appropriate, and (iv) any other finan-
cial instrument with respect to which the
Secretary determines that adjusted basis
reporting is appropriate. The existing reg-
ulations under section 6045 do not specif-
ically include digital assets as a specified
security.
Section 6045A of the Code generally
requires applicable persons who transfer
securities that are covered securities in
the hands of those applicable persons to
a broker (the receiving broker) to furnish
to the receiving broker a written state-
ment setting forth such information as
the Secretary may by regulations require.
Existing §1.6045A-1(b) requires trans-
fer statements to include the name of the
person effecting the transfer, the receiv-
ing broker, the name and account number
of the customer for whom the security is
transferred, as well as information about
the security itself, including the transfer
date, the adjusted basis, and the original
acquisition date of the security. Prior to
amendments made by the Infrastructure
Act, section 6045A did not address
the extent to which these requirements
applied to transfers of digital assets. These
amendments are discussed below in Part
III of this Background.
Section 6045B of the Code requires
certain securities issuers to report to the
IRS as well as to shareholders or their
nominees the effect on basis of certain
organizational actions (such as a stock
split, merger, or acquisition) that impact
the basis of issued securities. These rules
also do not explicitly address the reporting
requirements with respect to digital assets.
Any organization with members or
clients that contract with each other or
with the organization to trade or barter
property or services is a barter exchange
under existing §1.6045-1(a)(4). A barter
exchange must file information returns,
and furnish payee statements, with respect
to the exchange of property or services by
its members or clients. Property or ser-
vices are considered exchanged through

Bulletin No. 2023–38 833 September 18, 2023
a barter exchange if payment is made
by means of a credit on the books of the
barter exchange or a scrip issued by the
barter exchange, or if the barter exchange
arranges a direct exchange of property or
services between members. See existing
§1.6045-1(e)(2).
Section 6045(e) requires real estate
reporting persons to file information
returns, and furnish payee statements,
including the seller’s name and address,
the gross proceeds paid to the seller, and
other information as the Secretary may
require by forms or regulations with
respect to certain real estate transactions.
A real estate reporting person is defined
in section 6045(e)(2) to mean the person
responsible for closing the transaction
or, if no such person exists, the mortgage
lender, the transferor’s broker, the trans-
feree’s broker, or the person designated
by the Secretary pursuant to regulations.
Real estate reporting persons are treated
as brokers under section 6045(e)(2) for
purposes of the reporting obligations
under section 6045. An exception to this
real estate reporting rule is made for real
estate reporting persons who rely on seller
certifications setting forth written assur-
ances in compliance with Rev. Proc. 2007-
12, 2007-1 C.B. 357 (January 22, 2007),
that the real estate being sold is the seller’s
principal residence and the full amount of
the gain on the sale or exchange of the
principal residence is excludable from
gross income under section 121 of the
Code, which generally permits individuals
to exclude from gross income gain up to
$250,000 (and married individuals filing
joint returns gain up to $500,000) on the
sale or exchange of a principal residence
if certain conditions are met. Section
1.6045-4(i) also limits gross proceeds
reporting required under section 6045(e)
to cash received and cash to be received
(also referred to in the existing regulations
as consideration treated as cash) by or on
behalf of the real estate seller in connec-
tion with the real estate transaction. As a
result, these rules do not require the report-
ing of payments using digital assets made
to real estate sellers in partial or full con-
sideration for the sale of real estate, except
to the extent that a digital asset falls within
the definition of consideration treated as
cash under existing §1.6045-4(i)(1).
The definition of broker in existing
regulations generally excludes a person
described as a non-U.S. payor or non-U.S.
middleman under §1.6049-5(c)(5) with
respect to a sale that is effected by the bro-
ker on behalf of a customer at an office
outside the United States. Additionally,
under existing regulations, regardless of a
broker’s status as U.S. or non-U.S. broker,
a broker is not required to file an infor-
mation return under section 6045 with
respect to a sale for a customer whom the
broker may treat as an exempt foreign
person based primarily on documentation
requirements that depend on whether the
sale is effected at an office of the bro-
ker inside or outside the United States.
2

Generally, the effect of these rules is that
non-U.S. securities brokers (other than
controlled foreign corporations (CFCs)
and a limited class of other brokers with
U.S. activities, such as U.S. branches of
foreign brokers) are not required to report
information to the IRS on their customers,
and that both U.S. and non-U.S. securities
brokers are not required to report infor-
mation to the IRS on non-U.S. customers
under section 6045.
D. Section 6050W
Section 6050W requires payment set-
tlement entities to file information returns,
and furnish payee statements, with respect
to each participating payee to whom they
have made one or more payments in settle-
ment of reportable payment transactions.
Payment settlement entities are merchant
acquiring entities, which are banks or
other organizations that are contractually
obligated to make payments to participat-
ing payees in settlement of payment card
transactions, and third party settlement
organizations (TPSOs). TPSOs are central
organizations that are contractually obli-
gated to make payments to participating
payees with respect to third party network
transactions for the purchase of goods or
services sold through a third party pay-
ment network.
Payments by TPSOs to settle third
party network transactions are required
to be reported only if they exceed a de
minimis threshold. Section 9674(a) of the
American Rescue Plan Act of 2021, Pub.
L. 117-2, 135 Stat. 4, 185 (ARP), lowered
and modified this threshold for calendar
years beginning after December 31, 2021.
Under the prior threshold, payments by
TPSOs to settle third party network trans-
actions were required to be reported only
if the aggregate number of transactions
with a payee exceeded 200 and the aggre-
gate amount to be reported with respect to
those transactions exceeded $20,000 for a
calendar year. Under the ARP provision,
TPSOs must report third party network
transactions with any participating payee
that exceed a minimum threshold of $600
in aggregate payments, regardless of the
aggregate number of these transactions.
The rules under section 6050W, how-
ever, do not expressly address whether
exchanges of digital assets for cash, ser-
vices, or property effected through TPSOs
are subject to reporting under section
6050W or whether the information report-
ing provisions under section 6045 would
apply to such exchanges.
III. Infrastructure Investment and Jobs
Act
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. First, section 80603(a) of the
Infrastructure Act clarifies the definition
of broker to include any person who, for
consideration, is responsible for regu-
larly providing any service effectuating
transfers of digital assets on behalf of
another person. Second, section 80603(b)
(1) of the Infrastructure Act modifies the
definition of specified securities under
section 6045(g) to explicitly include
digital assets and to provide that these
specified securities are treated as covered
2
See Part I.I.4 of the Explanation of Provisions footnote 5 regarding the Bank Secrecy Act (31 U.S.C. 5311 et seq.) and the Financial Crimes Enforcement Network’s (FinCEN) implementing
regulations thereunder.

September 18, 2023 834 Bulletin No. 2023–38
securities for purposes of basis reporting
if they are acquired on or after January
1, 2023. Third, section 80603(b)(1)(B)
of the Infrastructure Act defines a digital
asset broadly to mean any digital repre-
sentation of value which is recorded on
a cryptographically secured distributed
ledger or any similar technology as speci-
fied by the Secretary, except as otherwise
provided by the Secretary. Fourth, sec-
tion 80603(b)(2) of the Infrastructure Act
clarifies that transfer statement reporting
under section 6045A(a) applies to cov-
ered securities that are digital assets, and
also adds a new information reporting
provision under section 6045A(d) to pro-
vide for broker reporting 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
that the broker knows or has reason to
know is also a broker. Section 80603(c)
of the Infrastructure Act provides that
these amendments apply to returns
required to be filed, and statements
required to be furnished, after December
31, 2023. Finally, section 80603(d) of
the Infrastructure Act provides a rule of
construction which states that these stat-
utory amendments shall not be construed
to create any inference for any period
prior to the effective date of the amend-
ments with respect to whether any per-
son is a broker under section 6045(c)(1)
or whether any digital asset is property
which is a specified security under sec-
tion 6045(g)(3)(B).
IV. Reasons for New Information
Reporting Rules for Digital Assets
Digital assets have grown in popu-
larity as both a payment method and an
investment or trading asset. Proponents
believe that digital assets may offer poten-
tial benefits over traditional fiat curren-
cies, such as lower transaction costs and
faster transaction speeds. Digital assets
may also be popular, however, because
the distributed ledger record of transac-
tions does not include the identity of the
parties involved in the transactions. This
pseudonymity creates a significant risk to
tax administration.
Digital assets are increasingly com-
mon in ordinary course transactions of a
type that may be subject to information
reporting if carried out using fiat cur-
rency or traditional financial assets.
For example, several payment proces-
sors and credit card issuers that handle
large volumes of payments now facili-
tate payments made using digital assets.
Taxpayers can buy and sell digital assets
directly or invest in digital assets through
investment funds. Taxpayers can also
trade derivatives, including futures and
option contracts, on digital assets. A
number of traditional financial institu-
tions are offering, or have announced
plans to offer, custody and trading ser-
vices with respect to digital assets for
institutional investors. In addition, some
institutions are converting, or tokeniz-
ing, stock and security ownership inter-
ests into digital tokens. These tokenized
stock and security interests trade on some
digital asset trading platforms, and other
trading platforms offer unique digital
assets referred to as non-fungible tokens
(NFTs) for sale in exchange for cash or
other digital assets. Transactions of these
kinds by U.S. taxpayers may take place
either on U.S. custodial or non-custodial
trading platforms or with U.S. financial
intermediaries, or on foreign custodial or
non-custodial trading platforms or with
foreign financial intermediaries.
According to the Government
Accountability Office (GAO), limits on
third party information reporting to the IRS
is an important factor contributing to the
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). Third party information reporting
generally leads to higher levels of tax-
payer compliance because the income
earned by taxpayers is made transparent
to both the IRS and taxpayers (who will
use the furnished information to avoid
both inadvertent errors and intentional
misstatements). With third party informa-
tion reporting that specifically identifies
digital asset transactions, the IRS could
more easily identify taxpayers with digital
asset transactions that are otherwise diffi-
cult to discover. An information reporting
regime requiring reporting to the IRS on
digital asset transactions would benefit
tax compliance by helping to close the
information gap with respect to digital
assets. See TIGTA, Ref. No. 2020-30-
066, The Internal Revenue Service Can
Improve Taxpayer Compliance for Virtual
Currency Transactions, 10 (Sept. 2020);
GAO, Virtual Currencies: Additional
Information Reporting and Clarified
Guidance Could Improve Tax Compliance,
28, GAO-20-188 (Washington, D.C.: Feb.
2020). In addition to the loss of informa-
tion with respect to the recipients of digi-
tal asset payments that the IRS otherwise
might receive if these transactions were
carried out using fiat currency or traditional
investment assets, these transactions give
rise to a separate tax compliance concern
because the disposition of digital assets is
itself a taxable event that may give rise to
gain or loss to the transferor that is report-
able on a tax return. Existing information
reporting rules do not specifically address
how certain transactions involving digital
assets must be reported to the party who
disposes of the digital assets in exchange
for cash, services, stored-value cards, or
other property (including different digital
assets).
Expanding information reporting for
digital assets also benefits taxpayers.
First, taxpayers use information provided
to them by brokers to prepare their tax
returns. The lack of such information
reporting for digital assets may make it
difficult for taxpayers to properly track
and report their gain or loss from dispo-
sitions of digital assets. Publicly avail-
able information indicates that this gap
is being filled in part by voluntary tax
reporting to customers by some digital
asset platforms, and by digital asset tax
service providers, including providers of
tax software, who charge for the prepa-
ration of tax information. The existence
of these services illustrates the benefits
of information reporting to taxpayers
because the same information that is
reported by brokers to the IRS on dis-
positions of digital assets must also be
furnished by brokers to their customers.
A second benefit to taxpayers from infor-
mation reporting is that it enables the
IRS to focus its audit efforts on taxpay-
ers who are more likely to have under-
reported their income from digital asset
transactions.
Consequently, tax compliance would
be increased if brokers, including digi-
tal asset trading platforms, digital asset

Bulletin No. 2023–38 835 September 18, 2023
payment processors, certain digital asset
hosted wallet providers, and persons who
regularly offer to redeem digital assets
that were created or issued by that per-
son, were required to file information
returns, and furnish payee statements,
under section 6045 with respect to dig-
ital asset dispositions in exchange for
cash, broker services, or other property
the sale of which is separately subject
to reporting under section 6045 or with
respect to transactions that are subject to
reporting (with respect to the digital asset
recipient) under section 6050W. Thus, for
example, a digital asset trading platform,
including an operator of a peer-to-peer or
AMM trading platform, that facilitates a
digital asset sale on behalf of a customer
should be required to file an information
return, and furnish a payee statement with
respect to that sale, reporting the gross
proceeds realized by the customer as a
result of that sale. In addition, reporting
should be required by digital asset pay-
ment processors who facilitate the use of
digital assets to make payments of cash to
others by either effecting the sale of dig-
ital assets on behalf of the person mak-
ing payment (and paying the cash to the
payment recipient) or by agreeing with
the recipient of a digital asset payment in
advance of the payment to exchange the
digital assets received by that recipient
for cash at a predetermined exchange rate.
Further, digital asset payment processors
who facilitate payments that are poten-
tially subject to reporting under the exist-
ing section 6050W regulations should be
required to report on the payor’s exchange
of digital assets in those transactions as
well. Additionally, a stockbroker who
accepts digital assets from a customer
as payment for the customer’s purchase
of stock should be required to file an
information return, and furnish a payee
statement, reporting the gross proceeds
realized by the customer as a result of that
customer’s exchange of digital assets for
stock. Reporting should also be required
in this example if the broker accepts dig-
ital assets in exchange for the broker’s
services (for example, transaction fees
or commissions). Finally, to facilitate the
filing by taxpayers of accurate informa-
tion returns with respect to digital asset
dispositions, substantive rules are needed
for determining gain or loss in a digital
asset sale or exchange transaction and for
calculating the basis of digital assets.
Explanation of Provisions
The Treasury Department and the
IRS expect to make the changes to bro-
ker reporting for digital assets in multi-
ple phases. These proposed regulations
generally focus on changes to existing
§1.6045-1 to require brokers to report on
digital asset sales. Later phases will gener-
ally focus on implementing transfer state-
ment reporting under section 6045A(a)
and broker information reporting under
section 6045A(d) for covered security
transfers that are not transfers to accounts
maintained by persons known to be bro-
kers or subject to reporting as sales.
I. Proposed §1.6045-1
These proposed regulations gener-
ally follow the framework and concepts
of the existing rules for broker informa-
tion reporting but differ from those rules
as necessary to reflect both the unique
nature of digital assets and the clarifica-
tions and changes made to section 6045
by the Infrastructure Act. These proposed
regulations do not address every transac-
tion involving digital assets that may give
rise to income, such as the receipt of digi-
tal assets in hard forks, because it is more
appropriate to address those transactions
under other provisions of the Code.
A. Expansion of the types of property
subject to reporting
Under existing §1.6045-1(a)(9), bro-
kers are generally required to file an
information return for each sale effected
on behalf of a customer. A disposition is
treated as a sale subject to reporting only
if the property disposed of is a security,
commodity, option, regulated futures con-
tract, securities futures contract, or for-
ward contract and the disposition is for
cash. These proposed regulations provide
that reporting under section 6045 is also
required for certain dispositions of dig-
ital 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.
1. Definition of Digital Assets
The definition of digital assets in these
proposed regulations follows the defi-
nition in section 80603(b)(1)(B) of the
Infrastructure Act. Specifically, proposed
§1.6045-1(a)(19)(i) defines a digital asset
as a digital representation of value that is
recorded on a cryptographically secured
distributed ledger (or similar technology).
These proposed regulations also provide
that a digital asset does not include cash,
for example, a fiat currency in digital
form such as funds in a bank or payment
processor account accessed through the
Internet. In addition, under these proposed
regulations, the determination of whether
an asset is a digital asset is made without
regard to whether each individual transac-
tion involving that digital asset is actually
recorded on the cryptographically secured
distributed ledger. The use of cryptogra-
phy, through the use of public and private
keys to transfer assets, distinguishes digi-
tal assets as defined by the Infrastructure
Act from other virtual assets and is there-
fore an essential part of the definition.
By not limiting the definition of digi-
tal assets to only those digital representa-
tions of value for which each transaction
is actually recorded or secured on a cryp-
tographically secured distributed ledger,
the definition of digital assets covers
transactions involving digital representa-
tions of value that are recorded by a broker
only on its own centralized internal ledger.
For example, a broker may hold a num-
ber of units of a digital asset in its own
name, similar to holding shares of stock
in street name, and carry out transactions
between customers that wish to buy or sell
units of that digital asset by first matching
transactions internally and executing only
net purchases or sales on the distributed
ledger. Additionally, the definition covers
transactions involving digital representa-
tions of value that are recorded on ledgers
that may or may not be widely or publicly
distributed.
The definition of digital assets includes
digital representations of value that are
capable of being recorded using tech-
nology that is similar to technology that
uses cryptography to secure transactions.
These proposed regulations include this
similar technology standard to ensure that
the definition of digital assets captures

September 18, 2023 836 Bulletin No. 2023–38
digital representations of value that reflect
advancements to the techniques, methods,
and technology, upon which digital assets
are based.
Section 80603(b)(1)(B) of the
Infrastructure Act provides authority to the
Secretary to modify the definition of digi-
tal assets for purposes of reporting under
section 6045. The Treasury Department
and the IRS considered applying these
regulations to only virtual currency or a
variant thereof rather than to all digital
assets. The Treasury Department and the
IRS also considered whether newer forms
of digital assets, such as those referred to
as stablecoins or NFTs, should be subject
to the section 6045 broker reporting rules.
The proposed regulations would require
broker reporting for all types of digital
assets, for multiple reasons. First, the defi-
nition of digital assets in the Infrastructure
Act is expansive. Second, because the dis-
position of digital assets may give rise to
gain or loss, reporting of gross proceeds
and basis information is useful to taxpay-
ers as well as the IRS. For example, some
NFTs are readily being bought and sold,
often as speculative investments on digital
asset trading platforms, giving rise to gain
or loss that is subject to reporting by tax-
payers. The Treasury Department and the
IRS are aware of concerns that applying
these proposed regulations to such NFTs
would create disparate reporting of trans-
actions involving the subject of the NFT
(such as ownership or license interests in
artwork or sports memorabilia) depending
on whether those interests are transferred
using an NFT or as a traditional sale or
license contract. But given that NFTs are
popular investments, the buying and sell-
ing of NFTs raise tax administration con-
cerns similar to the concerns associated
with other types of digital assets that the
physical analogues of NFTs do not. For
example, like other digital assets, NFTs
can readily be transferred to a private wal-
let or an offshore account, while the trans-
fer of a physical artwork or trading card
may be more difficult or costly. Third,
there is a continuing evolution in the types
of digital assets that can be used for pay-
ment transactions, investment, or for other
purposes and this inclusive approach is
designed to provide clarity as these types
of digital assets continue to evolve. For
example, a taxpayer may acquire an NFT
to enjoy its artistic merit or for investment,
or both. The treatment of any particular
type of digital asset as reportable under
these proposed regulations is not intended
to imply any characterization of that type
of digital asset as a matter of substantive
law. See Part I.K of this Explanation of
Provisions for further discussion of the
reasons why privately issued stablecoins
are treated as digital assets for purposes of
these regulations.
Finally, it is intended that the definition
of digital assets used in these proposed
regulations would not apply to other types
of virtual assets, such as assets that exist
only in a closed system (such as video
game tokens that can be purchased with
U.S. dollars or other fiat currency but can
be used only in-game and that cannot be
sold or exchanged outside the game or
sold for fiat currency). It is also intended
that the regulations would not apply to
uses of distributed ledger technology or
similar technology for ordinary commer-
cial purposes that do not create new trans-
ferable assets, such as tracking inventory
or processing orders for purchase and sale
transactions, which are unlikely to give
rise to sales as defined for purposes of the
regulations. Comments are requested on
whether the proposed definition of dig-
ital assets accurately and appropriately
defines the type of assets to which these
regulations should apply.
2. Coordination with Reporting Rules for
Securities, Commodities, and Real Estate
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
proposed under sections 1001 and 1012
discussed in Part II of this Explanation of
Provisions, these proposed regulations are
information reporting regulations, and are
therefore not the appropriate vehicle for
answering those questions. Because the
existing regulations under section 6045
require reporting with respect to sales for
cash of securities and certain commodi-
ties, and with respect to real estate trans-
actions in which gross proceeds are paid
in cash (or consideration treated as cash),
coordination rules have been included to
provide certainty to brokers with respect
to whether a particular transaction, or
portion thereof, is reportable under those
existing rules or under the proposed rules
for digital assets and to avoid duplicate
reporting obligations. Accordingly, the
treatment of an asset as reportable as a
security, commodity, digital asset or oth-
erwise in these proposed rules applies
only for purposes of sections 1001, 1012,
3406, 6045, 6045A, 6045B, 6050W, 6721,
and 6722 and should not be construed to
apply for any other purpose of the Code to
determine whether a digital asset should
or should not be properly classified as a
security, commodity, option, securities
futures contract, regulated futures con-
tract, or forward contract. See proposed
§1.6045-1(a)(19)(ii). Similarly, the poten-
tial 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 proposed regulations.
The Treasury Department and the IRS
are aware that some digital asset tokens
may be classified as securities for U.S.
Federal income tax purposes, and that it
is possible that tokens constituting securi-
ties issued by certain U.S. issuers or com-
panies could be traded on certain digital
asset trading platforms that are subject
to these rules. If those tokens are securi-
ties for Federal income tax purposes, and
also qualify as digital assets (as defined
in proposed §1.6045-1(a)(19)), the sale
of those tokens for cash could be subject
to the existing regulations requiring bro-
kers to provide information reporting with
respect to the sale of securities for cash
(that is, gross proceeds and basis informa-
tion) as well as to these proposed regula-
tions relating to the sale of digital assets.
The Treasury Department and the IRS
considered several different alternatives
for addressing this potential overlap.
The Treasury Department and the IRS
considered providing a rule that would
treat the sale for cash of any digital asset
treated as a security under current law as
a sale of securities and not a sale of digi-
tal assets for purposes of these proposed
regulations. The Treasury Department
and the IRS, however, have not issued

Bulletin No. 2023–38 837 September 18, 2023
guidance addressing when a digital asset
should be treated as a security for substan-
tive U.S. Federal income tax purposes.
Because digital asset trading platforms
may not be certain whether a particular
asset should be reported as a security or as
a digital asset without that guidance, and
for the additional reasons described in the
next paragraph, the Treasury Department
and the IRS determined that this alterna-
tive would not provide the clarity and cer-
tainty necessary for information reporting
purposes.
The Treasury Department and the IRS
also considered providing a more limited
exception to the definition of digital assets
for digital representations of value that
represent interests in one or more units of
a security to provide the same information
reporting rules for a sale of stock for cash
as for a sale of tokenized stock for cash.
This alternative would have several unde-
sirable results. First, digital asset trading
platforms that trade both tokenized stock
and other digital assets would be subject to
two different sets of reporting rules when
such assets were sold for cash. Second,
tokenized stock would be subject to one
set of reporting rules if sold for cash – that
is, the existing regulations relating to the
reporting of sales of securities for cash –
and to a different set of reporting rules if
sold for another digital asset or other con-
sideration – that is, these proposed regula-
tions for sales of digital assets. Moreover,
the tax compliance concerns associated
with transactions in digital assets are dif-
ferent from the tax compliance concerns
associated with trading in conventional
or non-digital asset securities, including
as a result of the common market practice
of transferring digital assets from a cen-
tralized platform to a private wallet and
back again. Accordingly, different report-
ing rules are warranted for digital assets
regardless of whether they would also
qualify as a security.
As a result of these considerations,
these proposed regulations make no
changes to the definition of the term secu-
rity (as defined in existing §1.6045-1(a)
(3)) but instead provide a coordination
rule in proposed §1.6045-1(c)(8)(i) appli-
cable to transactions involving the sale of
a digital asset that also constitutes a sale
of a security as so defined (other than
options that constitute contracts covered
by section 1256(b)). Under this proposed
coordination rule, the broker must report
the sale of an asset that qualifies both
as such a security and as a digital asset
only as a sale of a digital asset and not as
a sale of a security. See Part I.B of this
Explanation of Provisions, however, for
a discussion of the additional information
that the broker may be required to pro-
vide for transactions involving the sale of
a digital asset that also constitutes a sale
of such a security. See Part I.B.3 of this
Explanation of Provisions for a discussion
of the applicable rules for digital assets
that are also financial contracts, including
contracts that are section 1256 contracts
within the meaning of section 1256(b).
The Treasury Department and the IRS
are aware that the financial services indus-
try is exploring the use of distributed led-
ger technology or similar technology, such
as a blockchain or a shared ledger, to pro-
cess orders associated with conventional
or non-digital asset securities transactions.
Using distributed ledger technology or
similar technology to process orders asso-
ciated with securities transactions may
require the temporary creation of digi-
tal representations of securities that may
fit within the definition of digital assets
in these proposed regulations. It may be
appropriate for these regulations not to
apply to these transactions because these
transactions would typically involve secu-
rities being transferred from one traditional
brokerage or custodial account to another.
Nonetheless, these proposed regulations
do not provide a specific exception for
these transactions because the Treasury
Department and the IRS would like to
understand whether an exception is neces-
sary. Comments are requested on whether
the definition of digital asset or the report-
ing requirements with respect to digital
assets inadvertently capture transactions
involving conventional or non-digital
asset securities that may use distributed
ledger technology, shared ledgers, or simi-
lar technology merely to facilitate the pro-
cessing, clearing, or settlement of orders.
Comments also are requested on whether
and, if so, how the definitions or reporting
rules should be modified to address other
transactions involving tokenized or digi-
tized financial instruments that are used
to facilitate back-office processing of the
transaction. If an exception for these types
of transactions is necessary, the Treasury
Department and the IRS would also like
to understand how it should be drafted so
that it does not sweep in other transactions
(such as tokenized securities, or other dig-
ital assets treated as securities) that should
not be exempted from reporting.
The Treasury Department and the IRS
also considered how to apply section
6045A and section 6045B to assets that
qualify both as specified securities under
existing §1.6045-1(a)(14)(i) through (iv)
for basis reporting purposes and as digital
assets under proposed §1.6045-1(a)(19)
(dual classification assets) for the period
of time until rules are promulgated deal-
ing with the application of sections 6045A
and 6045B to digital assets. Although the
existing regulations under section 6045A
operate to provide important information
to brokers required to report adjusted basis
information to the IRS (and taxpayers), it
is unclear whether digital asset brokers
currently have the mechanisms in place
to provide transfer statements to receiving
brokers that receive these dual classifica-
tion assets in transfers that are recorded
on a blockchain. With regard to section
6045B, issuers of dual classification assets
may not have procedures in place to report
information affecting basis. Accordingly,
the Treasury Department and the IRS have
decided to delay transfer statement report-
ing under section 6045A(a) and issuer
reporting under section 6045B for these
dual classification assets and will consider
rules for dual classification assets as part
of the implementation of more general
transfer statement reporting and issuer
reporting rules for digital asset brokers as
part of a later phase of information report-
ing guidance for broker effected digital
asset transfers. Proposed §§1.6045A-1(a)
(1)(vi) and 1.6045B-1(a)(6) have been
added to specifically exempt from transfer
and issuer reporting any specified security
that is also a digital asset. See Proposed
§§1.6045A-1 and 1.6045B-1 in Part IV of
this Explanation of Provisions.
The definition of commodity under
existing §1.6045-1(a)(5) was first promul-
gated in 1983 as part of TD 7873, 48 FR
10302, 10304 (Mar. 11, 1983). Under that
definition, the term includes any type of
personal property or interest therein, the
trading of futures contracts in which have
been approved by the CFTC. Sometime

September 18, 2023 838 Bulletin No. 2023–38
after the promulgation of this definition,
the CFTC added a new self-certification
mechanism under which new exchange-
traded contracts become subject to the
jurisdiction of the CFTC. Some digital
asset trading platforms have taken the
position that assets underlying futures
contracts that are subject to the jurisdic-
tion of the CFTC pursuant to the CFTC’s
self-certification procedures are not com-
modities under existing §1.6045-1(a)(5)
because the CFTC did not affirmatively
approve the listing of these contracts on
an exchange. The Treasury Department
and the IRS believe that the reporting reg-
ulations should reflect the current practice
of the CFTC and therefore have modified
this rule in proposed §1.6045-1(a)(5)(i)
to ensure that assets that are subject to
the jurisdiction of the CFTC pursuant to
the CFTC’s self-certification procedures
are included in the definition of commod-
ity for purposes of information reporting
under section 6045.
This modification applies broadly to
all types of commodities subject to the
jurisdiction of the CFTC for purposes of
section 6045. However, because there has
been some uncertainty about the scope of
the term commodity for purposes of sec-
tion 6045, reporting under section 6045
for sales of commodities as to which con-
tracts have been self-certified to the CFTC
is proposed to apply to any sale that occurs
on or after January 1, 2025, without regard
to the date the self-certification procedures
were undertaken. Thus, if an asset became
subject to the jurisdiction of the CFTC
pursuant to the CFTC’s self-certification
procedures prior to January 1, 2025, sales
of that asset for cash on or after January
1, 2025, will be subject to reporting as a
result of the revised definition of com-
modity under proposed §1.6045-1(a)(5).
This change to the definition of commod-
ity does not affect the broker’s obligation
under existing §1.6045-1(a)(9) and (c) to
report on regulated futures contracts. For a
detailed discussion of the broker reporting
rules for financial contracts, see Part I.A.3
of this Explanation of Provisions.
Consequently, a digital asset, the trad-
ing of regulated futures contracts in which
has been approved by or, pursuant to pro-
posed §1.6045-1(a)(5)(i), self-certified
to the CFTC, would be treated as a com-
modity for purposes of reporting under
section 6045 absent other changes to the
existing regulations. Those assets would
also be digital assets for purposes of these
regulations. This dual classification could
result in confusion as to whether sales of
these digital assets should be reported as
sales of commodities on Form 1099-B,
sales of digital assets on a form prescribed
by the Secretary for digital asset sales, or
both—potentially resulting in duplicative
reporting. To avoid confusion and poten-
tial duplicative reporting of sales made on
or after January 1, 2025, these proposed
regulations provide a coordination rule in
proposed §1.6045-1(c)(8)(i) applicable to
transactions involving the sale of a digital
asset that also constitutes a sale of a com-
modity. Under this proposed coordination
rule, the broker must report the sale of an
asset that qualifies both as a commodity
and as a digital asset only as a sale of a
digital asset (along with the additional
information that this characterization
requires) and not as a sale of a commodity.
Finally, the Treasury Department and
the IRS are aware that distributed ledger
technology or similar technology may
be used in connection with transactions
involving real estate. Using distributed
ledger technology or similar technology
to settle real estate transactions requires
the creation of digital representations of
real estate that may fit within the defini-
tion of digital assets in these proposed
regulations. To avoid duplicative report-
ing for digital assets that also constitute
reportable real estate and to avoid having
real estate reporting persons report seller
proceeds under an entirely new report-
ing regime, proposed §1.6045-1(c)(8)(ii)
provides a coordination rule applicable to
transactions involving the sale of a digital
asset that also constitutes reportable real
estate (as defined under existing §1.6045-
4(b)(2)) that is subject to reporting under
existing §1.6045-4(a). Under this coordi-
nation rule, the broker must report the sale
of reportable real estate only as a sale of
reportable real estate (and not as a sale of
a digital asset).
3. Rules Applicable to Financial
Contracts on Digital Assets
To ensure reporting of sales of finan-
cial contracts involving or referencing
digital assets, these proposed regulations
expand the existing rules for certain finan-
cial products, such as options, futures,
and forward contracts. Proposed §1.6045-
1(m)(1) expands the type of option trans-
actions subject to reporting to generally
include options on digital assets and
options on derivatives with a digital asset
as an underlying property. Generally, under
these proposed regulations, how an option
transaction is reported will depend on: (i)
whether the option is a section 1256 con-
tract within the meaning of section 1256(b)
(section 1256 contract); (ii) whether the
transaction is a disposition of the option
itself or whether the transaction involves
the delivery of the underlying property;
and (iii) whether the option is itself a digital
asset (digital asset option) or is not a digital
asset (non-digital asset option).
For a disposition of an option that is
not a section 1256 contract, the nature of
the option itself determines the appropri-
ate reporting treatment; that is, report-
ing would be required under proposed
§1.6045-1(a)(9)(i) if the option itself is
a non-digital asset option and under pro-
posed §1.6045-1(a)(9)(ii) if the option
itself is a digital asset option. Because
the asset that is disposed of is the option
itself, this proposed reporting treatment
applies without regard to whether the dig-
ital asset option or non-digital asset option
was issued with respect to digital asset or
non-digital asset underlying property. In
contrast, when an option that is not a sec-
tion 1256 contract is settled by the deliv-
ery of the underlying property, reporting
under these proposed regulations is based
on the nature of the underlying property,
with the delivery of non-digital asset
underlying property reportable as a sale
under proposed §1.6045-1(a)(9)(i) and the
delivery of digital asset underlying prop-
erty reportable as a sale under proposed
§1.6045-1(a)(9)(ii). Because the asset
that is disposed of is the asset underlying
the option, this proposed reporting treat-
ment for the sale of underlying property
that is physically delivered applies with-
out regard to whether the option is itself a
digital asset option or a non-digital asset
option.
Because the Treasury Department
and the IRS are currently unaware of
any digital asset options that are also
section 1256 contracts, these proposed
regulations do not provide new rules for

Bulletin No. 2023–38 839 September 18, 2023
such options. Rather, proposed §1.6045-
1(c)(8)(iii) provides that reporting of
these dual classification options should
be under the existing rules for options
that are section 1256 contracts and not
under the proposed rules for digital
assets. Accordingly, for a disposition
of an option that is a section 1256 con-
tract, reporting is required under existing
§1.6045-1(c)(5) regardless of whether
the option disposed of is a non-digi-
tal asset option or a digital asset option
or whether the option was issued with
respect to digital asset or non-digital
asset underlying property. Further, as
required by existing §1.6045-1(m)(3)
and proposed §1.6045-1(a)(9)(i) and (c)
(8)(iii), when an option that is a section
1256 contract is settled by the delivery of
the underlying property, the profit or loss
on the contract itself is reportable under
existing §1.6045-1(c)(5), but the underly-
ing sale will be subject to reporting under
these proposed regulations based on the
nature of the underlying property, with
the delivery of non-digital asset under-
lying property reportable under proposed
§1.6045-1(a)(9)(i) and the delivery of
digital asset underlying property report-
able under proposed §1.6045-1(a)(9)(ii).
The Treasury Department and the IRS
invite comments regarding the above-de-
scribed option transactions, including
comments about how common are digital
asset options that are also section 1256
contracts. Comments are also requested
regarding whether there are other less
burdensome alternatives for reporting
the above-described option transactions.
For example, whether it would be less
burdensome to allow brokers to report
transactions involving section 1256 con-
tracts that are also digital assets or the
delivery of non-digital assets that under-
lie a digital asset option as a sale under
proposed §1.6045-1(a)(9)(ii).
No changes have been made to the rules
relating to regulated futures contracts in
the existing regulations because the defi-
nition of a regulated futures contract in
existing §1.6045-1(a)(6) can apply to a
regulated futures contract on digital assets
and to regulated futures contracts that are
themselves digital assets. Accordingly,
pursuant to proposed §1.6045-1(c)(8)(iii),
regulated futures contracts will continue
to be reported under the rules in existing
§1.6045-1(c)(5) and not under the pro-
posed rules for digital assets.
Proposed §1.6045-1(a)(7)(iii) expands
the definition of a forward contract sub-
ject to reporting to include executory con-
tracts requiring delivery of digital assets
in exchange for cash, different digital
assets, or any other property or services
that would result in a sale of digital assets
under proposed §1.6045-1(a)(9)(ii) if the
exchange occurred at the time the contract
was executed. When a forward contract is
disposed of without delivery of its under-
lying property, the nature of the forward
contract itself determines the appropriate
reporting treatment. Specifically, report-
ing is required under proposed §1.6045-
1(a)(9)(i) if the forward contract itself is
a non-digital asset forward contract and
under proposed §1.6045-1(a)(9)(ii) if the
forward contract is a digital asset for-
ward contract. Because the asset that is
disposed of is the forward contract itself,
this proposed reporting treatment applies
without regard to whether the forward
contract was issued with respect to dig-
ital asset or non-digital asset underlying
property. The reporting on the delivery of
the underlying property with respect to a
forward contract, in contrast, does turn
on the nature of that underlying prop-
erty. That is, when the underlying asset
is non-digital asset property, the delivery
is reportable under proposed §1.6045-
1(a)(9)(i); whereas when the underlying
asset is digital asset property, the delivery
is reportable under proposed §1.6045-
1(a)(9)(ii). Because the asset that is dis-
posed of when there is delivery is the
asset underlying the forward contract,
this proposed reporting treatment for the
sale of underlying property that is phys-
ically delivered applies without regard
to whether or not the forward contract is
itself a digital asset.
The Treasury Department and the IRS
request comments with respect to whether
there is anything factually unique in the
way short sales of digital assets, options
on digital assets, and other financial prod-
uct transactions involving digital assets
are undertaken compared to similar trans-
actions involving non-digital assets, and
whether these transactions with respect to
digital assets raise any additional report-
ing issues that have not been addressed in
these proposed regulations.
B. Definition of brokers required to report
As described in Part II.C. of the
Background, 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 middle-
man with respect to property or services.
Existing regulations under section 6045
apply 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 an
agent with respect to a sale if the nature
of the agency is such that the agent ordi-
narily would know the gross proceeds of
the sale. See existing §1.6045-1(a)(1) and
(a)(10)(i)(A).
Section 80603(a) of the Infrastructure
Act clarifies that the definition of broker
under section 6045 includes any person
who, for consideration, is responsible for
regularly providing any service effectu-
ating transfers of digital assets on behalf
of another person. According to a report
by the Joint Committee on Taxation pub-
lished in the Congressional Record prior
to the enactment of the Infrastructure Act,
the change clarified prior law to resolve
uncertainty over whether certain mar-
ket participants are brokers. The change
was not intended to limit the Secretary’s
authority to interpret the definition of
broker. 167 Cong. Rec. S5702, 5703
(daily ed. Aug. 3, 2021) (Joint Committee
on Taxation, Technical Explanation of
Section 80603 of the Infrastructure Act).
To reflect this clarification made by the
Infrastructure Act, proposed §1.6045-1(a)
(1) retains the existing definition of broker
as any person that in the ordinary course
of a trade or business stands ready to effect
sales to be made by others. However,
the definition of effect under existing
§1.6045-1(a)(10)(i) and (ii), which sets
forth the various roles under which a bro-
ker may take actions on behalf of custom-
ers, has been revised to provide that any
person that provides facilitative services
that effectuate sales of digital assets by
customers will be considered 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

September 18, 2023 840 Bulletin No. 2023–38
transaction potentially giving rise to gross
proceeds. This definition is similar to the
definition in the existing regulations with
respect to agents and is similarly intended
to limit the definition of broker to persons
who have the ability to obtain information
that is relevant for tax compliance pur-
poses. The modified definition of effect
takes into account whether a person is
in a position to know information about
the identity of a customer, rather than
whether a person ordinarily would know
such information, in recognition of the
fact that some digital asset trading plat-
forms that have a policy of not request-
ing customer information or requesting
only limited information have the ability
to obtain information about their custom-
ers by updating their protocols as they do
with other upgrades to their platforms.
The ability to modify the operation of a
platform to obtain customer information is
treated as being in a position to know that
information. The Treasury Department
and the IRS expect that this clarified pro-
posed definition will ultimately require
operators of some platforms generally
referred to as decentralized exchanges to
collect customer information and report
sales information about their customers, if
those operators otherwise qualify as bro-
kers. This decision was made because the
reasons for requiring information report-
ing on dispositions of digital assets do not
depend on the manner by which a business
operating a platform effects customers’
transactions. Customers need information
about gross proceeds and basis to pre-
pare their tax returns; the IRS needs that
information in order to collect the taxes
that are imposed under laws enacted by
Congress and in order to focus its compli-
ance efforts on taxpayers who fail to com-
ply with their obligations to report their
tax liability; and policy makers need that
information in order to understand what
taxpayers are doing so that they can make
informed judgments about further laws or
other guidance relating to digital assets.
Moreover, if the manner in which a digital
asset trading platform operates reduces or
eliminates its obligation to report infor-
mation on customer transactions, digital
asset trading platforms might modify their
operations to avoid reporting or custom-
ers who wish to evade taxes might elect
to use a non-reporting platform in order to
reduce the IRS’s ability to identify them as
non-compliant.
The Treasury Department and the
IRS recognize that some stakeholders
may have concerns that providing per-
sonal identity information may raise pri-
vacy concerns, and request comments on
whether there are alternative approaches
that would satisfy tax compliance objec-
tives while reducing privacy concerns.
The Treasury Department and the IRS
also request comments on any technolog-
ical or other technical issues that might
affect the ability of a non-custodial digi-
tal asset trading platform that is a person
who qualifies as a broker to obtain and
transmit the information required under
these proposed regulations and how these
issues might be overcome. The Treasury
Department and the IRS understand that
digital asset trading platforms operate
with varying degrees of centralization and
effective control by founders or others, and
request comments on whether the applica-
tion of reporting rules only to “persons”
(as described in the next paragraph) ade-
quately limits the scope of reporting obli-
gations to platforms that have one or more
individuals or entities that can update,
amend, or otherwise cause the platform to
carry out the diligence and reporting rules
of these proposed regulations.
As used in these proposed regulations,
the term person generally has the mean-
ing provided by section 7701(a)(1), which
provides that the term generally includes
an individual, a legal entity, and an unin-
corporated group or organization through
which any business, financial operation or
venture is carried on, such as a partner-
ship. The term person includes a business
entity that is treated as an association or a
partnership for Federal tax purposes under
§301.7701-3(b). Accordingly, a group of
persons providing facilitative services that
are in a position to know the customer’s
identity and the nature of the transaction
effectuated by customers may be treated
as a broker whether or not the group oper-
ates through a legal entity if the group is
treated as a partnership or other person for
U.S. Federal income tax purposes.
These clarifying changes are intended
to apply the reporting rules to digital asset
trading platforms that provide facilitative
services and that are in a position to know
the customer’s identity and the nature of
the transaction effectuated by customers
regardless of the manner in which they are
organized or operate if the platform or its
operator (or operators) is a person subject
to reporting. Thus, for example, the report-
ing rules apply to custodial digital asset
trading platforms that act as their custom-
ers’ legal agents in trading their custom-
ers’ digital assets as well as to operators of
non-custodial trading platforms that pro-
vide digital asset middleman services that
bring buyers and sellers together and rely
on smart contracts to execute the transac-
tions without further intervention from the
operators, despite the fact that such digital
asset middlemen may not necessarily be
acting as legal agents of the customers in
those transactions. Accordingly, under this
definition, in addition to acting as either
a principal with respect to sales of digital
assets in the ordinary course of a trade or
business, or as an agent (including as a cus-
todial agent) if the nature of the agency is
such that the agent ordinarily would know
the gross proceeds of the sale, a broker
also includes a person who acts as a dig-
ital asset middleman for a party in a sale
of digital assets. Proposed §1.6045-1(a)
(21)(i) defines a digital asset middleman
as any person who provides a facilitative
service with respect to a sale wherein the
nature of the arrangement 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 from the sale.
A facilitative service is defined in pro-
posed §1.6045-1(a)(21)(iii)(A) as any ser-
vice that directly or indirectly effectuates
a sale of digital assets, such as providing:
a party in the sale with access to an auto-
matically executing contract or protocol;
access to digital asset trading platforms;
order matching services; market making
functions to offer buy and sell prices; or
escrow or escrow-like services to ensure
both parties to an exchange act in accor-
dance with their obligations. Because
some persons providing these services
or products may not be in a position to
know the identity of the parties making
a sale and the nature of the transaction,
proposed §1.6045-1(a)(21)(iii)(A) spe-
cifically excludes from the definition of
facilitative service persons solely engaged
in the business of providing distributed

Bulletin No. 2023–38 841 September 18, 2023
ledger validation services—whether
through proof-of-work, proof-of-stake,
or any other similar consensus mecha-
nism—without providing other functions
or services. For the same reason, proposed
§1.6045-1(a)(21)(iii)(A) also excludes
from the definition of facilitative service
persons solely engaged in the business
of selling hardware or licensing software
for which the sole function is to permit
persons to control private keys which are
used for accessing digital assets on a dis-
tributed ledger. This latter exclusion does
not, therefore, exclude wallet software
providers from the definition of facili-
tative service if the software also pro-
vides users with direct access to trading
platforms from the wallet platform. The
Treasury Department and the IRS invite
comments regarding whether the provi-
sion of connection software by wallet pro-
viders to trading platforms (that customers
of the trading platforms can then use to
access their wallets from the trading plat-
form) should be considered a facilitative
service resulting in the wallet provider
being treated as a broker. In addition, the
Treasury Department and the IRS invite
comments regarding what additional func-
tions wallet providers might provide that
would be considered facilitative services.
Finally, the definition of customer under
proposed §1.6045-1(a)(2) has also been
revised to include persons that make sales
of digital assets using brokers who act as
digital asset middlemen.
Under proposed §1.6045-1(a)(21)(ii)
(A), a person is in a position to know the
identity of the party that makes the sale
if that person maintains sufficient control
or influence over the facilitative services
provided so as to have the ability to set
or change the terms under which its ser-
vices are provided to request that the party
making the sale provide that party’s name,
address, and taxpayer identification num-
ber, in advance of the sale. This rule is
similar to the standard, recommended by
the Financial Action Task Force (FATF),
to be used to determine whether a creator,
owner, operator, or other person involved
in a decentralized application providing
financial services should be considered
to be a virtual asset service provider and
should, thus, be subject to anti-money
laundering (AML) and counter-terror-
ist financing (CFT) requirements. FATF
(2021), Updated Guidance for a Risk-
Based Approach to Virtual Assets and
Virtual Asset Service Providers, p. 26-28,
FATF, Paris. https://www.fatf-gafi.org/
publications/fatfrecommendations/docu-
ments/guidance-rba-virtual-assets-2021.
html. Similarly, under proposed §1.6045-
1(a)(21)(ii)(B), a person is in a position to
know the nature of the transaction poten-
tially giving rise to gross proceeds from
a sale if that person maintains sufficient
control or influence over the facilitative
services provided so as to have the abil-
ity to determine whether and the extent
to which the transfer of digital assets
involved in a transaction gives rise to
gross proceeds. Thus, a person will be
considered to be in a position to know the
nature of the transaction potentially giving
rise to gross proceeds from a sale if the
person can determine that the transaction
is a sale (and the gross proceeds from that
sale) based on the consideration received
when a sale transaction is completed. As
a result, a person will be considered to
be in a position to know the nature of the
transaction potentially giving rise to gross
proceeds from a sale if the person has the
ability to modify an automatically exe-
cuting contract or protocol to which that
person provides access to ensure that this
information is provided upon the execu-
tion of a sale. For both of these standards,
a person will be considered as maintain-
ing sufficient control or influence over
the provided facilitative services so as to
have the ability to determine customer
identities or the nature of transactions if
that person has the ability to change the
fees charged for the facilitative services,
whether by modifying the existing service
arrangement or by substituting a new ser-
vice arrangement. The fact that a digital
asset trading platform operator has mod-
ified an automatically executing contract
or protocol in the past, or has replaced
such a contract with another contract in its
protocol, strongly suggests that the opera-
tor has sufficient control or influence over
the facilitative services provided to obtain
the information about either the identity of
the party that makes the sale or whether
and the extent to which the transfer of
digital assets involved in a transaction
gives rise to gross proceeds. The Treasury
Department and the IRS invite com-
ments regarding what other factors should
be considered relevant to determining
whether a person maintains sufficient con-
trol or influence over provided facilitative
services.
The Treasury Department and the IRS
understand that in some cases tokens
that enable those who hold them to con-
trol the ability to change the underlying
protocol of a platform described as a
decentralized exchange (referred to as
governance tokens) may be held in sig-
nificant part by founders, development
teams, or one or more investors and that
in other cases those governance tokens
may be more widely distributed. There
may also be fact patterns in which a
holder of a significant amount of gov-
ernance tokens routinely takes actions
that benefit the platform, for example
reimbursing users whose tokens have
been stolen, which actions are then rat-
ified by or compensated by the broader
group of holders of governance tokens.
Consequently, there can be a range of
effective control that ownership of gov-
ernance tokens can provide, based on
how widely the tokens are disbursed
and whether or not a group of persons
(normally the founders/development
teams/investors) retain enough tokens
as a group to make decisions. Some
decentralized autonomous organizations
(DAOs) are an example of this organiza-
tional structure. Even in structures where
governance tokens may be widely dis-
tributed, individuals or groups of token
holders can have the ability to maintain
practical control. In addition, in some
cases, so-called “administration keys”
exist to allow developers or founders
to modify or replace the automatically
executing contracts or protocols under-
pinning digital asset trading platforms
without requiring the vote of governance
token holders. The Treasury Department
and the IRS invite comments regarding
the circumstances under which an oper-
ator does or does not maintain sufficient
control or influence over the facilitative
services offered by a digital asset trad-
ing platform. Additionally, comments
are requested regarding whether, and if
so, how should the ability of users of
the platform, shareholders or holders
of governance tokens to vote on aspects
of the platform’s operations be consid-
ered. Finally, comments are requested

September 18, 2023 842 Bulletin No. 2023–38
regarding whether this conclusion
should be impacted by the existence of
full or even partial-access administra-
tion keys or the ability of the operator to
replace the existing protocol with a new
or modified protocol if that replacement
does not require holding a vote of gov-
ernance tokens or complying with these
voting restrictions.
As noted, the statutory definition
of broker under section 6045(c)(1)(C)
refers to a person who “for a consider-
ation” regularly acts as a middleman.
The revised definition of broker under the
Infrastructure Act also refers to a person
who, “for consideration,” is responsible
for regularly providing any service effec-
tuating transfers of digital assets on behalf
of another person. The definition of broker
under existing and proposed §1.6045-1(a)
(1) implements this “for consideration”
qualification by limiting the definition
of broker to a person who effects sales
made by others “in the ordinary course of
a trade or business.” Persons engaged in
a trade or business necessarily are “those
so engaged for gain or profit.” See e.g.,
Treas. Reg. §1.6041-1(b)(1); Groetzinger
v. Commissioner, 480 U.S. 23 (1987). A
business may receive different forms of
consideration for its goods and services.
The receipt of fees may be a relevant fac-
tor in determining whether a person is
engaged in the ordinary course of a trade or
business. However, there may be persons
who facilitate transfers of digital assets for
a fee or other consideration, such as indi-
viduals who occasionally facilitate trans-
fers but do not do so on a regular basis,
who are not engaged in a business activity.
It is intended that this “trade or business”
requirement will result in a more limited
definition of broker than that which would
apply under a less restrictive “for consid-
eration” standard. Accordingly, as long as
a broker effects the sales made by others
in the ordinary course of its trade or busi-
ness, it will have a reporting obligation
under section 6045.
Proposed §1.6045-1(a)(10)(i)(B) also
revises the definition of effect to clarify
that a person who acts as a principal with
respect to a sale is to be treated as effect-
ing a sale only to the extent such person
is acting in the sale as a broker. Thus, for
example, because an obligor that regularly
issues and retires its own debt obligations
is a broker, that obligor will be treated
as effecting a sale when it retires its own
debt as part of those regular activities.
Similarly, a corporation that regularly
issues and redeems its own stock will be
treated as effecting a sale when it redeems
its own shares as part of these regular
activities. Additionally, an issuer of digital
assets that regularly offers to redeem those
digital assets will be treated as effecting a
sale when it redeems those digital assets
as part of these regular activities. Finally,
proposed §1.6045-1(a)(10)(i)(C) has been
revised to clarify that a person who acts
as a principal in a sale will be treated as
effecting sales only if that principal is
acting as a dealer with respect to the sale
that is subject to reporting under section
6045. Thus, for example, a retailer who
accepts digital assets from a customer as
payment for the sale of goods is not effect-
ing the sale of digital assets on behalf of
that customer if that retailer is not other-
wise a dealer of digital assets. Similarly,
an artist in the business of creating and
selling NFTs that represent interests in the
artist’s work is not effecting the sale of
digital assets on behalf of purchasers, pro-
vided that artist is not otherwise a dealer
in digital assets. This result is appropriate
regardless of whether the artist regularly
sells NFTs to the purchasers directly or
through digital asset brokers.
Proposed §1.6045-1(b)(1)(vi) through
(xi) adds examples of persons who are
generally considered to be brokers under
the above definition. Specifically, digital
asset trading platforms that also provide
custodial (hosted wallet) services, oper-
ators of non-custodial trading platforms
(including platforms that effect transac-
tions through automatically executing
contracts or protocols), digital asset pay-
ment processors, and operators and own-
ers of digital asset kiosks are included as
examples of persons who in the ordinary
course of their trade or business stand
ready to effect sales of digital assets on
behalf of customers. These examples also
clarify that even if a person’s principal
business does not meet the definition of
broker, the person will be considered a
broker under the definition if that person
also regularly stands ready to effect sales
of digital assets on behalf of customers.
Thus, digital asset hosted wallet providers
and persons who sell or license software
to unhosted wallet users will be consid-
ered brokers if they also facilitate or offer
services to facilitate the purchase or sale
of digital assets.
Conversely, proposed §1.6045-1(b)(2)
(viii) through (x) illustrate that the term
broker does not extend to merchants who
sell goods or services in return for digital
assets, persons who are solely engaged in
the business of validating distributed led-
ger transactions through proof-of-work,
proof-of-stake, or any other consensus
mechanism, without providing other func-
tions or services, and persons who are
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.
1. Digital Asset Broker
Proposed §1.6045-1(a)(1) provides that
a broker means any person that in the ordi-
nary course of a trade or business during
the calendar year stands ready to effect
sales to be made by others. As applied to
brokers standing ready to effect sales for
others of digital assets (referred to in the
preamble as a digital asset broker) the term
includes not only businesses with physical
locations, such as digital asset kiosks and
other brick and mortar facilities, but also
online businesses, such as operators of
trading platforms that hold custody of their
customers’ digital assets and operators
with sufficient control or influence over
non-custodial trading platforms that effect
sales of digital assets made for others by
providing access to automatically exe-
cuting contracts, protocols, or other soft-
ware programs that automatically effect
sales. As noted in the definition of effect
discussed in Part I.B of this Explanation
of Provisions, operators of non-custo-
dial trading platforms would know or be
in a position to know the identity of their
customers and the gross proceeds of their
sales, for example, because these operators
have the ability to request that new poten-
tial customers provide this information and
can require that their customers use auto-
matically executing exchange contracts
that provide these operators with the gross
proceeds information.

Bulletin No. 2023–38 843 September 18, 2023
As noted, the term person generally
includes an individual, a legal entity, and
an unincorporated group or organization
through which any business, financial oper-
ation or venture is carried on. Accordingly,
an operator of a digital asset trading plat-
form that is an individual or legal entity
may be treated as a broker, and an opera-
tor of a digital asset trading platform that
is comprised of a group that shares fees
from the operation of the trading platform,
or is otherwise treated as an association or
a partnership under §301.7701-3(b), may
also be treated as a broker even though
there is no centralized legal entity through
which trades are carried out. For exam-
ple, a DAO may be a person that could be
treated as a broker under these proposed
regulations. For a discussion of digital
asset trading platforms that issue gover-
nance tokens providing holders with the
power to vote on major platform deci-
sions—such as new features to be offered
or revised governance rights, see Part I.B
of this Explanation of Provisions. The
Treasury Department and the IRS request
comments regarding the extent to which
holders of governance tokens should be
treated as operating a digital asset trading
platform business as an unincorporated
group or organization.
A merchant that accepts digital assets
directly from a customer as payment for
its provision of goods or services gen-
erally is not a broker under these rules.
A person is treated as a broker with
respect to digital assets only if it effects
sales of digital assets for customers. As
described in Part I.C of this Explanation
of Provisions, a sale by a broker gener-
ally includes a disposition of digital assets
for cash, one or more stored-value cards,
broker services, or certain other property
(including different digital assets) that are
subject to reporting under section 6045.
While a merchant who provides goods,
services, or other property (rather than
digital assets or cash) in exchange for a
customer’s digital assets may be facilitat-
ing the disposition of the customer’s dig-
ital assets, that merchant generally would
not be treated as effecting sales of digital
assets for customers as a broker because
the customer’s digital assets are not being
exchanged for cash or the types of assets
that cause the transaction to be treated as a
sale under the proposed regulations. If the
merchant’s exchange of goods or services
for digital assets is effected through a dig-
ital asset payment processor, however, the
digital assets payment processor may be
treated as a broker.
2. Digital Asset Hosted Wallet Providers
Under existing regulations, a broker
includes an agent with respect to a sale in
the ordinary course of a trade or business
if the nature of the agency is such that the
agent ordinarily would know the gross
proceeds of the sale. Consequently, under
current law, certain securities custodians
and other agents are treated as brokers.
Under the multiple broker rule of existing
§1.6045-1(c)(3)(iii), which exempts bro-
kers who conduct sales on behalf of other
brokers, only the broker that has the clos-
est relationship to the customer is required
to report information under section 6045.
In the digital asset industry, some per-
sons stand ready in the ordinary course of
a trade or business to take custody of and
electronically store the public and private
keys to digital assets held on behalf of oth-
ers. These digital asset hosted wallet pro-
viders in some cases also effect sales or
possess information regarding the digital
asset sales of their customers in much the
way a bank custodian or other custodian
does for securities. The proposed defini-
tion of broker includes such a digital asset
hosted wallet provider to the extent that
the digital asset hosted wallet provider
also functions as a principal in the sale of
digital assets, acts as an agent for a party
in the sale if it would ordinarily know the
gross proceeds from the sale, or acts as a
digital asset middleman and would ordi-
narily know or be in a position to know
the identity of the party that makes the
sale and the gross proceeds from the sale.
If a hosted wallet provider solely holds
and transfers digital assets on behalf of its
customers, without possessing, or having
the ability to possess, any knowledge of
gross proceeds from sales, the hosted wal-
let provider would not qualify as a broker.
3. Digital Asset Payment Processors
A number of payment processors per-
mit customers to make payment in digital
assets. These transactions may take vari-
ous forms. In many cases the customer
pays in digital assets, and the payment
processor exchanges those digital assets
for a U.S. dollar amount that is then paid
to a merchant, for example, in exchange
for goods or services, or to another inter-
mediary recipient as with a payment card
purchase. In other cases, the payment pro-
cessor transfers the digital assets to the
merchant or other recipient. In both cases,
the customer has disposed of its digital
assets in a transaction that ordinarily is
a gain (or loss) recognition transaction.
These proposed regulations would require
digital asset payment processors to pro-
vide information on those dispositions.
Payment processors (and in certain cir-
cumstances merchant acquiring entities
within the same network as payment card
issuers) may separately be required to pro-
vide information on the merchant transac-
tion under section 6050W, which requires
reporting by TPSOs and merchant acquir-
ing entities. Therefore, for example, where
a TPSO effects a transaction involving
the exchange of merchandise for digital
assets, the TPSO will need to report on the
disposition of the merchandise under sec-
tion 6050W and on the digital asset dis-
position under section 6045, assuming no
exceptions apply.
A digital asset payment processor is
defined in proposed §1.6045-1(a)(22)
(i)(A) as a person who in the ordinary
course of its business regularly stands
ready to effect digital sales by facilitat-
ing payments from one party to a second
party by receiving digital assets from the
first party and exchanging them into dif-
ferent digital assets or cash paid to the
second party, such as a merchant. In some
cases, payment recipients are willing to
receive payments in digital assets rather
than cash and those payments are facil-
itated by an intermediary. To facilitate
a payment transaction in these circum-
stances, a digital asset payment processor
might provide the payment recipient with
a temporarily fixed exchange rate on a
digital assets payment that is transferred
directly from a customer to that pay-
ment recipient. This temporarily fixed
exchange rate may also be available to
the merchant if it wishes to immediately
exchange the digital assets for cash. In a
transaction of this kind, similar to other
merchant transactions involving interme-
diaries that provide cash to the merchants

September 18, 2023 844 Bulletin No. 2023–38
in exchange for the merchant’s provision
of goods or services to the customer, the
customer disposes of its digital assets
in a transaction that gives rise to gain
(or loss) and receives goods or services,
while the merchant receives or can
choose to receive cash. This customer
consequently has the same obligation to
determine and report its gain or loss as
in the other type of merchant transac-
tion, and similar reporting rules therefore
should apply to the digital asset payment
processor. To address these transactions,
for purposes of the definition of a digital
asset payment processor, these proposed
regulations treat the transfer of digital
assets by a customer directly to a second
person (such as a vendor of goods or ser-
vices) pursuant to a processor agreement
that provides for the temporary fixing of
the exchange rate to be applied to the dig-
ital assets received by the second person
as if the digital assets were transferred
by the customer to the digital asset pay-
ment processor in exchange for different
digital assets or cash paid to the second
person.
This characterization of the transac-
tion as a transfer of digital assets by the
customer to the digital asset payment
processor in exchange for the payment of
different digital assets or cash to the sec-
ond person applies solely for purposes of
certain definitions in these regulations, to
ensure that customer dispositions of dig-
ital assets for consideration are subject
to reporting regardless of the details of
the arrangements made by the merchant
for receiving payment. No inference is
intended with respect to whether these
transactions should or may be treated as
dispositions for cash for any other pur-
pose of the Code. The characterization
of the transaction as involving a payment
of cash to the merchant for purposes of
these proposed regulations will apply
regardless of whether the merchant sub-
sequently exchanges the digital assets
received pursuant to the temporarily fixed
exchange rate, because the fixed exchange
rate provided by the digital asset payment
processor both facilitates the transaction
and serves as a foundation to determine
the fair market value received by the
customer in the exchange. Accordingly,
to meet their information reporting obli-
gations in these alternatively structured
payment transactions, digital asset pay-
ment processors will need to ensure that
they obtain the required personal identi-
fying information (that is, name, address,
and tax identification number) from the
customer (that is, the party making the
payment in digital assets) in advance of
these transactions. It is anticipated that
digital asset payment processors will
report gross proceeds from the disposition
of digital assets by customers but may not
have the information necessary or avail-
able to report the basis of the disposed-of
digital assets unless they also hold digital
assets for those customers.
In addition, because a payment pro-
cessor knows the gross proceeds with
respect to an exchange transaction when
it is participating in a transaction that
is potentially reportable under exist-
ing §1.6050W-1(a)(1), the definition of
a digital asset payment processor also
includes certain payment settlement enti-
ties and certain entities that make pay-
ments to payment settlement entities that
are potentially subject to reporting under
section 6050W. First, proposed §1.6045-
1(a)(22)(i)(B) provides that a digital asset
payment processor includes a TPSO (as
defined in §1.6050W-1(c)(2)) that makes
(or submits instructions to make) pay-
ments using one or more digital assets
in settlement of reportable payment
transactions as described in §1.6050W-
1(a)(2). This treatment of a TPSO as a
digital asset payment processor applies
whether or not the TPSO actually makes
(or provides the instructions to make) the
payment or contracts with a third-party
electronic payment facilitator, pursuant
to §1.6050W-1(d)(2), to make (or provide
the instructions to make) the payment.
In addition, this treatment of a TPSO as
a digital asset payment processor applies
without regard to whether the payment
to the merchant is below the de minimis
threshold described in section 6050W(e)
and, thus, not reportable under section
6050W.
Second, the definition of a digital asset
payment processor in proposed §1.6045-
1(a)(22)(i)(C) includes a payment card
issuer that makes (or submits the instruc-
tion 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. Whether
a transaction is associated with a report-
able payment transaction is determined
without regard to whether the merchant
acquiring bank contracts with an agent to
make (or submit the instructions to make)
its payments to the merchant.
Proposed §1.6045-1(a)(2)(ii)(A) clar-
ifies that the customer in a digital assets
payment processor transaction includes
the person who transfers the digital assets
or directs the transfer of the digital assets
to the digital asset payment processor to
make payment to the second person. Thus,
for example, a digital asset payment pro-
cessor’s customer is the person who trans-
fers the digital assets to that processor even
if the processor has a contractual arrange-
ment with only the second person, that is,
the person who will ultimately receive the
cash in the payment transaction.
The Treasury Department and the IRS
recognize that some stakeholders may
have concerns that providing personal
identity information in transactions where
the payment processor is an agent of a
merchant may raise privacy concerns and
request comments on whether there are
alternative approaches that would satisfy
tax compliance objectives while reducing
privacy concerns.
The Treasury Department and the IRS
considered whether a de minimis thresh-
old should apply to the reporting of mer-
chant transactions of the kind described
above, taking into account that the cost
and effort to build a reporting system may
increase if numerous small transactions
must be reported. Whether there would
in fact be an increase in cost and effort
is uncertain, as in some other informa-
tion reporting contexts reporting entities
have elected not to take advantage of de
minimis thresholds in order to avoid the
need to monitor the size or amount of
the reportable item. Moreover, taxpayers
are required to report gain from disposi-
tions of digital assets on their tax returns
regardless of the amount disposed of, and
a taxpayer that engages in many small
dispositions of digital assets may have an
aggregate amount of gain for the taxable
year that is significant. Because informa-
tion reporting assists customers in deter-
mining the proper amount of gain or loss

Bulletin No. 2023–38 845 September 18, 2023
attributable to such dispositions, these
proposed regulations do not include a de
minimis rule for reporting these merchant
transactions.
4. Other Brokers
The definition of broker in existing
§1.6045-1(a)(1) is proposed to be modified
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. A stablecoin is
a form of digital asset that is intended to
have a stable value relative to another asset
or assets, typically a fiat currency. Some
stablecoin issuers effect redemptions on
behalf of all, or some, of their customers
and know the gross proceeds paid to their
customers. Stablecoin issuers that redeem
their stablecoins are included in the defi-
nition of broker because, notwithstanding
the nomenclature “stablecoin,” the value
of a stablecoin may not always be stable
and therefore may give rise to gain or loss.
See Additional Definitional Changes in
Part I.K of this Explanation of Provisions.
These proposed regulations apply to per-
sons that regularly offer to redeem digital
assets rather than persons who regularly
carry out redemptions to ensure reporting
on the occasional redemptions by digi-
tal asset issuers that may not regularly
redeem their issued digital assets. The
Treasury Department and the IRS request
comments on the frequency with which
creators or issuers of digital assets redeem
digital assets. In addition, the Treasury
Department and the IRS request comments
regarding whether the broker reporting
regulations should apply to include ini-
tial coin offerings, simple agreements for
future tokens, and similar contracts.
5. Real Estate Reporting Persons
Proposed §1.6045-1(a)(1) was also
modified to provide 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 per-
son would be required to make an informa-
tion return with respect to that real estate
transaction under proposed §1.6045-4(a),
without regard to any reporting excep-
tions provided under section 6045(e)(5) or
proposed or existing §1.6045-4(c) or (d),
such as the exception for certain sales of
principal residences or the exception for
exempt real estate sellers. Thus, for exam-
ple, a real estate reporting person would be
required to report on a real estate buyer’s
exchange of digital assets for real estate as
a sale of those digital assets even though
the real estate reporting person is not
required to report on the real estate sell-
er’s exchange of the real estate for digital
assets due to the fact that the seller of that
real estate is an exempt seller, such as a
corporation, under existing §1.6045-4(d).
C. Expansion of the types of sales subject
to reporting
Digital assets are unique among the
types of assets that are subject to report-
ing under section 6045 because it is com-
mon for digital assets to be exchanged for
different digital assets. In addition, some
digital assets can readily function as a
payment method as well as an investment
asset. Digital assets can be exchanged
for cash, stored-value cards, services, or
other property (including different digi-
tal assets). To avoid gaps in information
reporting with respect to this broad range
of taxable exchanges, proposed §1.6045-
1(a)(9)(ii) expands the definition of a sale
subject to reporting. Proposed §1.6045-
1(a)(9)(ii)(A)(1) and (2) provide that a
sale includes the disposition of a digital
asset in exchange for cash, one or more
stored-value cards, or a different digi-
tal asset. An exchange for cash for these
purposes includes a payment received
through the use of a check, credit card,
or debit card. Proposed §1.6045-1(a)(25)
defines a stored-value card as a card—
whether in physical or digital form—with
a prepaid value in U.S. dollars, any con-
vertible foreign currency, or any digital
asset. A stored-value card includes a gift
card. The Treasury Department and the
IRS request comments on whether the
types of consideration for which digital
assets may be exchanged in a sale transac-
tion is sufficiently broad to capture current
and anticipated transactions in which tax-
payers regularly dispose of digital assets
for consideration.
In addition, proposed §1.6045-1(a)
(9)(ii)(B) provides that a sale of a digital
asset includes the disposition of a digital
asset by a customer in exchange for prop-
erty (including securities and real prop-
erty) of a type that is subject to reporting
under section 6045. Thus, for example, if
a stockbroker accepts a digital asset from
a customer as payment for the customer’s
purchase of stock, that disposition of the
digital asset in exchange for stock will be
treated as a sale of the digital asset by that
customer for purposes of section 6045.
Similarly, if a real estate reporting per-
son, as defined in existing §1.6045-4(e),
is involved in a real estate transaction in
which the real estate buyer uses digital
assets as consideration in the exchange
for real property, that disposition of digital
assets in exchange for real property will
be treated as a sale of the digital assets by
that real estate buyer for purposes of sec-
tion 6045.
Proposed §1.6045-1(a)(9)(ii)(C) pro-
vides that a sale of digital assets also
includes a disposition of digital assets by
a customer in consideration for the ser-
vices of a broker as defined in proposed
§1.6045-1(a)(1). Whether a person is a
broker for purposes of this rule, however,
is determined without regard to whether
that person regularly as part of its trade or
business accepts digital assets in consider-
ation for its services. Thus, if a stockbroker
accepts a digital asset as payment for the
commission charged for a stock purchase,
the customer’s disposition of the digital
asset in exchange for the broker’s services
will be treated as a sale of the digital asset
for purposes of section 6045 because the
stockbroker is a broker due to the fact
that it regularly effects sales of stock (not
because it regularly accepts digital assets
for services). In contrast, if a landscaper
accepts a digital asset as payment for land-
scaping services, the customer’s disposi-
tion of the digital asset in exchange for the
landscaper’s services will not be treated
as a sale of digital assets for purposes of
section 6045 because the determination of
whether the landscaper is a broker is made
without regard to whether that landscaper
regularly accepts digital assets in consid-
eration for landscaping services as part
of a trade or business. Proposed §1.6045-
1(a)(2)(ii)(B) provides that the customer
in these sales is the person who transfers
the digital assets or directs the transfer of
the digital assets to the broker regardless
of whether the broker is a digital asset

September 18, 2023 846 Bulletin No. 2023–38
broker. Proposed §1.6045-1(a)(2)(ii)(C)
provides that in the case of a broker that is
a real estate reporting person with respect
to a real estate transaction, the customer is
the person who transfers the digital assets
or directs the transfer of the digital assets
to the seller of the real estate (or the sell-
er’s nominee or agent) to acquire the real
estate. Finally, to ensure that these sales
of digital assets are treated as effected by
a broker, proposed §1.6045-1(a)(21)(iii)
(B) provides that the acceptance of digital
assets in consideration for the above-de-
scribed property or services provided
by a broker is a facilitative service. As a
result, the broker will be treated as effect-
ing these sales of digital assets as a digital
asset middleman under proposed §1.6045-
1(a)(10)(i)(D).
In certain circumstances, a digital asset
broker (other than a digital asset payment
processor discussed earlier in Part I.B.3 of
this Explanation of Provisions) such as a
digital asset broker providing hosted wal-
let services might transfer digital assets
without knowing that the transfer was part
of a sale transaction. For example, a cus-
tomer might direct such a custodial broker
to transfer digital assets to the wallet of
a merchant in connection with the pur-
chase of goods or services from that mer-
chant. The definition of effect in proposed
§1.6045-1(a)(10) limits the sales for which
such brokers must make a report to those
transactions in which the broker (as agent)
would ordinarily know the gross proceeds
from the sale or (as digital asset middle-
man) would ordinarily know or be in a
position to know the identity of the party
that makes the sale and the gross proceeds
from the sale. Although the custodial bro-
ker in this example would ordinarily know
or be in a position to know the identity of
its customer, it is not in a position to know
that the transfer was associated with a sale
or exchange transaction or the amount that
the customer received as gross proceeds
from the exchange (that is, the amount the
customer received in consideration for the
digital assets surrendered). Accordingly,
the transfer of digital assets by that cus-
todial broker to the wallet of the merchant
does not constitute effecting a sale of dig-
ital assets by that broker. In contrast, a
digital asset payment processor would typ-
ically know whether the transfer was part
of a sale transaction because that broker
would have a contractual relationship with
the payment recipient as well as with the
transferor of the payment. Accordingly, in
these cases the transfer of digital assets
by the digital asset payment processor (or
the direction to the customer by the digital
asset payment processor to transfer digital
assets) to the wallet of the merchant would
constitute effecting a sale.
In view of the increasing use of digi-
tal assets to make payments for goods
and services or to satisfy other payment
obligations through the intermediation of
digital asset payment processors, digital
asset payment processors (which may also
function in other contexts as digital asset
trading platforms) are subject to these
rules. To achieve this result, proposed
§1.6045-1(a)(9)(ii)(D) provides that a
sale includes payments of a digital asset
by the customer to a digital asset payment
processor in exchange for that processor’s
payment of a different digital asset or cash
to a second person. A sale also includes
the transfer of a digital asset by a cus-
tomer 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 asset received
by the second person, which is treated
(under the rules setting forth the definition
of a digital asset payment processor) as if
the digital asset was paid by the customer
to the digital asset payment processor in
exchange for a different digital asset or
cash paid to that second person.
In the case of a digital asset payment
processor that is a TPSO, a sale also
includes a customer’s payment in digital
assets to the digital asset payment proces-
sor (or pursuant to instructions provided
by that digital asset payment processor or
its agent) as part of a transaction in which
the digital asset payment processor pays
(or is treated as paying) the digital assets
to a merchant in settlement of a reportable
payment transaction under §1.6050W-1(a)
(2). This payment is a sale of digital assets
by the customer under these proposed
regulations without regard to whether
the amount paid to the merchant during
the calendar year exceeds the de minimis
threshold described in section 6050W(e)
or whether the digital asset payment
processor contracts with a third party to
make (or provide instructions to make)
the payment to the merchant pursuant to
§1.6050W-1(d)(2). Finally, to account for
payments that are reportable under sec-
tion 6050W with respect to payment card
transactions where a digital asset payment
processor is also a payment card issuer, a
sale of digital assets also includes a pay-
ment made in digital assets by a customer
to the payment card issuer (or pursuant to
instructions provided by that card issuer
or its agent) in a transaction associated
with a reportable payment transaction
under §1.6050W-1(a)(2). This treatment
of the customer’s payment as a sale in
this case is determined without regard to
whether the merchant acquiring bank con-
tracts with an agent to make (or submit
the instructions to make) payment to the
ultimate payee. Thus, under this rule, in
the case of a payment card purchase at a
merchant, the buyer’s payment in a dig-
ital asset to the payment card issuer will
be a sale even if that payment card issuer
pays the merchant acquiring entity in the
same type of digital asset because the
subsequent payment (whether in cash or
in digital assets) by the merchant acquir-
ing entity (or its agent) to the merchant
is a reportable payment transaction under
§1.6050W-1(a)(2).
A broker’s customer may enter into
executory contracts, or other derivative
contracts involving the future delivery of
a digital asset, where delivery under the
contract also should be subject to report-
ing as a digital asset sale under these pro-
posed regulations. To ensure that these
executory or other derivative contracts do
not circumvent the proposed information
reporting rules for digital assets, proposed
§1.6045-1(a)(9)(ii)(A)(3) defines a sale to
include the delivery of a digital asset pur-
suant to the settlement of a forward con-
tract, option, regulated futures contract,
any similar instrument, or any other execu-
tory contract that would be treated as a sale
of the digital asset under the regulation if
the contract had not been executory.
3
The
3
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 Commodity Exchange Act, or to otherwise
impact the interpretation or applicability of those laws, which are outside the scope of these regulations.

Bulletin No. 2023–38 847 September 18, 2023
rules in existing §1.6045-1(a)(9), redes-
ignated in these proposed regulations as
proposed §1.6045-1(a)(9)(i), applicable to
making or taking delivery (for example,
treating a closing transaction as one or two
sales depending on the nature of the con-
tract) are cross-referenced to apply to the
delivery of digital assets pursuant to trans-
actions described in proposed §1.6045-
1(a)(9)(ii)(A)(3). Additionally, the rules in
existing §1.6045-1(a)(9) applicable to the
circumstances under which a transaction
is treated as a sale with respect to certain
contracts and options are cross-referenced
to apply to determine if similar transac-
tions related to digital assets constitute
sales described in proposed §1.6045-1(a)
(9)(ii)(A). Accordingly, the entering into
of a digital asset contract that requires
delivery of personal property, the initial
grant or purchase of a digital asset option,
or the exercise of a purchased digital asset
call option for physical delivery (except
for a contract described in section 988(c)
(5)) is not included in the definition of sale
under proposed §1.6045-1(a)(9)(ii)(A).
Thus, for example, the closing of a
regulated futures contract that involves
making a delivery of digital assets will
be treated as two sales, one under redes-
ignated proposed §1.6045-1(a)(9)(i) with
respect to the profit or loss on the contract,
and the other under proposed §1.6045-
1(a)(9)(ii)(A)(3) on the delivery of the
digital assets. The Treasury Department
and the IRS invite comments address-
ing the extent to which these rules create
logistical concerns for the reporting on
contracts involving the delivery of digi-
tal assets. Additionally, the delivery of a
digital asset under an executory contract
will be treated as a sale of the digital asset
under these rules if the underlying terms
of the contract (for example, an exchange
of one digital asset for a different digi-
tal asset) would have given rise to a sale
under these rules if the contract had been
executed when made. In contrast, if the
underlying terms of the contract would
not have been treated as a sale under these
rules (for example, the direct payment of a
digital asset by a consumer to a merchant
in exchange for merchandise without the
involvement of a digital asset payment
processor), then the delivery of the digi-
tal asset pursuant to this type of executory
contract will not be treated as a sale. The
Treasury Department and the IRS invite
comments regarding how frequently for-
ward contracts involving digital assets
are traded in practice, and whether there
are any additional issues that should be
considered to enable brokers to report on
these transactions.
Finally, there are several types of trans-
actions that the definition of sale under
proposed §1.6045-1(a)(9)(ii) does not
include. For example, the definition does
not include a transaction in which a cus-
tomer receives new digital assets without
disposing of something else in exchange.
Thus, for example, a sale does not include
a hard fork transaction, in which a cus-
tomer receives new digital assets as part
of a protocol change in previously held
digital assets without disposing of differ-
ent digital assets in exchange. Similarly,
the receipt by a customer of digital assets
from an airdrop (or simultaneous dis-
tribution of units of digital assets to the
distributed ledger addresses of multiple
taxpayers) does not constitute the sale of
digital assets under proposed §1.6045-
1(a)(9)(ii) even if the customer’s hold-
ings in existing digital assets are the basis
on which the new digital assets were
received. Additionally, the definition of
sale under proposed §1.6045-1(a)(9)(ii)
does not include a transaction in which a
broker’s customer receives digital assets
in return for the performance of services.
Thus, for example, a sale does not include
the receipt by a broker’s customer of new
digital assets as a reward in return for cer-
tain marketing-related services such as
taking a survey.
The Treasury Department and the IRS
are aware that the transactions described
in this Part I.C of this Explanation of
Provisions do not address every type of
transaction involving digital assets that
taxpayers engage in through entities
defined in these proposed regulations as
brokers. For example, these proposed reg-
ulations do not specify whether a loan of
digital assets is required to be reported.
These proposed regulations also do not
specifically address whether reporting is
required for transactions involving the
transfer of digital assets to and from a
liquidity pool by a liquidity pool provider,
or the wrapping and unwrapping of a dig-
ital asset, in light of the absence of guid-
ance on those transactions. Comments are
requested on whether the definition of sale
or other parts of the regulations should
be revised to address transactions not
described in these proposed regulations.
D. Information to be reported for digital
asset sales
Several new subparagraphs have been
added to the rules contained in existing
§1.6045-1(d)(2)(i) to address the informa-
tion required to be reported with respect to
digital asset sales. Much of the informa-
tion required to be reported is similar to
the information that is currently required
to be reported on the Form 1099-B with
respect to securities. For example, pro-
posed §1.6045-1(d)(2)(i)(B) requires
that for each digital asset sale for which
a broker is required to file an information
return, the broker must report on the form
prescribed by the Secretary the following
information:
• The customer’s name, address, and
taxpayer identification number;
• The name or type of the digital asset
sold and the number of units of the
digital asset sold;
• The sale date and time;
• The gross proceeds of the sale; and
• Any other information required by
the form or instructions in the manner
required by the form or instructions.
Additionally, to aid the IRS in verifying
valuations provided for reported gross
proceeds and in determining whether the
basis claimed by taxpayers in connection
with transactions for which adjusted basis
information is not reported by the bro-
ker, proposed §1.6045-1(d)(2)(i)(B) also
requires that the broker report:
• The transaction identification (trans-
action ID or transaction hash) associ-
ated with the digital asset sale, if any;
• The digital asset address (or digi-
tal asset addresses if multiple) from
which the digital asset was trans-
ferred in connection with the sale, if
any; and
• Whether the consideration received
was cash, different digital assets,
other property, or services.
In addition to these listed items, if the
transaction involves the sale of a digi-
tal asset that also constitutes a sale of a
security, the broker must also provide
certain information that is relevant to the

September 18, 2023 848 Bulletin No. 2023–38
sale of securities as required by the form
or instructions. It is anticipated that this
additional information will be required
only for digital assets that are digital rep-
resentations of other assets that constitute
securities.
To the extent the sale is of a digital
asset that was held by the broker in a
hosted wallet on behalf of the customer
and that digital asset was previously trans-
ferred into that account (transferred-in
digital asset), the broker must also report
the date and time of such transfer-in
transaction, the transaction ID of such
transfer-in transaction, the digital asset
address (or digital asset addresses if mul-
tiple) from which the transferred-in digi-
tal asset was transferred, and the number
of units transferred in by the customer as
part of that transfer-in transaction. The
Treasury Department and the IRS intend
to except brokers from reporting this
additional information with respect to the
sale of transferred-in digital assets once
rules have been promulgated under sec-
tion 6045A with respect to brokers who
receive transfer statements under section
6045A for digital assets. Until that time,
this information would be used by the IRS
to verify the basis claimed by the taxpayer
in connection with the sale of the trans-
ferred-in digital asset.
For purposes of the above reporting
requirements, proposed §1.6045-1(a)
(20) defines a digital asset address as the
unique set of alphanumeric characters that
is generated by the wallet into which the
digital asset will be transferred. Some dig-
ital asset addresses may be referred to as
wallet addresses. Additionally, proposed
§1.6045-1(a)(26) defines a transaction
identification, or transaction ID, as the
unique set of alphanumeric identifica-
tion characters that a digital asset distrib-
uted ledger associates with a transaction
involving the transfer of a digital asset
from one digital asset address to another.
A transaction ID is alternatively referred
to as a “Txid” or “transaction hash.”
The Treasury Department and the IRS
recognize that the requirement to report
transaction ID information and digital
asset addresses with respect to digital asset
sales and certain digital asset transfer-in
transactions may be burdensome under
certain circumstances. Accordingly, the
Treasury Department and the IRS request
comments regarding whether there are
other less burdensome alternatives that
would allow the IRS the ability to investi-
gate or verify basis information provided
by taxpayers. For example, should the
Treasury Department and the IRS con-
sider an annual aggregate digital asset sale
threshold, above which the broker would
report transaction ID information and dig-
ital asset addresses? If so, what should
that threshold be and why?
When available, drafts of the form pre-
scribed by the Secretary will be posted
for comment at www.irs.gov/draftforms.
Brokers will only be required to file the
form following approval of the infor-
mation collection under the Paperwork
Reduction Act. The Paperwork Reduction
Act approval process requires the IRS to
publish a 60-day notice and request for
comments in the Federal Register and
subsequently publish a 30-day notice
and request for comments in the Federal
Register for the Office of Management
and Budget’s (OMB) review and clear-
ance. Proposed §301.6721-1(g)(3)(iii)
(failure to file correct information returns)
and proposed §301.6722-1(d)(2)(viii)
(failure to furnish correct payee state-
ments) have been modified to include the
form prescribed by the Secretary pursuant
to proposed §1.6045-1(d)(2)(i)(B) in the
list of forms subject to those penalties.
For sales of digital assets that are
effected when recorded on a broker’s inter-
nal accounting ledger, proposed §1.6045-
1(d)(4)(ii) provides that the broker must
report the sale as of the date and time the
sale was recorded on that internal ledger
regardless of whether that sale is later
recorded on a distributed ledger. Reporting
the time of the transaction under a uni-
form time standard would eliminate any
confusion that would be caused by report-
ing transactions by the same taxpayer in
different local time zones. The Treasury
Department and the IRS understand that
transaction timestamps undertaken on
blockchains are generally recorded using
Coordinated Universal Time (UTC).
Accordingly, proposed §1.6045-1(d)(4)
(ii) provides that the reported date and
time should generally be set forth in hours,
minutes, and seconds using UTC unless
otherwise directed in the form prescribed
by the Secretary pursuant to proposed
§1.6045-1(d)(2)(i)(B) or instructions. It is
anticipated that the time standard required
by this form prescribed by the Secretary
or instructions will correspond to any
successor convention for time generally
used by the industry. Proposed §1.6045-
1(d)(4)(iii) provides examples of a broker
reporting time using the UTC time con-
vention based on a 12-hour clock (desig-
nating a.m. and p.m. as appropriate). The
Treasury Department and the IRS request
comments regarding whether it would be
less burdensome to report the time using
a 24-hour clock and the extent to which
all brokers should be required to use the
same 12-hour or 24-hour clock for these
purposes. The Treasury Department and
the IRS also request comments regarding
whether a uniform time standard is overly
burdensome and the extent to which there
are circumstances under which more flex-
ibility should be provided. For example,
if a particular customer’s transactions are
carried out only in one time zone, the cus-
tomer might prefer reporting that is based
on that time zone, particularly for trans-
actions for which the exact date and time
of acquisition or disposition affect the
determination of the customer’s tax lia-
bility, such as transactions that take place
just before the end of the customer’s tax-
able year or that relate to the customer’s
holding period for the disposed-of digital
asset. The Treasury Department and the
IRS request comments regarding whether
there are alternatives to basing the trans-
action date on the UTC for customers who
are present in a different time zone known
to the broker at the time of the transaction.
These information reporting rules will
require digital asset brokers to expend
resources to develop and implement infor-
mation reporting systems to comply with
the required reporting. Balancing on the
other side of that consideration is the con-
cern that limited information reporting by
brokers has made it difficult, time-con-
suming, and expensive for taxpayers to
calculate their gains or losses on these
transactions and has contributed to sig-
nificant underreporting by taxpayers of
gain generated by digital asset sale and
exchange transactions. Accordingly, these
changes are proposed to apply to sales and
exchanges of digital assets effected on or
after January 1, 2025. No inference should
be drawn from these proposed rules con-
cerning the reporting requirements for

Bulletin No. 2023–38 849 September 18, 2023
digital asset sale transactions entered into
before the regulations become applicable.
E. Gross proceeds in digital asset
transactions
1. Determining the Gross Proceeds in a
Sale Transaction
The information reporting rules for
determining the gross proceeds in a sale
transaction generally follow the substan-
tive rules for computing the amount real-
ized from transactions involving the sale
or other disposition of digital assets. These
substantive rules are provided under pro-
posed §1.1001-7(b) and discussed in
Part II of this Explanation of Provisions.
Accordingly, proposed §1.6045-1(d)
(5)(ii)(A) defines gross proceeds to be
reported by a broker with respect to a cus-
tomer’s sale of digital assets as the sum
of: (i) the total amount in U.S. dollars paid
to the customer or credited to the custom-
er’s account as a result of the sale; (ii) the
fair market value of any property received
or, in the case of a debt instrument issued
in exchange for the digital asset and sub-
ject to §1.1001-1(g), the amount realized
attributable to the debt instrument as
determined under proposed §1.1001-7(b)
(1)(iv) (in general, the issue price of the
debt instrument); and (iii) the fair market
value of any services received, includ-
ing services giving rise to digital asset
transaction costs; reduced by the amount
of the allocable digital asset transaction
costs as discussed in Part I.E.3 of this
Explanation of Provisions. Part I.E.2 of
this Explanation of Provisions provides
the rules applicable to determining the
fair market value of property or services
received in an exchange transaction.
In the case of a sale effected by a dig-
ital asset payment processor on behalf of
one party, proposed §1.6045-1(d)(5)(iii)
provides that the amount of gross pro-
ceeds to be reported by the digital asset
payment processor is equal to the sum of
the amount paid in cash, or the fair market
value of the amount paid in digital assets
by the digital asset payment processor to a
second party, plus any digital asset trans-
action costs withheld (whether withheld
from the digital assets transferred by the
first party or withheld from the amount
due to the second party), reduced by the
amount of the allocable digital asset trans-
action costs as discussed in Part I.E.3 of
this Explanation of Provisions. For pur-
poses of this calculation, the amount paid
by a digital asset payment processor to a
second person includes the amount treated
as paid to the second person pursuant to
a processor agreement that temporarily
fixes the exchange rate between that sec-
ond person and a digital asset payment
processor, which amount is determined by
reference to the fixed exchange rate.
2. Determining the Fair Market Value
of Property or Services Received in an
Exchange Transaction
In determining the fair market value
of property or services received by the
customer in an exchange transaction
involving digital assets, the information
reporting rules generally follow the sub-
stantive rules provided under proposed
§1.1001-7(b) discussed in Part II of this
Explanation of Provisions. Accordingly,
proposed §1.6045-1(d)(5)(ii)(A) provides
that in determining gross proceeds under
these rules, 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 deter-
mine 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
§1.6045-1(d)(5)(ii)(A) provides that the
broker must use a reasonable valuation
method that looks to the 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 deter-
mine than any other measure of the value
of services giving rise to those costs, the
Treasury Department and the IRS have
determined for administrability purposes
that brokers must look to the fair market
value of the digital assets used to pay for
digital asset transaction costs in deter-
mining the fair market value of services
(including the services of any broker or
validator involved in executing or validat-
ing the transfer) giving rise to those costs.
The Treasury Department and the IRS,
however, request comments regarding
whether there are circumstances under
which an alternative valuation rule would
be more appropriate.
In the case of one digital asset
exchanged for a different digital asset,
proposed §1.6045-1(d)(5)(ii)(A) provides
that the broker may rely on valuations
performed by a digital asset data aggrega-
tor using a reasonable valuation method.
For this purpose, 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 capital-
ization, and other relevant factors in con-
ducting the valuation. Because taking into
account these described factors from small
volume exchangers could provide skewed
valuations of a digital asset, proposed
§1.6045-1(d)(5)(ii)(C) provides that a val-
uation method is not a reasonable method
if the method over-weighs prices from
exchangers that have low trading volumes
or if the method under-weighs exchange
prices that lie near the median price value.
A valuation method also is not a reason-
able method if it inappropriately weighs
factors associated with a price that would
make that price an unreliable indicator of
value. For example, if trading prices on a
digital asset trading platform are affected
by structured trading that tends to increase
the price of assets beyond the price that
an unrelated purchaser with knowledge of
the facts would pay, using the prices from
that digital asset trading platform may not
be part of a reasonable valuation method.
Consistent with the substantive rules
discussed in Part II of this Explanation of
Provisions, if in a digital asset exchange
transaction there is a disparity between the
value of the services or property received
and the value of the digital asset trans-
ferred, proposed §1.6045-1(d)(5)(ii)(B)
provides that the broker must look to the
fair market value of the services or prop-
erty received. 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) provides that the fair market
value of the received services or property
must be determined by reference to the
fair market value of the transferred dig-
ital asset. If the broker reasonably deter-
mines that neither the digital asset nor the

September 18, 2023 850 Bulletin No. 2023–38
services or other property exchanged for
the digital asset can be valued with rea-
sonable accuracy, proposed §1.6045-1(d)
(5)(ii)(B) provides that the broker must
report an undeterminable value for gross
proceeds from the transferred digital asset.
3. Determining Digital Asset Transaction
Costs Allocable to the Sale in an
Exchange Transaction
Many digital asset brokers will charge
a single transaction fee in the case of an
exchange of one digital asset for a differ-
ent digital asset. In some cases, these fees
may be adjusted depending on the type of
digital asset acquired or disposed of in the
exchange, with transactions involving less
commonly traded digital assets carrying
higher transaction fees than transactions
involving more commonly traded digital
assets. The Treasury Department and the
IRS considered various approaches to
allocating transaction fees and other digi-
tal asset transaction costs that are charged
in an exchange of one digital asset for a
different digital asset. Ultimately, to avoid
the administrative complexities associated
with distinguishing between special broker
fee allocations that appropriately reflect
the economics of the transaction and bro-
ker fee allocations that reflect tax-moti-
vated requests, proposed §1.6045-1(d)
(5)(iv) provides 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. An excep-
tion applies, however, in an exchange of
one digital asset for another digital asset
differing materially in kind or in extent.
In that case, one-half of any digital asset
transaction cost paid by the customer in
cash or property to effect the exchange
should be allocable to the disposition of
the transferred digital asset and the other
half should be allocable to the acquisition
of the received digital asset. These rules
are consistent with the substantive rules
provided under proposed §1.1001-7(b)
and proposed §1.1012-1(h) discussed in
Part II of this Explanation of Provisions.
Finally, proposed §1.6045-1(d)(5)(iv)
defines the term digital asset transaction
costs to mean the amount paid to effect
the disposition or acquisition of a digital
asset and includes transaction fees paid to
a digital asset broker, any transfer taxes
that apply, and any other commissions or
other costs paid to effect the disposition or
acquisition of a digital asset.
F. Adjusted basis reporting for digital
assets and certain financial contracts on
digital assets
1. Mandatory Broker Reporting
Section 6045(g) requires a broker that
is otherwise required to make a return
under section 6045(a) with respect to cov-
ered securities to report the adjusted basis
with respect to those securities. Under
section 6045(g)(3)(A), a covered secu-
rity 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. Prior to the amendments made by
the Infrastructure Act, the term specified
security was defined by section 6045(g)(3)
(B) to mean any share of stock in a corpo-
ration; any note, bond, debenture, or other
evidence of indebtedness; any commodity
or commodity derivative if the Secretary
determines that adjusted basis report-
ing is appropriate; and any other finan-
cial instrument with respect to which the
Secretary determines that adjusted basis
reporting is appropriate. For stock in a
corporation, sections 6045(g)(3)(C)(i) and
(ii) provide that the acquisition applicable
date is either January 1, 2011, or January
1, 2012, depending on whether the aver-
age basis method is permissible under sec-
tion 1012. Prior to the amendments made
by the Infrastructure Act, section 6045(g)
(3)(C)(iii) provided the acquisition appli-
cable date for specified securities other
than stock, including for any other finan-
cial instrument with respect to which the
Secretary determines that adjusted basis
reporting is appropriate, was January 1,
2013, or such later date as determined
by the Secretary. Under the existing reg-
ulations, reporting of adjusted basis is
required only for stock, debt instruments,
options on stock and debt and related
financial attributes such as interest rates
or dividend yields, and securities futures
contracts.
The Treasury Department and the IRS
intend to issue a separate notice of pro-
posed rulemaking to implement the leg-
islative changes to section 6045A which
would require applicable persons, includ-
ing brokers, to provide transfer statements
under section 6045A when digital assets
are transferred. These transfer statements
are needed for digital assets that are
acquired by taxpayers in one account and
transferred to another account to provide
the brokers who effect sales of digital
assets with the information necessary to
report the adjusted basis of the sold digital
assets. Section 6045A addresses this infor-
mation shortfall with respect to transferred
securities by requiring that the acquiring
broker or other applicable person provide
the purchase date and basis information
for a transferred security to the receiving
broker. The legislative changes to section
6045A made in section 80603(b)(2)(A)
of the Infrastructure Act not only clarify
that transfer statement reporting under
section 6045A(a) applies to covered secu-
rities that are digital assets, but also add
a new reporting provision under section
6045A(d) to provide for broker informa-
tion reporting to the IRS 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
that the broker knows or has reason to
know is also a broker.
a. Digital assets acquired by custodial
brokers and certain financial contracts on
digital assets
Brokers who acquire digital assets for
customers, provide custodial services for
these digital assets, and continue to hold
those digital assets until sale have the
necessary information to determine the
customers’ adjusted basis in these digital
assets. By contrast, brokers who receive
a transfer of a customer’s digital assets
that were acquired for that customer by
another broker may not have that informa-
tion. As a result, the Treasury Department
and the IRS have determined that man-
datory basis reporting under these pro-
posed regulations should apply only to
sales of digital assets that were previously
acquired, held until sale, and then sold

Bulletin No. 2023–38 851 September 18, 2023
by a custodial broker for the benefit of a
customer. Accordingly, until rulemaking
under section 6045A is complete, the defi-
nition of a covered security for purposes
of digital asset basis reporting is limited
under proposed §1.6045-1(a)(15)(i)(J) to
digital assets that are acquired in a cus-
tomer’s account by a broker providing
hosted wallet services. Therefore, sale
transactions effected by custodial brokers
of digital assets that were not previously
acquired in the customer’s account and
sale transactions effected by non-custo-
dial brokers, such as those that taxpayers
may refer to as decentralized exchanges,
are not subject to these mandatory basis
reporting rules.
In contrast to digital assets, financial
contracts (such as options and forward
contracts) on digital assets that are not
themselves digital assets are not held by
brokers on behalf of customers in hosted
wallets. Accordingly, the definition of a
covered security subject to mandatory
basis reporting for these non-digital asset
options and forward contracts on digital
assets is not limited to contracts held by
brokers providing hosted wallet services.
Instead, basis reporting for these financial
contracts is required under these proposed
regulations pursuant to the expanded defi-
nition of a covered security under pro-
posed §1.6045-1(a)(15)(i)(H) (non-digital
asset options) and proposed §1.6045-1(a)
(15)(i)(K) (non-digital asset forward con-
tracts) as long as they are granted, entered
into, or acquired in a customer’s account
at a broker or custodian pursuant to the
rules in existing §1.6045-1(a)(15)(ii).
b. Acquisition applicable date
The recordkeeping burden for taxpay-
ers transacting in digital assets can be
significant. To determine whether a sale
or exchange of a digital asset gives rise
to gain or loss and the holding period for
the asset, the taxpayer must know both
the gross proceeds from the transaction
as well as the adjusted basis and acquisi-
tion date of the digital asset. Determining
a taxpayer’s adjusted basis in a digital
asset or portion of a digital asset sold or
exchanged can be a complex endeavor,
particularly for taxpayers that carry
out frequent acquisitions and sales or
exchanges of digital assets, as the taxpayer
may need to track every transaction the
taxpayer has carried out with respect to
that digital asset both in the current tax-
able year and in prior taxable years. This
is particularly true for interchangeable
digital asset units for which minute frac-
tions of previously purchased units can
be sold on different dates. Complexity is
further increased when transaction fees
paid in digital assets give rise to separate
digital asset sale transactions of the digi-
tal assets used to pay the transaction fees.
Given these recordkeeping complexities,
the Treasury Department and the IRS have
determined that adjusted basis reporting
by brokers for digital assets would both
improve tax administration and assist tax-
payers who sell or exchange digital assets
to comply with their own basis tracking
and reporting requirements, as well as
assisting the IRS to determine whether a
taxpayer has properly reported its gain or
loss. Accordingly, these proposed regula-
tions provide 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 pur-
chased, 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). The remainder
of the discussion in this Part I.F.1.b of this
Explanation of Provisions describes when
a digital asset is treated as a covered secu-
rity under these proposed regulations.
Section 80603(b)(1) of the
Infrastructure Act adds digital assets to the
list of specified securities for which basis
reporting is specifically required, pro-
vided that the digital asset is acquired on
or after January 1, 2023 (the acquisition
applicable date for digital assets). January
1, 2023, is prior to the date on which these
proposed regulations may be finalized.
Accordingly, the Treasury Department
and the IRS considered whether the
acquisition date on or after which bro-
kers should be required to track and
report basis for digital assets acquired in
a customer’s account should be January 1,
2023 or should instead be a date after the
finalization of these proposed regulations.
In considering that question, the Treasury
Department and the IRS have taken into
account that while few digital assets have
been in existence for more than a few
years, the value of some of those digital
assets has fluctuated significantly over rel-
atively short periods of time. In addition,
unlike the securities industry, in which the
oldest records were first created on paper
many decades ago and were then often
stored physically on paper or microfilm,
the oldest records created and stored by
digital asset brokers were created and
continue to be stored electronically as a
matter of business practice. Thus, a digi-
tal asset broker has the ability to provide
information regarding acquisition date,
time, and cost (adjusted basis informa-
tion) to customers with respect to digital
assets previously acquired by that broker
on behalf of its customers. The Treasury
Department and the IRS understand that
some digital asset brokers currently vol-
untarily provide this information to cus-
tomers in response to customer requests
for that information. Moreover, digital
asset platforms have been aware since the
enactment of the Infrastructure Act that
digital assets would be treated as covered
securities if acquired on or after January
1, 2023, and providing basis information
for digital assets acquired on or after that
date will assist taxpayers to properly pre-
pare their tax returns for future sales of
those assets. See section 6045(g)(3)(C)
(iii). Accordingly, proposed §1.6045-1(a)
(15)(i)(J) expands the definition of a cov-
ered security for which adjusted basis
reporting will be required under proposed
§1.6045-1(d)(2)(i)(C) to include digital
assets acquired in a customer’s account on
or after January 1, 2023, by a broker pro-
viding hosted wallet services.
As discussed in Part I.F.1.a of this
Explanation of Provisions, these proposed
regulations also expand the definition of a
covered security for which adjusted basis
reporting will be required under proposed
§1.6045-1(d)(2)(i)(C) to include certain
non-digital asset options on digital assets
and non-digital asset forward contracts
on digital assets. Proposed §1.6045-1(a)
(15)(i)(H) expands the definition of a cov-
ered security to include non-digital asset
options on digital assets to the extent they
are granted or acquired in an account on
or after January 1, 2023, and proposed
§1.6045-1(a)(15)(i)(K) expands the defi-
nition of a covered security to include
non-digital asset forward contracts on

September 18, 2023 852 Bulletin No. 2023–38
digital assets to the extent they are granted
or acquired in an account on or after
January 1, 2023.
Notwithstanding the proposed use of
January 1, 2023 as the acquisition date on
or after which brokers should be required
to track and report basis for digital assets
acquired in a customer’s account, pro-
posed §1.6045-1(d)(2)(i)(C) would
require adjusted basis reporting for sales
of digital assets treated as covered securi-
ties 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 appropri-
ate reporting and basis retrieval systems.
That is, under these proposed regulations
a broker providing custodial services for
digital assets would be required to provide
adjusted basis reporting for sales of dig-
ital assets effected on or after January 1,
2026, if the digital asset is acquired and
continuously held by that broker in the
customer’s account on or after January
1, 2023. Additionally, any type of broker
effecting sales of non-digital asset options
on digital assets and non-digital asset for-
ward contracts on digital assets would be
required to provide adjusted basis report-
ing for sales of these assets if they were
granted, entered into, or acquired on or
after January 1, 2023.
2. Voluntary Broker Reporting
Some brokers may be capable of pro-
viding the information required in these
regulations with respect to digital asset
sales prior to the applicability dates, and
some brokers may be capable of pro-
viding the information required in these
regulations for digital assets that are not
covered securities. To encourage reporting
by digital asset brokers that are not subject
to mandatory basis reporting, these pro-
posed regulations apply the same penalty
waiver rule to digital asset brokers that
voluntarily report adjusted basis informa-
tion on noncovered securities as currently
applies to securities brokers. Accordingly,
under proposed §1.6045-1(d)(2)(iii)(A),
brokers that voluntarily report adjusted
basis information with respect to sales of
digital asset-related noncovered securities
(that is, digital assets acquired prior to
January 1, 2023, options on digital assets
granted or acquired in an account prior to
January 1, 2023, and forward contracts on
digital assets entered into or acquired in
an account on or prior to January 1, 2023,
which assets are not covered securities
under proposed §1.6045-1(a)(15)(i)(H),
(J) or, (K)), are not subject to penalties
under section 6721 or 6722 for failure to
report or furnish the adjusted basis infor-
mation correctly. Additionally, proposed
§1.6045-1(d)(2)(iii)(B) provides that bro-
kers that choose to report sales of digi-
tal assets before the applicability date of
these regulations (that is, gross proceeds
from the sale of digital assets effected
prior to January 1, 2025, or adjusted basis
information with respect to sales effected
prior to January 1, 2026), will not be sub-
ject to penalties under section 6721 or
6722 for failure to report or furnish that
information correctly. Brokers that choose
to report on sales of digital assets before
the applicability date of these regula-
tions can make that report on either the
Form 1099-B, Proceeds From Broker
and Barter Exchange Transactions, or,
if available in time for this reporting, the
form prescribed by the Secretary pursuant
to proposed §1.6045-1(d)(2)(i)(B).
3. Determining the Adjusted Basis
To ensure that the rules governing
the calculation of adjusted basis apply to
digital asset transactions, these proposed
regulations modify existing §1.6045-1(d)
(6)(i) and (d)(6)(ii)(A), which provide the
general rules for determining the adjusted
basis of a security and detail how to cal-
culate the initial basis of a security. First,
proposed §1.6045-1(d)(6)(i) and (d)(6)
(ii)(A) clarify that the rules therein apply
for determining the adjusted basis of a
specified security that is subject to the
broker basis reporting rules, whether or
not the asset is within the definition of
security under existing §1.6045-1(a)(3).
Additionally, proposed §1.6045-1(d)(6)
(ii)(A) is modified to add, in the case of a
digital asset sale, digital asset transaction
costs to the list of costs that are included
in calculating the initial basis of a speci-
fied security. Accordingly, under proposed
§1.6045-1(d)(6)(ii)(A), the initial basis of
a specified security that is a digital asset
and that is acquired for cash is the total
amount paid by the customer (or credited
against the customer’s account) for the
specified security, increased by any com-
missions, transfer taxes, and digital asset
transaction costs related to its acquisition.
The existing regulations do not per-
mit brokers to adjust the basis of securi-
ties acquired to reflect income recognized
upon the exercise of a compensatory
option or the vesting or exercise of other
equity-based compensation arrangements,
to the extent the securities were granted or
acquired on or after January 1, 2014. This
decision was made because compensation
information is not generally accessible to
most brokers, and, in many situations, a
broker would have to accept customer-pro-
vided information to track the compensa-
tion-related status of these arrangements.
Additionally, requiring basis reporting for
securities acquired as part of equity-based
compensation arrangements would have
required extensive reprogramming of bro-
kers’ underlying databases and reporting
systems. TD 9616, 78 FR 23116, 23122
(Apr. 18, 2013). For the same reasons, pro-
posed §1.6045-1(d)(6)(ii)(A) adds digital
asset-based compensation arrangements
to the types of services arrangements for
which brokers are prohibited from adjust-
ing to reflect income recognized.
These proposed regulations provide
special rules for determining the ini-
tial basis of digital assets acquired in
exchange for property, including differ-
ent digital assets or real property. These
rules are provided to avoid discrepancies
associated with transactions in which the
fair market value of property, including
different digital assets, transferred is not
equal to the fair market value of the digital
assets received. See Proposed §§1.1001-7,
1.1012-1(h), and 1.1012-1(j) in Part II of
this Explanation of Provisions in connec-
tion with exchanges of digital assets for
different digital assets. In accordance with
the principles described there, proposed
§1.6045-1(d)(6)(ii)(C)(1) provides that
the initial basis of a digital asset received
in an exchange for property that is not a
debt instrument described in proposed
§1.1012-1(h)(1)(v) 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 that digital asset. Proposed
§1.6045-1(d)(6)(ii)(C)(2) provides that
the total digital asset transaction costs

Bulletin No. 2023–38 853 September 18, 2023
paid by the customer in an acquisition of
digital assets are allocable to the digital
assets received. An exception is provided,
however, in the case of an exchange of one
digital asset for a different digital asset
differing materially in kind or in extent.
Rather, in the case of an exchange of one
digital asset for a different digital asset
differing materially in kind or in extent,
one-half of any digital asset transaction
costs paid in cash or property to effect the
exchange is allocable to the disposition of
the transferred digital asset and one-half is
allocable to the acquisition of the received
digital asset for the purpose of determin-
ing basis under proposed §1.6045-1(d)
(6)(ii)(C)(1). These allocation rules are
consistent with the rules provided in pro-
posed §1.1012-1(h) discussed in Part II of
this Explanation of Provisions. Finally,
proposed §1.6045-1(d)(6)(ii)(C)(1) pro-
vides that for digital assets acquired in
exchange for a debt instrument described
in proposed §1.1012-1(h)(1)(v), the initial
basis of the digital asset attributable to the
debt instrument is equal to the amount
determined under the rules provided in
§1.1012-1(g) (generally equal to the issue
price of the debt instrument) plus any allo-
cable digital asset transaction costs.
In determining the initial basis of a
digital asset acquired in an exchange, if
the broker or digital asset data aggregator
reasonably determines that the value of
the digital asset received cannot be deter-
mined with reasonable accuracy, proposed
§1.6045-1(d)(6)(ii)(C)(1) provides that
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 rea-
sonable accuracy, proposed §1.6045-1(d)
(6)(ii)(C)(1) provides that the broker
must report zero for the initial basis of the
received digital asset.
Finally, these proposed regulations
reserve two paragraphs at proposed
§1.6045-1(d)(6)(vii) and (ix) to accommo-
date final regulations implementing safe
harbor exceptions for de minimis errors on
information returns and payee statements,
which are expected to be finalized before
these proposed regulations are finalized.
G. Ordering rules
Proposed §1.6045-1(d)(2)(ii)(B) pro-
vides ordering rules that are consistent
with the ordering rules under proposed
§1.1012-1(j)(3) for a broker to determine
which units of the same digital asset should
be treated as sold when the customer pre-
viously acquired, or had transferred in,
multiple units of that same digital asset on
different dates or at different prices. Under
these rules, a broker must report a sale of
less than the customer’s entire position in
an account in accordance with a custom-
er’s identification of the digital assets to
be sold. These proposed regulations pro-
vide, similar to the rules for identifying
lots of stock that are sold when a taxpayer
sells less than all of its shares in a partic-
ular company, that an adequate identifi-
cation is made if a customer notifies the
broker no later than the date and time of
sale which units of a type of digital asset
it is selling. See Proposed §§1.1001-7,
1.1012-1(h), and 1.1012-1(j) in Part II of
this Explanation of Provisions.
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) provides that the units
of the digital asset sold are the earliest
units of that type of digital asset either
purchased within or transferred into the
customer’s account with the broker. For
purposes of this ordering rule, units of
a digital asset are treated as transferred
into the customer’s account as of the date
and time of the transfer. Once rules have
been promulgated under section 6045A,
it is anticipated that brokers who receive
transfer statements under section 6045A
with respect to transferred-in digital assets
would be permitted to use the actual pur-
chase date of these digital assets for pur-
poses of determining which units are the
earliest units of that type of digital asset
held in the customer’s account with the
broker.
H. Exceptions to reporting
These proposed regulations leave
unchanged for digital asset brokers the
exceptions to reporting provided under
existing §1.6045-1(c) for exempt recipi-
ents and excepted sales. Thus, for exam-
ple, no reporting is required for sales of
digital assets effected on behalf of certain
customers, such as certain corporations,
financial institutions, tax exempt organi-
zations, or governments or political subdi-
visions thereof. The Treasury Department
and the IRS considered adding registered
money services businesses (MSBs), as
defined in 31 CFR 1010.100(ff), to the
list of recipients a broker may treat as
exempt from reporting under existing
§1.6045-1(c)(3)(i)(B) but did not do so
because the Treasury Department and the
IRS are not aware of any public method
for determining whether a registered MSB
is compliant with its obligations under the
Bank Secrecy Act. See Part I.I.4 of this
Explanation of Provisions for a discussion
of some of the obligations of registered
MSBs under the Bank Secrecy Act. A reg-
istered MSB that is not compliant with its
obligations under the Bank Secrecy Act
may also fail to comply with its obliga-
tions to report information to the IRS.
The special multiple broker rule under
existing §1.6045-1(c)(3)(iii) provides that
a broker is not required to file a return
of information if it is instructed to initi-
ate a sale on behalf of a customer by a
person that is an exempt recipient under
existing §1.6045-1(c)(3)(i)(B)(6) (regis-
tered dealer in securities or commodities),
existing §1.6045-1(c)(3)(i)(B)(7) (regis-
tered futures commission merchant), or
existing §1.6045-1(c)(3)(i)(B)(11) (finan-
cial institution). This rule is intended to
avoid duplicative reporting. Although the
avoidance of duplicative reporting is also
a desirable goal for digital asset reporting,
there are some practical considerations
that impede the extension of the multiple
broker rule to digital asset brokers that are
not exempt recipients under the existing
regulations. First, in some cases it may be
difficult for a broker to determine whether
a particular digital asset platform also
qualifies as a broker for purposes of these
proposed regulations. Second, even if a
digital asset broker can determine that the
person that instructed the broker to initi-
ate a sale on behalf of a customer is also a
digital asset broker, there is a higher level
of risk that the multiple broker rule would
result in no reporting of the sale than is
the case with traditional financial insti-
tutions. Unlike the three types of listed
exempt recipients, digital asset brokers
are not necessarily subject to the type of

September 18, 2023 854 Bulletin No. 2023–38
prudential or supervisory regulation that
would tend to provide assurance to the
IRS that the broker will comply with its
tax reporting obligations. Accordingly,
while the Treasury Department and the
IRS considered whether to add digital
asset brokers to the list of exempt recip-
ients for which the multiple broker rule
would apply, it was decided that it was
not appropriate at this time to expand the
rule in this way. The Treasury Department
and the IRS, however, welcome sugges-
tions that could work to avoid duplicative
broker reporting without sacrificing the
certainty that at least one of the multiple
brokers will report. Specifically, to what
extent will a broker know with certainty
that another party involved in a transac-
tion is also a broker with a reporting obli-
gation under these rules.
I. Sales effected at an office outside the
United States or on behalf of exempt
foreign persons
This Part I.I describes the provisions
in these proposed regulations relating to
when U.S. brokers and, in some cases,
non-U.S. brokers may treat a customer as
an exempt foreign person and therefore
not be required to report on digital asset
sales effected for the customer. These
rules are based on the rules in the existing
regulations that provide that reporting is
not required with respect to customers that
may be treated as exempt foreign persons.
The Organisation for Economic
Development and Co-operation has devel-
oped and approved the Crypto-Asset
Reporting Framework (CARF), which is
a framework for the reporting and auto-
matic exchange of information on cryp-
to-assets. The Treasury Department and
the IRS are currently considering how the
United States could implement the CARF,
so that the IRS could receive information
on sales effected for U.S. taxpayers by
non-U.S. brokers through an automatic
exchange of information with other coun-
tries that have implemented the CARF.
It is anticipated that implementation of
CARF by the United States would require
the modification of the proposed regula-
tions described in this Part I.I to ensure
that U.S. brokers collect the information
required to be exchanged under the frame-
work, to the extent that the collection of
that information is permitted under U.S.
law, and to exempt some non-U.S. bro-
kers from collecting certain information
required under the proposed regulations.
For example, the modifications may
require reporting by U.S. brokers of cer-
tain information on transactions effected
for customers that are treated under these
proposed regulations as exempt foreign
persons and relieve certain non-U.S. bro-
kers of reporting under section 6045 on
sales effected for U.S. customers if the
IRS is entitled to receive information
on such transactions from a foreign tax
administration pursuant to an automatic
exchange of information mechanism.
Any modified rules would be reissued for
notice and comment.
Under existing §1.6045-1(a)(1), a U.S.
payor or middleman is considered a bro-
ker (and therefore subject to the reporting
rules under section 6045) with respect
to sales effected at an office inside the
United States and sales effected at an
office outside the United States, while a
non-U.S. payor or middleman is consid-
ered a broker (and therefore subject to the
reporting rules under section 6045) only
with respect to sales it effects at an office
inside the United States. A U.S. payor
or middleman includes a U.S. person
(including a foreign branch of a U.S. per-
son), a controlled foreign corporation (as
defined in §1.6049-5(c)(5)(i)(C)), certain
U.S. branches, 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. A non-U.S. payor or middleman
is a payor or middleman other than a U.S.
payor or middleman.
A sale is treated as effected at an office
located outside the United States under
existing §1.6045-1(g)(3)(iii)(A) if the bro-
ker completes the acts necessary to effect
the sale outside the United States pursuant
to instructions directly transmitted to that
office from outside the United States by
the broker’s customer. If, however, speci-
fied indicia of U.S.-based activity are asso-
ciated with a customer’s sale (such as if
the customer has transmitted instructions
to the foreign office of the broker from
within the United States, or gross proceeds
are transferred into an account maintained
by the customer in the United States), the
sale (which would otherwise be treated
as effected at an office outside the United
States) will be treated as effected at an
office inside the United States. See exist-
ing §1.6045-1(g)(3)(iii)(B). Even when
a sale is treated as effected at an office
inside the United States by a broker that
is a non-U.S. payor or middleman, exist-
ing §1.6045-1(c)(3)(ii)(B) excepts the
sale from reporting if the broker is a for-
eign financial institution that reports with
respect to the account of the customer for
which the sale was effected under the bro-
ker’s requirements under chapter 4 of the
Code or an applicable intergovernmental
agreement to implement the provisions
commonly known as the Foreign Account
Tax Compliance Act (FATCA) of the
Hiring Incentives to Restore Employment
Act of 2010, Pub. L. 111-147, 124 Stat. 71
(Mar. 18, 2010).
Regardless of the location of the sale
and whether a broker is a U.S. or non-U.S.
payor, reporting under section 6045 also
does not apply to sales effected for a cus-
tomer that a broker may treat as an exempt
recipient or as an exempt foreign person.
See existing §1.6045-1(c)(3) and (g)(1).
Under existing §1.6045-1(c)(3)(i)(C), a
broker may treat a customer as an exempt
recipient based on a Form W-9, Request
for Taxpayer Identification Number and
Certification, the broker’s actual knowl-
edge that the customer is an exempt recip-
ient, or applicable indicators, depending
on the type of exempt recipient status.
Except in circumstances under which a
broker is permitted to presume a customer
is a foreign person, to treat the customer
as an exempt foreign person a broker must
obtain for a customer a beneficial owner
withholding certificate, such as a Form
W-8BEN, Certificate of Foreign Status
of Beneficial Owner for United States Tax
Withholding and Reporting (Individuals).
Alternatively, for a sale effected at an office
outside the United States, brokers may
use documentary evidence to establish
that a customer is an exempt foreign per-
son. Documentary evidence can include a
driver’s license, other government issued
identification, or certain other information
supporting the customer’s foreign status.
See existing §§1.6045-1(g)(1)(i) (refer-
encing the documentation requirements of
§1.6049-5(c)) and 1.6049-5(d)(2) and (3)
(presumption rules applicable in absence

Bulletin No. 2023–38 855 September 18, 2023
of reliable documentation). Finally, pay-
ments that are reportable under section
6045 may also be subject to backup with-
holding under section 3406, generally
when a broker has failed to obtain a valid
Form W-9 for a customer, subject to cer-
tain exceptions.
The existing regulations under section
6045 rules were written based on a busi-
ness model for securities that assumed
that brokers would have offices at physi-
cal locations where customer transactions
may be booked, and that brokers would
generally have direct, in-person contact
with their customers. In comparison to the
business model of securities brokers that
existed at the time the existing regulations
were promulgated, digital asset brokers
typically interact with, and effect sales on
behalf of, customers entirely online, with-
out any in-person interactions with the
customer. This business model means that
brokers can transact with customers across
jurisdictional borders, without necessar-
ily having a branch or place of business
in the jurisdiction where the customers
are located. These proposed regulations
therefore provide rules to adapt the con-
cept of effecting a sale at an office outside
the United States and the rules relating to
exempt foreign persons to the digital asset
broker business model.
Under these proposed regulations, the
determination of whether a sale is effected
at an office inside or outside the United
States is generally not based on the phys-
ical location where the acts necessary to
effect a sale of digital assets are under-
taken. Instead, proposed §1.6045-1(g)(4)
classifies a broker as a U.S. digital asset
broker, a CFC digital asset broker, or a
non-U.S. digital asset broker, and pro-
vides rules for determining the location of
a digital asset sale for each type of bro-
ker. That is, the determination of whether
a sale is treated as effected at an office
outside the United States begins with ref-
erence to the classification of the broker
under these proposed regulations, rather
than being an independent determination
based on the location of the brokers’ activ-
ities. In general, sales by U.S. digital asset
brokers are treated as effected at an office
inside the United States, and sales by CFC
digital asset brokers and non-U.S. digital
asset brokers are treated as effected at an
office outside the United States, although
there are circumstances under which
sales effected by such brokers are treated
as effected at an office inside the United
States. These proposed regulations also
incorporate certain modifications to the
requirements for how each of these three
types of brokers determine the foreign sta-
tus of a customer for purposes of determin-
ing when the customer may be treated as
an exempt foreign person. For CFC digi-
tal asset brokers and non-U.S. digital asset
brokers, sales generally are not subject to
backup withholding tax under proposed
regulations under section 3406, although
notable exceptions apply when the broker
is considered to be conducting substantial
business within the United States or when
the broker has actual knowledge that the
customer is a U.S. person.
1. Rules for U.S. Digital Asset Brokers
Under proposed §1.6045-1(g)(4)(i)(A),
a U.S. digital asset broker is a U.S. payor
or middleman (as defined in §1.6049-5(c)
(5)), other than a controlled foreign corpo-
ration within the meaning of §1.6049-5(c)
(5)(i)(C), that effects sales of digital assets
for customers. A U.S. payor or middleman
that is considered a U.S. digital asset bro-
ker for this purpose includes a U.S. per-
son (including a foreign branch of a U.S.
person), a U.S. branch of a foreign entity
described in §1.1441-1(b)(2)(iv) that is
treated as a U.S. person for purposes of
withholding and reporting on specified
payments under chapters 3, 4, and 61 of
the Code, a foreign partnership with con-
trolling 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. As U.S. payors, U.S. digital
asset brokers are treated as brokers under
proposed §1.6045-1(a)(1) with respect to
all sales of digital assets they effect for
their customers.
Proposed §1.6045-1(g)(4)(ii) pro-
vides rules for a U.S. digital asset broker
to determine the location of digital asset
sales and the foreign status of its custom-
ers. Under these rules, all sales of digital
assets effected by a U.S. digital asset bro-
ker are considered effected at an office
inside the United States. Under these
proposed regulations, a U.S. digital asset
broker is required to report information
with respect to sales effected for its cus-
tomers unless the broker can treat the
customer as an exempt recipient under
existing §1.6045-1(c)(3) or as an exempt
foreign person. Finally, a payment by a
U.S. digital asset broker that is reportable
under section 6045 may also be subject to
backup withholding under section 3406
when the broker has failed to obtain a
valid Form W-9 for a customer, subject to
certain exceptions.
To treat a customer as an exempt for-
eign person, unless there is an applicable
presumption rule that allows that treat-
ment under proposed §1.6045-1(g)(4)(vi)
(A)(2), a U.S. digital asset broker must
obtain from the customer a valid beneficial
owner withholding certificate described in
§1.1441-1(e)(2)(i) and (ii), such as a Form
W-8BEN for a customer who is an indi-
vidual, and must apply the reliance rules
under proposed §1.6045-1(g)(4)(vi) with
respect to the beneficial owner withhold-
ing certificate. Similar to the existing rules
for securities brokers, proposed §1.6045-
1(g)(4)(ii)(B) provides that a broker that
obtains a beneficial owner withholding
certificate from an individual may rely on
the beneficial owner withholding certifi-
cate only if it includes a certification that
the beneficial owner has not been, and at
the time the beneficial owner withholding
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
beneficial owner withholding certificate
pertains. This certification is incorporated
onto Form W-8BEN through the represen-
tation on that form that the person sign-
ing the form is an exempt foreign person
in accordance with the instructions to the
form, which instructions reference this
requirement. U.S. digital asset brokers
may not rely on documentary evidence
such as a foreign driver’s license or a gov-
ernment identification card to determine
whether a customer may be treated as an
exempt foreign person.
The rules described in the preceding
paragraph are generally similar to those
that apply under existing law for securities
brokers that are U.S. payors or middlemen,
except with respect to sales effected at an
office outside the United States. The pro-
posed rules for U.S. digital asset brokers
differ from the rules for securities brokers

September 18, 2023 856 Bulletin No. 2023–38
in this case because securities brokers that
are U.S. payors may rely on documentary
evidence for sales effected at an office
outside the United States. This approach
was not adopted in these proposed regu-
lations because of the difficulty of deter-
mining whether a sale of a digital asset is
effected at an office inside or outside the
United States. The Treasury Department
and the IRS request comments on the
approach adopted by these proposed regu-
lations. If a commenter offers suggestions
for an alternative approach that could be
used to differentiate between a U.S. dig-
ital asset broker’s U.S. business and non-
U.S. business for purposes of allowing
different documentation to be used for the
broker’s non-U.S. business, the Treasury
Department and the IRS request that the
commenter explain how the alternative
approach could be objectively applied and
why the alternative would not be readily
subject to manipulation. See Part I.I.5 of
this Explanation of Provisions for further
discussion of the documentation, reliance,
and presumption rules that U.S. digital
asset brokers must apply to treat their cus-
tomers as exempt foreign persons.
2. Rules for CFC Digital Asset Brokers
Not Conducting Activities as Money
Services Businesses
Under proposed §1.6045-1(g)(4)(i)
(B), a CFC digital asset broker is a con-
trolled foreign corporation (as defined in
§1.6049-5(c)(5)(i)(C)) that effects sales of
digital assets for customers. Under these
proposed regulations, a CFC digital asset
broker must use different rules to deter-
mine the place of a digital asset sale and
the foreign status of its customers based
on whether the CFC digital asset broker
is considered under these proposed reg-
ulations to be conducting activities as an
MSB (conducting activities as an MSB),
with respect to sales of digital assets. See
Part I.I.4 of this Explanation of Provisions
for discussion of the rules for CFC digi-
tal asset brokers conducting activities
as MSBs with respect to sales of digital
assets as well as the rationale behind those
rules.
Under these proposed regulations, a
sale effected by a CFC digital asset bro-
ker not conducting activities as an MSB
is considered a sale effected at an office
outside the United States. These CFC dig-
ital asset brokers, like U.S. digital asset
brokers, report on all sales other than
sales effected for an exempt recipient (as
defined in existing §1.6045-1(c)(3)(i)(B))
or an exempt foreign person. See proposed
§1.6045-1(a)(1) (providing that for a sale
effected at an office outside the United
States, a broker includes only a U.S. payor
or U.S. middleman). Requiring CFC dig-
ital asset brokers generally to report all
sales, like U.S. digital asset brokers, is
consistent with the existing regulations for
securities brokers, which treat controlled
foreign corporations as U.S. payors or
middlemen, and which require U.S. pay-
ors or middlemen to report both on sales
effected at an office inside the United
States and on sales effected an office out-
side the United States (unless an excep-
tion applies).
Under these proposed regulations, a
CFC digital asset broker not conducting
activities as an MSB is permitted to rely
on documentary evidence, rather than
a withholding certificate, to determine
whether a customer is an exempt foreign
person. This rule is also consistent with
the existing regulations for securities bro-
kers, under which a broker may rely on
documentary evidence to determine that
a customer is an exempt foreign person
if the broker effects the sale at an office
outside the United States. The existing
regulations for traditional brokers deter-
mine where a sale is effected by looking
to, among other things, the location of the
office that completes the acts necessary to
effect the sale. A securities broker that is a
controlled foreign corporation is likely to
effect sales at an office outside the United
States and thus may rely on documentary
evidence to treat a customer as an exempt
foreign person. Therefore, although these
proposed regulations have a different
framework than the existing regulations,
unless the CFC digital asset broker is
conducting activities as an MSB (as dis-
cussed in Part I.I.4 of this Explanation
of Provisions), the same basic principles
generally apply to controlled foreign cor-
porations under both the proposed and
existing regulations. Finally, also unlike
a U.S. digital asset broker, a CFC digital
asset broker not conducting activities as
an MSB is not subject to backup withhold-
ing with respect to reportable sales unless
it has actual knowledge that the customer
is a U.S. person. Thus, if a CFC digital
asset broker not conducting activities as
an MSB has actual knowledge that a cus-
tomer is a U.S. person, and the customer
does not provide a valid Form W-9 to the
broker, the broker must both report a sale
or exchange of a digital asset by that cus-
tomer to the IRS and backup withhold on
the gross proceeds of the transaction.
3. Rules for Non-U.S. Digital Asset
Brokers That Are Not Conducting
Activities as Money Services Businesses
A non-U.S. payor or non-U.S. middle-
man under §1.6049-5(c)(5) that effects
sales of digital assets on behalf of cus-
tomers is a non-U.S. digital asset broker
under proposed §1.6045-1(g)(4)(i)(C).
A non-U.S. digital asset broker must use
different rules to determine the location
of its digital asset sales and, for sales that
are effected within the United States, the
foreign status of its customers is based on
whether the broker is considered conduct-
ing activities as an MSB. See Part I.I.4 of
this Explanation of Provisions for discus-
sion of the rules for non-U.S. digital asset
brokers conducting activities as MSBs as
well as the rationale behind those rules.
Under these proposed regulations, a
sale effected by a non-U.S. digital asset
broker not conducting activities as an
MSB is generally treated as effected at an
office outside the United States unless the
broker collects documentation or informa-
tion that indicates that the customer has
connections to the United States or may
be a U.S. person. For a sale effected at an
office outside the United States, a non-
U.S. digital asset broker not conducting
activities as an MSB would not be con-
sidered a broker under proposed §1.6045-
1(a)(1) and would not be required to report
the sale under proposed §1.6045-1(c).
These proposed regulations do not
require non-U.S. digital asset brokers that
are not conducting activities as MSBs to
obtain documentation from customers
prior to making a payment to the customer.
However, these non-U.S. digital asset bro-
kers may be obligated to collect docu-
mentation or information from customers
under applicable anti-money laundering
laws or other applicable laws (referred to
as an AML program), or may otherwise

Bulletin No. 2023–38 857 September 18, 2023
collect information on customers under
the broker’s policies and procedures,
and that documentation or information
may include information that indicates
that a customer has connections to the
United States or may be a U.S. person (as
described in the following paragraph). In
such a case, these proposed regulations
treat the sale as effected at an office inside
the United States and require the non-
U.S. digital asset broker to report a sale
effected on behalf of this customer after
the broker obtains that documentation or
information, unless the broker determines
that the customer is an exempt foreign per-
son or an exempt recipient (as defined in
existing §1.6045-1(c)(3)(i)(B)) or the bro-
ker closes the account before effecting the
sale for the customer. However, these pro-
posed regulations limit the indicators of a
connection to the United States to those
that are contained in the documentation
or information that is part of the broker’s
account information for the customer.
This is intended to limit the efforts that a
broker must make to determine if there are
U.S. indicia for the customer and to allow
brokers to automate their searches for U.S.
indicia. Additionally, a non-U.S. digital
asset broker not conducting activities as
an MSB is not subject to backup withhold-
ing with respect to reportable sales unless
it has actual knowledge that the customer
is a U.S. person. Thus, if a non-U.S. dig-
ital asset broker not conducting activities
as an MSB has actual knowledge that a
customer is a U.S. person, and the cus-
tomer does not provide a valid Form W-9
to the broker, the broker must both report
a sale or exchange of a digital asset by that
customer to the IRS and backup withhold
on the gross proceeds of the transaction.
Under proposed §1.6045-1(g)(4)(iv),
a digital asset sale effected by a non-U.S.
digital asset broker that is not conducting
activities as an MSB will be considered
effected at an office inside the United
States (and thus potentially subject to
reporting and backup withholding as
described in the prior paragraph) if, before
the payment is made, the broker collects
documentation or other information that
is part of the broker’s account information
for the customer and the documentation
or information that shows any of the fol-
lowing U.S. indicia: (i) a customer’s com-
munication 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; (ii) a U.S. permanent residence or
mailing address for the customer, current
U.S. telephone number and no non-U.S.
telephone number for the customer, or the
broker’s classification of the customer as a
U.S. person in its records; (iii) 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; (iv) 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 orga-
nized within the United States, or the cus-
tomer’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; or (v) an unambiguous indication
of a U.S. place of birth for the customer.
The U.S. indicia listed in the preceding
paragraph differ from the U.S. indicia that
apply to traditional brokers under existing
regulations under section 6045 because of
the digital nature of digital asset brokers
and the technological developments that
have been made since the issuance of the
existing regulations. Unlike traditional
brokers, digital asset brokers typically
interact with customers primarily through
digital means, and do not usually commu-
nicate through the mail with customers.
Digital asset brokers also typically do not
have a physical office from which business
is conducted with the customer. Instead, IP
addresses are commonly reviewed by tax
and other investigators as possible indica-
tors of a person’s physical presence and
may be taken into account as part of an
AML program. Transfers of cash or digi-
tal assets to or from a U.S. bank or digital
asset broker also are considered potential
indicators of U.S. presence or connec-
tions. The Treasury Department and the
IRS welcome comments on the appropri-
ateness and sufficiency of the U.S. indicia
listed in proposed §1.6045-1(g)(4)(iv)(B)
(1) through (5). The Treasury Department
and the IRS also welcome comments on
whether the regulations should define
when a broker has reason to know that a
digital asset broker is organized within the
United States, and suggestions for objec-
tive indicators that a broker can use to
determine if a digital asset broker is orga-
nized in the United States.
For a sale considered effected at an
office inside the United States (that is, a
sale effected for a customer for which the
broker has documentation or information
prior to the payments indicating U.S. indi-
cia), a non-U.S. digital asset broker not
conducting activities as an MSB will none-
theless not be required to report the sale
under existing §1.6045-1(c) if the broker
determines that it can treat the customer
as an exempt recipient under existing
§1.6045-1(c)(3). Additionally, a non-U.S.
digital asset broker not conducting activ-
ities as an MSB is not required to report
the sale if it obtains certain documenta-
tion to treat the customer as an exempt
foreign person or if it may presume that
the customer is a foreign person, pursuant
to the requirements described in Part I.I.5
of this Explanation of Provisions (discuss-
ing the presumption rules, documentation
requirements, and reliance rules that bro-
kers must apply to treat their customers as
exempt foreign persons).
The types of documentation on which
a broker may rely to treat a customer as an
exempt foreign person despite U.S. indi-
cia depends on the particular U.S. indica-
tor contained in the customer’s account
information. If any of the U.S. indicia
described in proposed §1.6045-1(g)(4)(iv)
(B)(1) through (4) (U.S. indicia other than
an unambiguous indication of a U.S. place
of birth) is present, the broker may treat
the customer as an exempt foreign person
if the broker, prior to the payment of any
proceeds to the customer, obtains either:
(i) a beneficial owner withholding certifi-
cate, or (ii) documentary evidence for the
customer described in §1.1471-3(c)(5)(i)
(for example, an identification document
issued by a foreign government), and also
a signed statement from the customer stat-
ing that the customer is not a U.S. per-
son, that the customer understands that
a false statement or misrepresentation of
tax status by a U.S. person could lead to

September 18, 2023 858 Bulletin No. 2023–38
penalties under U.S. law, and that the cus-
tomer agrees to notify the broker within
30 days of a change in the customer’s sta-
tus. If the broker’s account information
for the customer includes a U.S. indicator
described in proposed §1.6045-1(g)(4)
(iv)(B)(5) (an unambiguous indication of
a U.S. place of birth), proposed §1.6045-
1(g)(4)(iv)(D)(2) provides that the bro-
ker may nevertheless treat the customer
as an exempt foreign person if, prior to
the payment of any proceeds to the cus-
tomer, the broker obtains documentary
evidence described in §1.1471-3(c)(5)(i)
(B) evidencing citizenship in a country
other than the United States (for example,
a foreign passport) and either (i) a copy
of the customer’s Certificate of Loss of
Nationality of the United States, or (ii) a
valid beneficial ownership withholding
certificate and either a reasonable written
explanation of the customer’s renuncia-
tion of U.S. citizenship or the reason the
customer did not obtain U.S. citizenship
at birth. The rules in proposed §1.6045-
1(g)(4)(vi) (described in Part I.I.5 of this
Explanation of Provisions) also apply to
documentation obtained by a non-U.S.
digital asset broker not conducting activ-
ities as an MSB; however, such a broker
is not required to treat documentation as
incorrect or unreliable solely as a result of
the U.S. indicator that required the broker
to obtain this documentation with respect
to a customer. Additionally, these brokers
are not required to collect additional docu-
mentation or to report a sale if they obtain
U.S. indicia after a sale has taken place,
although the rules described earlier apply
with respect to any future sales by that
customer.
4. Rules for CFC Digital Asset Brokers
and Non-U.S. Digital Asset Brokers
Conducting Activities as Money Services
Businesses
CFC digital asset brokers and non-
U.S. digital asset brokers may be MSBs
under the Bank Secrecy Act (31 U.S.C.
5311 et seq.). An MSB is defined in reg-
ulations issued by the Financial Crimes
Enforcement Network (FinCEN) of the
Treasury Department as a person, wher-
ever located, that is doing business wholly
or in substantial part within the United
States in the capacity of a dealer in for-
eign exchange; a check casher; an issuer
or seller of traveler’s checks or money
orders; an issuer, seller, or redeemer of
stored value; or a money transmitter. 31
CFR 1010.100(ff). This includes, but
is not limited to, maintenance of any
agent, agency, branch, or office within
the United States. Accordingly, a foreign
person with no physical operations in
the United States may nevertheless be an
MSB under FinCEN regulations. An MSB
is required under FinCEN regulations
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. 31 CFR
1022.210(a). AML programs generally
include, among other things, obtaining
customer-related information necessary to
determine the risk profile of a customer.
MSBs are also required to make cer-
tain reports to FinCEN, register with the
Treasury Department, and maintain cer-
tain records about transmittals of funds.
See 31 CFR part 1022.
Because CFC digital asset brokers and
non-U.S. digital asset brokers conducting
activities as MSBs may conduct busi-
ness with customers located in the United
States, even when the brokers have no
branch or other fixed place of business in
the United States, proposed §1.6045-1(g)
(4)(v) generally subjects these brokers to
the same rules as U.S. digital asset brokers
with respect to their sales of digital assets.
Accordingly, a CFC digital asset broker
conducting activities as an MSB and a
non-U.S. digital asset broker conducting
activities as an MSB must apply the rules
for U.S. digital asset brokers to deter-
mine the place of sale of digital assets and
the foreign status of its customers. With
the exception of sales effected at certain
kiosks located outside the United States
(described in the next paragraph), the sales
of digital assets are treated as effected at an
office inside the United States. Therefore,
these brokers are treated as brokers under
proposed §1.6045-1(a)(1) with respect to
all sales of digital assets and are required
to report information with respect to sales
effected for their customers unless the
broker can treat the customer as an exempt
recipient under existing §1.6045-1(c)(3)
or as an exempt foreign person under pro-
posed §1.6045-1(g)(4)(ii). Unless there is
an applicable presumption rule, these bro-
kers conducting activities as MSBs must
obtain a beneficial owner withholding cer-
tificate to treat a customer as an exempt
foreign person and are subject to the same
backup withholding rules with respect
to reportable sales as those applicable to
U.S. digital asset brokers.
Under proposed §1.6045-1(g)(4)(i)(D),
a CFC digital asset broker or a non-U.S.
digital asset broker is conducting activities
as an MSB with respect to a sale of digital
assets if it is registered with the Treasury
Department under 31 CFR 1022.380 as an
MSB.
4
An exception applies, however, in
the case of a sale that is effected at a dig-
ital asset kiosk that is physically located
outside the United States and owned or
operated by the broker conducting activ-
ities as an MSB, unless that broker is
required under the Bank Secrecy Act to
implement an AML program, file reports,
or otherwise comply with the require-
ments for MSBs under the Bank Secrecy
Act with respect to sales effected at that
kiosk. See proposed §1.6045-1(g)(4)(i)
(E). With respect to sales effected at a
foreign kiosk as described in the preced-
ing sentence, CFC digital asset brokers
and non-U.S. digital asset brokers are not
treated as conducting activities as MSBs
with respect to those sales for purposes
of proposed §1.6045-1(g)(4). This for-
eign kiosk exception allows CFC digital
asset brokers and non-U.S. digital asset
brokers that effect sales at foreign kiosks
to apply the diligence and documentation
rules that are generally applicable to CFC
digital asset brokers and non-U.S. digital
asset brokers, respectively, to those sales
because these sales are less likely to have
a connection to the United States.
These proposed regulations adopt this
approach for CFC digital asset brokers and
non-U.S. digital asset brokers that conduct
4
No inference is intended as to whether a CFC digital asset broker or a non-U.S. digital asset broker that is not registered with FinCEN as an MSB (and therefore is not conducting activities
as an MSB within the meaning of the proposed regulations) may be required to register as an MSB under the Bank Secrecy Act and FinCEN’s implementing regulations, which are outside
the scope of these regulations.

Bulletin No. 2023–38 859 September 18, 2023
activities as MSBs because the Treasury
Department and the IRS have determined
that a broker that is doing business wholly
or in substantial part within the United
States and is consequently subject to reg-
ulation by FinCEN should be subject to
the same rules as U.S.-based digital asset
brokers with respect to the part of its busi-
ness that is subject to FinCEN regulation.
The Treasury Department and the IRS are
not aware of a reliable method for distin-
guishing the U.S. and non-U.S. parts of
such a broker’s business for purposes of
determining whether the broker should be
subject to reporting under section 6045
in light of the fact that almost all or all
of a digital asset broker’s activities take
place electronically. The special rule for
sales at foreign kiosks recognizes that in
those limited circumstances it is possible
to determine that a sale is effected at an
office outside the United States because
the kiosk and the customer are physi-
cally present outside the United States.
The overall approach in these proposed
regulations is consistent with the princi-
ples underlying the existing regulations,
which treat a broker as a U.S. payor when
it has a substantial nexus with the United
States. The Treasury Department and the
IRS request comments on administrable
rules that would allow CFC digital asset
brokers and non-U.S. digital asset brokers
that conduct activities as MSBs to apply
different rules to their U.S. and non-U.S.
business activities while still ensuring that
they are reporting on transactions of their
U.S. customers.
The Treasury Department and the IRS
are considering applying similar rules to
CFC digital asset brokers and non-U.S.
digital asset brokers that are regulated
by other U.S. regulators, such as the
Securities and Exchange Commission, the
Commodity Futures Trading Commission,
and banking regulators such as the Board
of Governors of the Federal Reserve
System, the Office of the Comptroller
of the Currency and the Federal Deposit
Insurance Corporation. As is the case with
CFC digital asset brokers and non-U.S.
digital asset brokers that are registered
as MSBs, such digital asset brokers may
have sufficient contacts with the United
States and a U.S. customer base that war-
rants the application of the same diligence
and reporting rules as for U.S. digital asset
brokers with respect to the U.S. part of
their business. The Treasury Department
and the IRS request comments on what
CFC digital asset brokers and non-U.S.
digital asset brokers should be subject to
these rules.
Separate from the decision to require
that CFC digital asset brokers and non-
U.S. digital asset brokers conducting
activities as MSBs with respect to sales
of digital assets apply the rules applicable
to U.S. digital asset brokers, the Treasury
Department and the IRS also considered
whether to adopt different diligence and
documentation rules for these brokers.
On the one hand, CFC digital asset bro-
kers and non-U.S. digital asset brokers
are foreign persons and may conduct a
substantial part of their business with
non-U.S. customers. On the other hand,
a different rule for these brokers, particu-
larly those with substantial U.S. customer
business, might incentivize U.S. custom-
ers to move their digital asset transactions
to non-U.S.-based brokers, which might
make it more difficult for the IRS to verify
that taxpayers are properly reporting those
transactions. Accordingly, the Treasury
Department and the IRS determined that
the same rules should apply to these bro-
kers as apply for U.S. digital asset bro-
kers, to impose similar obligations on
CFC digital asset brokers and non-U.S.
digital asset brokers with active U.S. oper-
ations regardless of where they are orga-
nized and in light of the difficulty referred
to earlier in distinguishing between U.S.
and non-U.S. business operations. The
Treasury Department and the IRS request
comments on whether different diligence
and documentation rules should apply to
CFC digital asset brokers and non-U.S.
digital asset brokers conducting activi-
ties as MSBs with respect to the non-U.S.
part of their business, and if so, on what
basis should a determination be made as
to when these different diligence and doc-
umentation rules would apply.
5. Documentation, Reliance, and
Presumption Rules Applicable to Digital
Asset Brokers
As described in Parts I.I.1 through
I.I.4 of this Explanation of Provisions,
U.S. digital asset brokers and CFC digi-
tal asset brokers generally must report a
sale of digital assets unless the broker can
treat the customer as an exempt foreign
person or another exception applies (for
example, the exception for exempt recip-
ients in existing §1.6045-1(c)(3)). For
sales treated as effected at an office inside
the United States, a non-U.S. digital asset
broker is required to report a sale of dig-
ital assets unless the broker can treat the
customer as an exempt foreign person (or
another exception applies). In all cases,
the broker may generally treat a customer
as an exempt foreign person based on doc-
umentation obtained from the customer
or, in some cases, based on a presumption
that the customer is a foreign person. For
example, if a broker does not have doc-
umentation from a customer, the broker
is required to presume that the customer
is classified in a specified manner (such
as an individual or an entity), and then is
required to presume that the customer is
a U.S. or foreign person under rules that
depend on how the customer has been
classified. If the customer is presumed to
be a foreign person, a broker generally
is not required to report information on
sales by that customer. In contrast, if the
customer is presumed to be a U.S. per-
son that is not an exempt recipient under
existing §1.6045-1(c)(3), the broker must
report information on sales by that cus-
tomer under these proposed regulations,
unless the broker obtains documentation
on which it may rely to treat the customer
as an exempt foreign person.
As described in Parts I.I.1 through
I.I.4 of this Explanation of Provisions, the
types of documentation on which a bro-
ker may rely depends on whether the bro-
ker is a U.S. digital asset broker, a CFC
digital asset broker, or a non-U.S. digital
asset broker, and for a CFC digital asset
broker and a non-U.S. digital asset broker,
whether the broker is conducting activities
as an MSB with respect to sales of digital
assets. In general, U.S. digital asset bro-
kers, as well as CFC digital asset brokers
and non-U.S. digital asset brokers con-
ducting activities as MSBs, may rely on
withholding certificates to treat a customer
as an exempt foreign person, while CFC
digital asset brokers and non-U.S. digital
asset brokers not conducting activities as
MSBs (for sales effected at offices inside
the United States) may rely on either a
withholding certificate or documentary

September 18, 2023 860 Bulletin No. 2023–38
evidence, such as identification document
from a foreign government, to establish a
customer’s foreign status. While the type
of documentation on which these brokers
may rely differs, all these brokers are sub-
ject to similar requirements to ensure that
the documentation is reliable.
The existing regulations for securi-
ties brokers generally cross-reference to
general provisions of regulations under
sections 1441 and 6049 for rules on what
documentation a broker may obtain to
treat a customer as an exempt foreign
person and for rules relating to reli-
ance and validity of documentation. As
described in Parts I.I.1 through I.I.4 of
this Explanation of Provisions, these pro-
posed regulations provide explicit rules
on the type of documentation on which
a broker may rely, rather than referring
to regulations under sections 1441 and
6049 as in the existing regulations for
securities brokers. However, for rules on
reliance, validity, and other matters, these
proposed regulations cross-reference in
some cases to certain existing regulations
under sections 1441 and 6049, with some
modifications to take into account the dif-
ferences between the rules for digital asset
brokers in proposed §1.6045-1(g)(4) and
the rules for securities brokers in existing
§1.6045-1(g)(1) through (3). The benefit
of referring to rules under section 1441 is
that these rules have well-established and
understood standards for reliance, valid-
ity, and other matters that will already
be familiar to many brokers and U.S. tax
advisors.
a. Valid documentation of foreign status
In general, a broker may rely on doc-
umentation if (i) the documentation is
valid, (ii) the broker can reliably associ-
ate the documentation with a payment,
and (iii) the broker does not know or have
reason to know that the documentation is
incorrect or unreliable. Proposed §1.6045-
1(g)(4)(vi)(A)(1) refers to §§1.1441-1(e)
(4)(i) through (ix) and 1.6049-5(c)(1)(ii)
for documentation requirements that gen-
erally apply to digital asset brokers, with
certain modifications (as described in this
Part I.I.5). Additionally, §1.1441-1(e)(4)
(ii) provides rules regarding the period of
time during which a broker may rely on
a withholding certificate or documentary
evidence. Section 1.1441-1(e)(4) also con-
tains other rules specific to withholding
certificates, such as rules on who may sign
a withholding certificate (and when the
certificate may be electronically signed),
when a substitute withholding certifi-
cate (rather than an IRS form) may be
obtained, when a taxpayer identification
number must be included on a withhold-
ing certificate, and when a prior version
of a withholding certificate may be used.
Section 1.1441-1(e)(4) also contains
permissive rules for documentation, such
as when documentation may be obtained
through electronic transmission or from a
third party repository. Some of the rules in
§1.1441-1(e)(4) provide more favorable
treatment to a financial institution than to
other persons obtaining documentation for
a payment because of the high volume of
accounts held at withholding agents that
are financial institutions. In light of the
fact that digital asset brokers, like finan-
cial institutions, may have a high volume
of customer accounts to document, these
proposed regulations allow digital asset
brokers to apply §1.1441-1(e)(4)(viii)
(reliance rules for documentation) and
(ix) (certificates to be furnished to a with-
holding agent for each obligation unless
exception applies) regardless of whether
the digital asset broker is a financial insti-
tution. Sections 1.1441-1(e)(4)(iii) and
1.6049-5(c)(1)(ii) are incorporated by
cross-reference for the rules regarding the
length of time that a broker must retain a
withholding certificate and for procedures
to obtain, review, and maintain documen-
tary evidence. Finally, §1.1441-1(e)(4)
(viii) provides that documentation may be
relied upon without having to inquire into
the veracity of the information contained
on the documentation unless the person
obtaining the documentation knows or
has reason to know that the information
is incorrect. These proposed regulations
incorporate this rule but provide specific
rules for when a broker has reason to
know that documentation is incorrect or
unreliable.
Proposed §1.6045-1(g)(4)(vi)(A)(1)
cross-references to §1.1441-1(b)(2)(vii)
(A) for when a broker may reliably associ-
ate a payment of gross proceeds with doc-
umentation. In general, this rule provides
that a broker can reliably associate a pay-
ment with valid documentation if, prior to
the payment, it holds valid documentation
(either directly or through an agent), it can
reliably determine how much of the pay-
ment relates to the valid documentation,
and it has no actual knowledge or reason
to know that any of the information, cer-
tifications, or statements in, or associated
with, the documentation are incorrect.
b. Presumption rules
If a broker does not have documenta-
tion from a customer, or the documenta-
tion it has obtained is not valid or cannot
be reliably associated with a payment
of gross proceeds, these proposed regu-
lations provide presumption rules. The
presumption rules also apply when doc-
umentation that the broker possesses has
expired or the broker may no longer rely
on the documentation because the broker
knows or has reason to know that the doc-
umentation is incorrect or unreliable.
Proposed §1.6045-1(g)(4)(vi)(A)(2)
provides that a 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), with certain modifications. Section
1.1441-1(b)(3)(ii)(B) provides that if
there is no reliable indication that a per-
son is an individual, trust, or an estate, the
person must be presumed to be an exempt
recipient if it can be so treated without the
need to furnish documentation. However,
§1.1441-1(b)(3)(ii)(B) cross references
to regulations under section 6049 for the
definition of an exempt recipient. Because
the categories of exempt recipients under
section 6045 are different from the cate-
gories that apply for purposes of section
6049, these proposed regulations provide
that §1.1441-1(b)(3)(ii)(B) is applied by
replacing the references to exempt recip-
ients under section 6049 with the exempt
recipient categories in existing §1.6045-
1(c)(3).
Proposed §1.6045-1(g)(4)(vi)(A)(2)
also provides presumption rules to deter-
mine whether a customer is presumed to
be a U.S. or foreign person in the absence
of documentation. Existing regulations
under section 6045 for securities brokers
cross-reference to §1.6049-5(d)(2), which
generally requires a broker to presume a
person classified as an individual to be
a U.S. person (by cross-referencing to

Bulletin No. 2023–38 861 September 18, 2023
§1.1441-1(b)(3)(iii), which presumes a
payee to be a U.S. person unless another
rule applies). However, for certain
amounts paid outside the United States
with respect to an offshore obligation,
§1.6049-5(d)(2)(i) provides that an indi-
vidual payee shall be presumed a U.S.
person only when there are certain U.S.
indicia for the individual. These proposed
regulations do not incorporate the concept
of a payment outside the United States
or an offshore obligation because digital
asset activities overwhelmingly are con-
ducted online and therefore are not located
in an identifiable location. Instead, these
proposed regulations apply this presump-
tion rule depending on the status of the
broker (including whether a broker other
than a U.S. digital asset broker is con-
ducting activities as an MSB) rather than
the location of the customer’s obligation
or where the broker makes the payment.
Proposed §1.6045-1(g)(4)(vi)(A)(2) pro-
vides that with respect to a customer that
the broker has classified as an individual
in the absence of documentation, a broker
that is a U.S. digital asset broker, or a CFC
digital asset broker or a non-U.S. digital
asset broker conducting activities as an
MSB, must treat the customer as a U.S.
person; however, a broker that is a CFC
digital asset broker or a non-U.S. digital
asset broker not conducting activities as
an MSB with respect to a sale of a digi-
tal asset is required to presume that a cus-
tomer that it has classified as an individual
is a U.S. person only when the broker has
certain U.S. indicia for the customer.
With respect to a customer that may
be presumed to be an entity, these pro-
posed regulations provide that a broker
may generally determine the status of the
customer as U.S. or foreign by applying
the presumption rules in §§1.1441-1(b)(3)
(iii)(A) and 1.1441-5(d) and (e)(6), except
that the presumption rule in §1.1441-1(b)
(3)(iii)(A)(1)(iv) (which presumes that a
payee is a foreign person if the payment
is made with respect to an offshore obliga-
tion) does not apply. Under existing reg-
ulations, presumption rules for offshore
obligations are generally not applicable to
payments of gross proceeds by securities
brokers. See §1.6049-5(d)(2)(i) (providing
that the presumption rules in §1.1441-1(b)
(3)(iii)(D) and (b)(3)(vii)(B) for payments
with respect to offshore obligations do not
apply to a payment of an amount not sub-
ject to withholding under chapter 3 of the
Code, unless it is a withholdable payment
made to an entity payee). These proposed
regulations thereby apply a generally sim-
ilar presumption rule for digital asset bro-
kers as the rule that applies to securities
brokers without applying the concept of a
payment made with respect to an offshore
obligation because digital asset activities
overwhelmingly are conducted online and
therefore are not located in an identifiable
location.
c. Grace period for obtaining
documentation
These proposed regulations include
a grace period to allow a broker time to
obtain documentation (or additional doc-
umentation when the original documenta-
tion relied upon is incorrect or unreliable).
Proposed §1.6045-1(g)(4)(vi)(A)(3) pro-
vides that a broker may apply the grace
period described in §1.6049-5(d)(2)(ii),
which allows a payor to treat an account
as owned by a foreign person until the
earlier of (i) 90 days from the date the
payor first credits an account (for a new
account) or the date the payor first credits
the account after the existing documen-
tation can no longer be relied upon (for
an existing account), or (ii) the date when
the remaining balance in the account is
equal to or less than the applicable stat-
utory backup withholding rate (currently
24 percent) of the total amounts cred-
ited during the grace period. Also under
§1.6049-5(d)(2)(ii), a payor may use the
grace period only if at the beginning of
the grace period: (i) the address that the
payor has in its records for the account
holder is in a foreign country, (ii) the
payor has been furnished the informa-
tion contained in a withholding certif-
icate described in §1.1441-1(e)(2), or
(iii) the payor holds a withholding certif-
icate that is no longer reliable other than
because the validity period has expired.
By cross-referencing §1.6049-5(d)(2)
(ii), these proposed regulations apply the
same grace period to digital asset brokers
as the grace period that applies to payors
under section 6049 that hold securities in
customers’ accounts and securities bro-
kers effecting sales of securities under
section 6045.
d. Standards of knowledge for reliance on
withholding certificates
These proposed regulations provide
that a broker may rely on documentation
only if it does not know or have reason
to know that the documentation is incor-
rect or unreliable. Proposed §1.6045-1(g)
(4)(vi)(A)(1)(iii) provides that in applying
the reliance rules in §1.1441-1(e)(4)(viii)
for documentation, references to §1.1441-
7(b)(4) through (6) are replaced by the
provisions of proposed §1.6045-1(g)(4)
(vi)(B) (relating to beneficial owner with-
holding certificates) and (C) (relating to
documentary evidence), as applicable.
Proposed §1.6045-1(g)(4)(vi)(B) spec-
ifies that a digital asset broker may rely
on a beneficial owner withholding certif-
icate to treat a customer as an exempt for-
eign person, unless the broker has actual
knowledge or has reason to know that the
beneficial owner withholding certificate is
unreliable or incorrect. For this purpose,
these proposed regulations limit when a
digital asset broker has reason to know
that information on a withholding certif-
icate is unreliable or incorrect to when
there are specific indicia of U.S. status in
the broker’s account files. The existing
regulations limit when a securities bro-
ker has reason to know that information
on a withholding certificate is unreliable
or incorrect based on specific indicia set
forth in §1.1441-7(b)(3), which contain
limitations on reason to know for financial
institutions. However, a digital asset bro-
ker’s reason to know standard is based on
the same U.S. indicia set forth in proposed
§1.6045-1(g)(4)(iv)(B)(1) through (5) for
determining when a non-U.S. digital asset
broker is required to treat a sale as effected
at an office inside the United States, rather
than the U.S. indicia applicable to tradi-
tional brokers (which are in §1.1441-7(b)
(5) and (8)) to take into account the dif-
ferences between traditional brokers and
digital asset brokers.
These proposed regulations also pre-
scribe the additional documentation that
a broker may collect to continue to rely
on the withholding certificate if there are
U.S. indicia. That documentation is simi-
lar to the documentation specified for that
purpose for securities brokers in §1.1441-
7(b)(5), but with certain modifications to
eliminate distinctions in the additional

September 18, 2023 862 Bulletin No. 2023–38
documentation permitted to be collected
that are based on whether a payment
is made outside the United States with
respect to an offshore obligation under
§1.1441-7(b)(5). Proposed §1.6045-1(g)
(4)(vi)(B) provides that if the broker col-
lects documentation or information asso-
ciated with the customer or the customer’s
account at the broker that shows U.S. indi-
cia described in proposed §1.6045-1(g)(4)
(iv)(B)(1) through (4), then the broker may
not rely on the beneficial owner withhold-
ing certificate unless the broker can obtain
documentary evidence establishing foreign
status (as described in §1.1471-3(c)(5)(i)
(for example, identification from a foreign
government)) that does not contain a U.S.
address and the individual customer pro-
vides the broker with a reasonable expla-
nation, in writing, supporting the claim of
foreign status. However, if the broker pre-
viously 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 posses-
sion documentation described in §1.1471-
3(c)(5)(i)(B) evidencing citizenship in a
country other than the United States. If the
customer is an entity, the broker may treat
the customer as an exempt foreign person if
it has in its possession documentation that
substantiates that the entity is organized or
created under the laws of a foreign country.
Additionally, and regardless of whether a
customer is an individual or entity, a bro-
ker that is a non-U.S. person may treat a
customer as an exempt foreign person
if the broker reports the payment to the
customer to the jurisdiction in which the
customer is resident under that jurisdic-
tion’s tax reporting requirements, provided
that the jurisdiction has a tax information
exchange agreement or income tax treaty
in effect with the United States. If the bro-
ker collects information with respect to the
customer showing an unambiguous indi-
cation of a U.S. place of birth, proposed
§1.6045-1(g)(4)(vi)(B)(2) provides, how-
ever, that the broker may treat the customer
as an exempt foreign person only if the
broker has in its possession documentary
evidence described in §1.1471-3(c)(5)(i)
(B) evidencing citizenship (for example,
a passport) in a foreign country and 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.
e. Standards of knowledge for reliance on
documentary evidence
Proposed §1.6045-1(g)(4)(vi)(C) pro-
vides the rules for when a broker has rea-
son to know that documentary evidence is
unreliable or incorrect. As with the rules
applicable to when a broker has reason to
know that a beneficial owner withholding
certificate is unreliable or incorrect, rea-
son to know that documentary evidence is
unreliable or incorrect is limited to when
the U.S. indicia in proposed §1.6045-1(g)
(4)(iv)(B)(1) through (5) are present in
the broker’s account files for a customer.
Proposed §1.6045-1(g)(4)(vi)(C)(1) and
(2) specify the additional documentation a
broker is required to collect to continue to
rely on the documentary evidence notwith-
standing the presence of the U.S. indicia
(similar to the documentation specified for
that purpose in §1.1441-7(b)(8), but with
modifications similar to those that apply to
reliance on a withholding certificate under
these proposed regulations, except that a
broker is permitted to obtain a withholding
certificate in certain cases in lieu of obtain-
ing additional documentary evidence).
f. Joint owners
These proposed regulations provide
that in the case of amounts paid to custom-
ers that are joint account holders for which
a certificate or documentation is required
as a condition for being exempt from
reporting under proposed §1.6045-1(g)(4)
(ii)(B) or (g)(4)(iv)(D), the amounts are
presumed paid to U.S. payees who are not
exempt recipients when the conditions of
existing §1.6045-1(g)(3)(i) are met. The
effect of this rule is to apply to digital
asset brokers the same rule that applies to
securities brokers for amounts paid to their
customers that are joint account holders.
g. Foreign intermediaries, foreign
flow-through entities, and certain U.S.
branches
Proposed §1.6045-1(g)(4)(vi)(E)
provides rules for a broker to deter-
mine whether a customer is a foreign
intermediary, foreign flow-through entity,
or U.S. branch (other than a U.S. branch
that is the beneficial owner of a payment
of gross proceeds), and, if so, whether the
customer may be treated as an exempt
foreign person. The rules in these pro-
posed regulations reach a similar result
as those that apply to securities brokers
under existing regulations but provide
more detail on the procedures for brokers
to determine that a customer is a foreign
intermediary, foreign flow-through entity,
or U.S. branch.
Under proposed §1.6045-1(g)(4)(vi)
(E)(1), a broker may rely on a valid for-
eign intermediary withholding certificate
described in §1.1441-1(e)(3)(ii) or (iii),
with one modification, to determine the
classification of a customer as a foreign
intermediary. Section 1.1441-1(e)(3)
(iii) provides that a foreign intermediary
withholding certificate from a nonqual-
ified intermediary is not valid unless the
intermediary has attached the withhold-
ing certificates and other appropriate
documentation for all persons to whom
the certificate relates. Proposed §1.6045-
1(g)(4)(vi)(E)(1) provides that a broker
does not need to obtain from the foreign
intermediary the withholding certificates
or other documentation for the interme-
diary’s account holders. The Treasury
Department and the IRS are considering
requiring brokers to obtain documen-
tation on account holders of customers
that are foreign intermediaries in order
to avoid circumvention of these proposed
regulations by U.S. persons selling digi-
tal assets through a foreign intermediary.
The Treasury Department and the IRS
request comments on whether the trans-
parency gained by adding this rule would
justify the increased burden on brokers,
and whether that trade-off would be dif-
ferent for digital asset-only brokers, secu-
rities-only brokers, or brokers that effect
sales or exchanges in both categories. The
Treasury Department and the IRS also
request comments on how frequently and
in what circumstances securities brokers
rely on the existing section 6045 regula-
tions to not document account holders of
customers that are foreign intermediaries.
If a broker does not obtain a valid
foreign intermediary withholding cer-
tificate or valid beneficial owner with-
holding certificate from the customer, it

Bulletin No. 2023–38 863 September 18, 2023
must determine under presumption rules
whether the customer is treated as a ben-
eficial owner or an intermediary, and
whether the customer has the status of
U.S. or foreign. The applicable presump-
tion rules depend on whether the broker is
a U.S. or foreign broker to provide rules
similar to those applicable to securities
brokers. Under proposed §1.6045-1(g)
(4)(vi)(E)(1), if a broker is a U.S. digital
asset broker or a non-U.S. digital asset
broker or CFC digital asset broker that in
each case is conducting activities as an
MSB, then the broker must apply the pre-
sumption rules in §1.1441-1(b)(3)(ii)(B),
which would result in a presumption that
the entity is not an intermediary. If a bro-
ker is a non-U.S. digital asset broker or a
CFC digital asset broker that in each case
is not conducting activities as an MSB,
then the broker may determine the status
of a customer as an intermediary by pre-
suming that the entity is an intermediary
to the extent permitted by §1.1441-1(b)
(3)(ii)(C) (providing rules treating certain
payees as not beneficial owners), with cer-
tain modifications. These modifications (i)
allow a broker to apply §1.1441-1(b)(3)
(ii)(C) without regard to the requirement
in that section that limits its application
to payments on offshore obligations, and
(ii) substitute the references in §1.1441-
1(b)(3)(ii)(C) to exempt recipient catego-
ries under section 6049 with the exempt
recipient categories in existing §1.6045-
1(c)(3)(i). The first modification is made
to conform the rule for digital asset bro-
kers to the rule for securities brokers. See
§1.6049-5(d)(2)(i) for the rule applicable
to securities brokers. The second modifi-
cation is needed because §1.1441-1(b)(3)
(ii)(C) cites to regulations under section
6049 for exempt recipients, but the cate-
gories of exempt recipients under section
6045 are different from the categories that
apply for purposes of section 6049.
If a customer is presumed to be an
intermediary, these proposed regulations
provide that a broker must determine
the intermediary’s status as U.S. or for-
eign by applying the presumption rules
in §1.1441-1(b)(3)(iii). If a broker is
required to treat a customer as a foreign
intermediary under proposed §1.6045-
1(g)(4)(vi)(E)(1), the broker must treat
the foreign intermediary as an exempt for-
eign person except to the extent required
by existing §1.6045-1(g)(3)(iv) (provid-
ing that a broker may not treat a foreign
intermediary as an exempt foreign person
if the broker has actual knowledge that the
person for whom the intermediary acts is
a U.S. person who is not an exempt recip-
ient, and providing for reporting that may
be required by the foreign intermediary).
Proposed §1.6045-1(g)(4)(vi)(E)(2)
provides the documentation and pre-
sumption rules for brokers paying gross
proceeds to foreign flow-through enti-
ties. Under these proposed regulations, a
broker may rely on a valid foreign flow-
through withholding certificate described
in §1.1441-5(c)(3)(iii) (relating to non-
withholding foreign partnerships) or (e)
(5)(iii) (relating to foreign simple trusts
and foreign grantor trusts that are non-
withholding foreign trusts) to determine
the status of a customer as a foreign flow-
through entity. Proposed §1.6045-1(g)
(4)(vi)(E)(2) provides that a broker does
not need to obtain from the foreign flow-
through entity the withholding certificates
or other documentation for the entity’s
partners to treat the withholding certifi-
cate as valid. The Treasury Department
and the IRS are considering requiring bro-
kers to obtain documentation on partners,
beneficiaries, or owners (as applicable) of
customers that are foreign flow-through
entities in order to avoid circumvention
of these proposed regulations by U.S.
persons holding interests in foreign flow-
through entities selling digital assets. The
Treasury Department and the IRS request
comments on whether the transparency
gained by adding this rule would justify
the increased burden on brokers, and
whether that trade-off would be differ-
ent for digital asset-only brokers, secu-
rities-only brokers, or brokers that effect
sales or exchanges in both categories. The
Treasury Department and the IRS also
request comments on how frequently and
in what circumstances securities brokers
rely on the existing section 6045 regu-
lations to not document partners, ben-
eficiaries, or owners (as applicable) of
customers that are foreign flow-through
entities.
If a broker does not obtain a valid
foreign flow-through withholding certifi-
cate, the broker may determine the status
of a customer as a foreign flow-through
entity based on the presumption rules in
§1.1441-1(b)(3)(ii)(B) (relating to entity
classification) and §1.1441-5(d) (relat-
ing to partnership status as U.S. or for-
eign) and (e)(6) (relating to the status of
trusts and estates as U.S. or foreign). If
a broker is permitted to treat a customer
as a foreign flow-through entity, the bro-
ker must treat the payment as made to
an exempt foreign person except to the
extent required by §1.6049-5(d)(3)(ii)
(providing that a broker may not treat a
foreign flow-through entity as an exempt
foreign person if the broker has actual
knowledge that the partner to which the
payment is allocated is a U.S. person who
is not an exempt recipient and the broker
has actual knowledge of the amount allo-
cable to such person).
Proposed §1.6045-1(g)(4)(vi) pro-
vides the documentation, presumptions,
and reliance rules applicable to payments
to a customer that is a U.S. branch (as
described in §1.1441-1(b)(2)(iv)). When a
U.S. branch is the beneficial owner of the
payment, the rules in proposed §1.6045-
1(g)(4)(vi) other than paragraph (g)(4)
(vi)(E) apply. When a U.S. branch is not
the beneficial owner of a payment, pro-
posed §1.6045-1(g)(4)(vi)(E)(3) provides
that a broker may rely on a valid U.S.
branch withholding certificate described
in §1.1441-1(e)(3)(v) to determine the
status of a customer as a U.S. branch that
is not a beneficial owner of a payment,
without regard to whether the withhold-
ing 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 valid U.S.
branch withholding certificate that it
agrees to be treated as a U.S. person under
§1.1441-1(b)(2)(iv)(A), the broker may
treat the U.S. branch as an exempt foreign
person. If a U.S. branch does not certify
on a valid U.S. branch withholding certif-
icate, the broker may treat the U.S. branch
as an exempt foreign person except to the
extent required by existing §1.6045-1(g)
(3)(iv) (providing that a broker may not
treat a U.S. branch as an exempt foreign
person if the broker has actual knowledge
that the person for whom the U.S. branch
receives the payment is a U.S. person who
is not an exempt recipient, and providing
for reporting that may be required by the
U.S. branch).

September 18, 2023 864 Bulletin No. 2023–38
6. Coordination with Rules Applicable to
Sales of Securities
In determining whether a sale is
effected at an office inside or outside the
United States or whether a broker may
treat a customer as an exempt foreign per-
son, brokers that effect sales of both secu-
rities and digital assets for customers may
find it difficult to apply both the rules in
existing §1.6045-1(g)(1) through (3) for
sales of securities and those in proposed
§1.6045-1(g)(4) for sales of digital assets.
This fact pattern could arise if a tradi-
tional securities broker also effected sales
of digital assets for customers. The diffi-
culty of complying both with the report-
ing and documentation rules for securities
and with the reporting and documentation
rules for digital assets might be particu-
larly acute when a customer uses the same
broker to effect both types of transactions.
The Treasury Department and the IRS
considered including a coordination rule
that would allow brokers that effect trans-
actions involving both securities and digi-
tal assets, as those terms are defined under
section 6045, to apply the rules of proposed
§1.6045-1(g)(4) to determine whether sales
of both securities and digital assets are
effected at an office inside or outside the
United States and whether brokers may treat
the customers as exempt foreign persons.
These proposed regulations do not propose
this coordination rule because it was deter-
mined that more extensive coordination
between the rules for sales of securities and
sales of digital assets would be required and
because the rules proposed for sales of dig-
ital assets have been drafted based on the
characteristics of digital asset transactions
and may not apply seamlessly to a securi-
ties broker. For example, the U.S. indicia
applicable to digital asset brokers differ
from the U.S. indicia applicable to security
brokers. The Treasury Department and the
IRS request comments on whether a coordi-
nation provision would be helpful to brokers
that effect sales of both securities and digital
assets for customers, and if so, which pro-
posed rules applicable to digital asset bro-
kers should apply to securities brokers.
7. Transition Period
To provide digital asset brokers
with sufficient time to obtain necessary
documentation from existing customers
to establish exempt foreign status under
these proposed regulations, proposed
§1.6045-1(g)(4)(vi)(F) provides that for
sales of digital assets effected before
January 1, 2026, that were held in an
account established at a broker before
January 1, 2025, digital asset brokers may
treat a customer as an exempt foreign per-
son provided that the customer has not
previously been classified as a U.S. person
by the broker, and the information that the
broker has for the customer in the account
opening files or other files pertaining to
the account, including documentation col-
lected for purposes of an AML program,
includes a residence address that is not a
U.S. address.
J. Special rules for barter exchanges that
effect certain digital asset exchanges
Any person with members or clients
that contract with each other or with the
organization to trade or barter property or
services either directly (member to mem-
ber) or through the organization is a barter
exchange under existing §1.6045-1(a)(4).
A merchant that provides goods or ser-
vices in exchange for a customer’s digital
asset is not acting as a barter exchange for
purposes of this definition.
Property or services are considered
exchanged through a barter exchange if
payment is made by means of a credit on
the books of the barter exchange or a scrip
issued by the barter exchange, or if the bar-
ter exchange arranges a direct exchange
of property or services between members.
Existing regulations provide limited guid-
ance on the application of these rules and
do not explicitly address whether the bar-
ter exchange rules apply to digital asset
exchange transactions under which digital
assets are exchanged for property (includ-
ing different digital assets) or services.
Consequently, it is possible that a particu-
lar exchange transaction might qualify both
as a sale under proposed §1.6045-1(a)(9)
(ii) effected by a broker under these regu-
lations and also as an exchange transaction
effected by a barter exchange. Alternatively,
a particular exchange transaction could be
considered both a reportable payment trans-
action facilitated by a TPSO under section
6050W as well as an exchange transaction
effected by a barter exchange.
To avoid duplicative reporting, pro-
posed §1.6045-1(e)(2)(iii) provides
coordination rules applicable to a barter
exchange that is also a broker subject to
reporting under proposed §1.6045-1(c).
Under these rules, 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 are treated
as sales under proposed §1.6045-1(a)(9)
(ii) subject to reporting under proposed
§1.6045-1(c) and (d) (reporting by bro-
kers) with respect to both customers and
not as an exchange of personal property
through a barter exchange subject to
reporting under proposed §1.6045-1(e)
and (f) (reporting by barter exchanges).
Additionally, in circumstances involv-
ing exchanges of digital assets for per-
sonal property or services where the
digital asset payment is also a reportable
payment transaction subject to reporting
by the barter exchange under §1.6050W-
1(a)(1), these proposed regulations pro-
vide rules for reporting each member’s or
client’s disposition under rules other than
under the barter exchange rules under
proposed §1.6045-1(e) and (f) depending
on whether the member is disposing of
digital assets on the one hand or personal
property or services on the other. For the
member or client disposing of personal
property or services, proposed §1.6045-
1(e)(2)(iii) provides that the exchange
must be treated as a reportable payment
transaction that must be reported under
proposed §1.6050W-1(a)(1) and not as
an exchange through a barter exchange
subject to reporting under proposed
§1.6045-1(e). With respect to the member
or client disposing of digital assets in this
exchange, proposed §1.6045-1(e)(2)(iii)
provides that the exchange must be treated
as a sale under proposed §1.6045-1(a)(9)
(ii)(D) subject to reporting under proposed
§1.6045-1(c) and not as an exchange
through a barter exchange subject to
reporting under proposed §1.6045-1(e).
The purpose of these rules is to have
brokers report all digital asset exchange
transactions that are also subject to report-
ing under the barter exchange provisions
reported under proposed §1.6045-1(c) and
(d). No inference is intended as to whether
exchanges involving digital assets do or
do not constitute exchanges subject to

Bulletin No. 2023–38 865 September 18, 2023
the reporting under the barter exchange
rules under existing §1.6045-1(e). The
Treasury Department and the IRS request
comments on the extent to which there are
additional broker-facilitated transactions
involving digital assets that would still
be subject to reporting under the barter
exchange rules after the applicability date
of these proposed regulations. For exam-
ple, are there any broker-mediated trans-
actions that are not reportable payment
transactions under §1.6050W-1(a)(1) with
respect to the client that receives the digi-
tal assets as payment?
K. Additional definitions and definitional
changes
As noted in Part I of the Background,
references in these proposed regulations
to an owner holding digital assets gener-
ally or holding digital assets in a wallet
or account are meant to refer to holding
or controlling, whether directly or indi-
rectly through a custodian, the keys to the
digital assets. Proposed §1.6045-1(a)(23)
adds this clarification to the regulation by
providing a definition for held in a wallet
or account. Under this provision, a digi-
tal 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. 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 considered 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, acquired
in a customer’s wallet or account, or trans-
ferred into a wallet or account, each have
a similar meaning. Proposed §1.6045-1(a)
(24) provides that a hosted wallet is a cus-
todial service provided to a user that elec-
tronically stores the private keys to digital
assets held on behalf of others. Hosted
wallets are sometimes referred to as cus-
todial wallets. Proposed §1.6045-1(a)
(27) provides that an unhosted wallet is a
non-custodial means of storing, electron-
ically or otherwise, a user’s private keys
to digital assets held by or for the user.
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).
Proposed §1.6045-1(a)(12) revises the
definition of cash to include U.S. dollars
and any convertible foreign currency that
is issued by a government or a central
bank, whether in physical or digital form.
Pursuant to that definition, a central bank
digital currency may be treated as cash for
purposes of these proposed regulations
and not as digital assets. The revised defi-
nition is also intended to exclude private-
ly-issued digital assets from the definition
of cash for purposes of the reporting
requirements under existing §1.6045-1.
No inference is intended, however, as to
the treatment of a central bank digital cur-
rency or other digital asset for other pur-
poses of the Code.
For purposes of these regulations, the
definition of cash (including the U.S. dol-
lar and foreign currency) does not include
so-called stablecoins, which are a form
of digital assets in which the underlying
value of the coins generally are linked
to another asset or assets. Stablecoins
are treated as digital assets for purposes
of these proposed regulations because
stablecoins 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 dig-
ital assets, are held and transferred in the
same manner as other digital assets and,
therefore, raise similar tax compliance
concerns.
The Treasury Department and the IRS
considered whether to exclude transac-
tions involving the disposition of stable-
coins that are linked to the U.S. dollar
or to other foreign currencies from the
definition of a sale for which reporting is
required, which would parallel the man-
ner in which dispositions of U.S. dollars
or other foreign currencies are treated for
purposes of section 6045, that is, as dis-
positions that are generally not subject to
reporting. These proposed regulations do
not exclude stablecoin transactions from
the definition of sale because a broker may
not be able to identify which stablecoins
will perfectly and consistently reflect the
value of the currencies to which they are
linked, if any. The Treasury Department
and the IRS are aware that legislative or
regulatory rules are being considered in a
number of jurisdictions that might more
closely tie the value of a stablecoin to a
fiat currency, and request comments on
whether stablecoins, or a subset of sta-
blecoins, should not be treated as dig-
ital assets for purposes of these rules.
Additionally, comments are requested on
whether the regulations should exclude
from reporting transactions involving the
disposition of U.S. dollar related stable-
coins that give rise to no gain or loss, and
if so, how should those stablecoin trans-
actions be identified. Finally, comments
are requested regarding whether any other
changes would need to be made to the reg-
ulations or other rules to ensure adequate
reporting of transactions involving the
receipt or disposition of stablecoins.
The Treasury Department and the IRS
also request comments on the structure
and use of tokenized deposits or other
tokenized assets that are closely linked to
cash held in an account.
Additionally, the list of governmental
exempt recipients in existing §1.6045-
1(c)(3)(i)(B) is clarified by listing the
specific territorial jurisdictions to which
the existing exemption for “a possession
of the United States” applies, and the
definitions for security, barter exchange,
regulated futures contract, closing trans-
action, person, debt instrument, and secu-
rities futures contract, are republished in
proposed §1.6045-1(a)(3), (4), (6), (8),
(13), (17), and (18), respectively, to add
headings and, where necessary, to refor-
mat paragraph numbering and make other
non-substantive changes.
Finally, where the existing regulations
provide rules that do not apply to digital
assets, such as existing §1.6045-1(d)(2)
(iv) governing the use by brokers of infor-
mation furnished on a transfer statement
described in §1.6045A-1, these proposed
regulations clarify that those existing rules
do not apply to digital assets by limiting
the existing rules to securities only or
specifically excluding digital assets from
the existing rules. These changes are not
intended to change the way the proposed
regulations apply to assets currently cov-
ered by the existing regulations.

September 18, 2023 866 Bulletin No. 2023–38
II. Proposed §§1.1001-7, 1.1012-1(h),
and 1.1012-1(j)
In general, existing regulations and
other guidance under sections 1001 and
1012 provide the tax rules for determin-
ing a taxpayer’s amount realized on the
disposition of digital assets and basis in
purchased digital assets. For example, a
taxpayer’s transfer of digital assets from
one of the taxpayer’s wallets into a differ-
ent wallet owned by the same taxpayer is
not a sale or other disposition pursuant to
section 1001, whereas the payment of a
transfer fee with digital assets to effectu-
ate that transfer is a sale or other disposi-
tion of the digital assets used to pay the fee
resulting in gain or loss pursuant to sec-
tion 1001. In some fact patterns, however,
taxpayers may benefit from additional
clarifying guidance. Those fact patterns
include exchanges of digital assets for ser-
vices or other property, including different
digital assets, and dispositions of less than
all of a taxpayer’s holdings of a particu-
lar digital asset if the taxpayer purchased
those holdings at different times or for dif-
ferent prices.
A. Amount realized
Proposed §1.1001-7(b)(1)(i) pro-
vides the general rule for determining
the amount realized on a sale or disposi-
tion of digital assets for cash, other prop-
erty differing materially either in kind or
in extent, or services. Under these rules,
the amount realized is the sum of: (i) the
cash received; (ii) the fair market value
of any property received (including digi-
tal assets) or, in the case of a debt instru-
ment issued in exchange for the digital
assets and subject to §1.1001-1(g), the
issue price of the debt instrument, as pro-
vided under the rules of §1.1001-1(g); and
(iii) the fair market value of any services
received; reduced by the allocable digital
asset transaction costs. Digital assets are
defined in this proposed regulation by
cross-reference to the digital assets defi-
nition contained in proposed §1.6045-1(a)
(19).
Proposed §1.1001-7(b)(1)(ii) pro-
vides that the disposition of digital assets
(including digital assets withheld) to pay
digital asset transaction costs is a disposi-
tion of digital assets for services. Proposed
§1.1001-7(b)(1)(iii) applies the general
rule included in proposed §1.1001-7(b)(1)
(i) to different fact patterns depending on
whether cash, services, digital assets, or
other property is received as consideration
for the sale or disposition of the digital
assets. Proposed §1.1001-7(b)(1)(iv) pro-
vides the rule for calculating the amount
attributable to a debt instrument issued
in exchange for digital assets. Under this
rule, the amount attributable to a debt
instrument issued in exchange for digital
assets is determined by cross-reference to
the rules in §1.1001-1(g) (in general the
issue price of the debt instrument).
As provided in the general rule set
forth in proposed §1.1001-7(b)(1)(i), in
computing the amount realized from the
sale or exchange of digital assets, the
amount determined to have been received
in exchange for the digital assets must be
reduced by any digital asset transaction
costs allocable to the disposed-of digital
asset. Proposed §1.1001-7(b)(2)(i) defines
digital asset transaction costs as the
amount paid, in cash, or property (includ-
ing digital assets), to effect the disposi-
tion or acquisition of a digital asset and
includes transaction fees, transfer taxes,
and any other commissions. Proposed
§1.1001-7(b)(2)(ii) provides rules for
allocating digital asset transaction costs to
the disposition or acquisition of a digital
asset. These allocation rules apply to any
digital asset transaction costs paid on the
sale or disposition of a digital asset used
or withheld to pay other digital asset trans-
action costs. Proposed §1.1001-7(b)(2)(ii)
(A) provides the general rule for allocat-
ing digital asset transaction costs on dis-
positions of digital assets in exchange for
cash, services, debt instruments issued in
exchange for the digital assets, or other
property (other than digital assets). In
these instances, the total digital asset
transaction costs paid by the taxpayer are
allocated to the disposition of the digital
assets. The reference to total digital asset
transaction costs in this rule is intended
to avoid the further allocation of cascad-
ing 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). The
Treasury Department and the IRS request
comments regarding whether it is appro-
priate to treat all such costs as digital asset
transaction costs associated with the orig-
inal transaction.
The Treasury Department and the
IRS understand that brokers that effect
exchanges of one digital asset for a dif-
ferent digital asset may charge a sin-
gle digital asset transaction cost for the
exchange. In this case, the digital asset
transaction cost is associated both with
the disposition of one digital asset and the
acquisition of a different digital asset. The
Treasury Department and the IRS con-
sidered whether these regulations should
permit taxpayers or brokers to designate
how to allocate digital asset transaction
costs but determined that a single uni-
form rule would be easier to adminis-
ter and less susceptible to manipulation.
Consideration was also given to allocat-
ing the costs either entirely to reduce the
amount realized or entirely to increase
basis; however, this allocation would not
reflect the economic reality that the costs
are allocable to a particular transaction
that includes both the purchase of one
digital asset and the disposition of a dif-
ferent digital asset. Accordingly, proposed
§1.1001-7(b)(2)(ii)(B) provides that if
digital asset transaction costs are paid to
effect the exchange of one digital asset for
a digital asset differing materially in kind
or in extent, any allocation or assignment
made by the parties or the entity effecting
the exchange is disregarded. Instead, one-
half of the total digital asset transaction
costs paid by the taxpayer is allocable to
the disposition of the transferred digi-
tal asset for purposes of determining the
amount realized and one-half is allocable
to the acquisition of the received digi-
tal asset for purposes of determining the
basis of that received digital asset under
§1.1012-1(h). The Treasury Department
and the IRS request comments on whether
this allocation of digital asset transaction
costs to exchanges of one digital asset for
a different digital asset is administrable
and whether alternative allocations, such
as a 100 percent allocation of digital asset
transaction costs to the disposed-of digital
assets, would be less burdensome.
In some circumstances, taxpayers may
incur a transfer fee associated with a trans-
fer of digital assets that does not involve a
sale or an exchange. For example, a trans-
fer of digital assets from an unhosted wal-
let owned by a taxpayer to a hosted wallet

Bulletin No. 2023–38 867 September 18, 2023
in an account that is also owned by the
taxpayer may incur a distributed ledger
transaction fee that must be paid in digital
assets, notwithstanding that the underly-
ing transfer is not a taxable event under
section 1001. To the extent that a digital
asset is used to pay this fee in exchange
for the recordation of the transfer on the
distributed ledger, the exchange of the
digital asset to pay this fee is a taxable
event under section 1001 resulting in gain
or loss.
Finally, proposed §1.1001-7(b)(3) and
(4) provide rules for determining the fair
market value of digital assets and for
determining the fair market value of ser-
vices or property received in consider-
ation for digital assets. Specifically, under
proposed §1.1001-7(b)(3), the fair market
value of a digital asset is determined as
of the date and time of the exchange or
disposition of the digital asset. Under pro-
posed §1.1001-7(b)(4), when the fair mar-
ket value of the property (including digital
assets but excluding debt instruments sub-
ject to §1.1001-1(g)) or services received
in exchange for digital assets cannot be
determined with reasonable accuracy, the
fair market value of such property or ser-
vices must be determined by reference to
the fair market value of the digital assets
transferred as of the date and time of the
exchange.
B. Basis
The starting point for determining
basis of property is its cost, that is, what
is transferred in consideration for what is
received, under section 1012. Proposed
§1.1012-1(h) provides the general rules
for determining the cost basis of digital
assets that are acquired 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 extent, an exchange
for a debt instrument, or in a part sale and
part gift transfer.
Ordinarily, the value of property in
exchange for other property received
should be equal in value. Under Federal
income tax law principles, in an exchange
of property, both the amount realized on
the property transferred and the basis of
the property received in an exchange ordi-
narily are determined by reference to the
fair market value of the property received.
See 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. This rule ensures that the sum of any
gain or loss realized by the taxpayer in an
exchange transaction in which property is
received plus the gain or loss realized by
the taxpayer in a subsequent transaction
in which the property received in the first
transaction is later sold will be equiva-
lent to the customer’s economic gain on
the combined transactions. Accordingly,
proposed §1.1012-1(h)(1) provides that
the basis of digital assets acquired in an
exchange is generally equal to the cost of
the digital assets received at the date and
time of the exchange. Basis also takes
into account allocable digital asset trans-
action costs. Proposed §1.1012-1(h)(3)
provides that if a taxpayer receives digital
assets in exchange for property differing
materially in kind or in extent (including
digital assets and non-digital asset prop-
erty), the cost of the digital assets received
is the same as the fair market value used
in determining the amount realized on a
sale or disposition of the transferred digi-
tal assets for the purposes of section 1001.
Proposed §1.1012-1(h)(1)(i), (iii),
and (iv) apply the general rule included
in proposed §1.1012-1(h)(1) to different
fact patterns depending on whether cash
or certain other property is used to acquire
the digital assets. Specifically, under pro-
posed §1.1012-1(h)(1)(i), when digital
assets are purchased for cash, the basis of
the digital assets purchased is the amount
of cash paid plus any allocable digital
asset transaction costs. Under proposed
§1.1012-1(h)(1)(iii), the basis of digital
assets acquired in exchange for property
other than digital assets is the cost of the
acquired digital assets plus any alloca-
ble digital asset transaction costs. Under
proposed §1.1012-1(h)(1)(iv), the basis
of digital assets received in exchange for
other digital assets differing materially in
kind or in extent is the cost of the acquired
digital assets, plus one-half of the total
allocable digital asset transaction costs
pursuant to the rules provided in proposed
§1.1012-1(h)(2)(ii)(B), discussed later in
this section. Proposed §1.1012-1(h)(3),
discussed below, explains how to deter-
mine the cost of digital assets received in
an exchange described in either proposed
§1.1012-1(h)(1)(iii) or (iv).
Proposed §1.1012-1(h)(1)(ii), (v),
and (vi) apply special rules for determin-
ing the basis of digital assets received
in other select fact patterns. Proposed
§1.1012-1(h)(1)(ii) provides that when
digital assets are received in exchange
for the performance of services, taxpay-
ers should follow the rules set forth in
§§1.61-2(d)(2) and 1.83-4(b) for pur-
poses of determining basis. Proposed
§1.1012-1(h)(1)(v) provides the rule for
determining the basis of digital assets
acquired in exchange for the issuance
of a debt instrument. Under these rules,
the cost of the digital asset attributable to
the debt instrument is the amount deter-
mined under §1.1012-1(g) (which gener-
ally looks to the issue price of the debt
instrument as determined under the rules
under either section 1273 or section 1274,
whichever is applicable) plus any alloca-
ble digital asset transaction costs pursuant
to the rules in proposed §1.1012-1(h)(2)
described in the next paragraph. Lastly,
if digital assets are received in a transfer,
which is in part a sale and in part a gift,
proposed §1.1012-1(h)(1)(vi) provides
that taxpayers should look to the rules for
transfers that are in part a sale and in part
a gift under §1.1012-2.
Proposed §1.1012-1(h)(2)(ii) provides
rules for allocating digital asset transac-
tion costs to acquisitions of digital assets.
Except in the case of an exchange of dig-
ital assets for other digital assets differing
materially in kind or in extent, proposed
§1.1012-1(h)(2)(ii)(A) provides that digi-
tal asset transaction costs paid by the tax-
payer are entirely allocable to the digital
assets received. In contrast, as a corollary
to the split digital asset transaction cost
rule provided under proposed §1.1001-
7(b)(2)(ii)(B), when digital assets are
received in exchange for other digital
assets that differ materially in kind or
extent, one-half of the total digital asset
transaction costs paid by the taxpayer is
allocable to the acquisition of the received
digital assets for purposes of determining
the basis of those received digital assets.
Accordingly, if a taxpayer exchanges dig-
ital asset DE for digital asset ST and pays
digital asset transaction costs, the basis of
the digital asset ST is computed using the
fair market value of the digital asset ST

September 18, 2023 868 Bulletin No. 2023–38
received, plus one-half of the total digital
asset transaction costs.
Finally, proposed §1.1012-1(h)(3) pro-
vides the rules for determining the cost
of digital assets received in an exchange
described in either proposed §1.1012-1(h)
(1)(iii) or (iv). Under these rules, the cost
of the digital assets received equals the
fair market value of those digital assets
as of the date and time of the exchange.
Additionally, when the fair market value
of a digital asset received cannot be
determined with reasonable accuracy,
proposed §1.1012-1(h)(3) provides that
the fair market value of the digital asset
received must be determined with refer-
ence to the property transferred. This rule
is analogous to the rule provided in pro-
posed §1.1001-7(b)(4) with respect to the
determination of the fair market value of
property received.
C. Identification rules
These proposed regulations provide
rules for identifying which units of a
particular digital asset held in a single
wallet or account as defined in proposed
§1.6045-1(a)(23) are sold, disposed of,
or transferred when less than all units of
that digital asset are sold, disposed of, or
transferred. Proposed §1.1012-1(j)(1) and
(2) provide rules for units of a digital asset
that are left in an unhosted wallet and pro-
posed §1.1012-1(j)(3) provides rules for
units of a digital asset left in the custody
of a broker.
For units held in unhosted wallets
and therefore not left in the custody of
a broker, proposed §1.1012-1(j)(1) pro-
vides that if a taxpayer sells, disposes of,
or transfers less than all the units of the
same digital asset held within a single
wallet, the units disposed of for purposes
of determining basis and holding period
are determined by a specific identifica-
tion of the units of the particular digital
asset in the wallet or account that the
taxpayer intends to sell, dispose of, or
transfer. For a taxpayer that does not spe-
cifically identify the units to be sold, dis-
posed of, or transferred, the units in the
wallet or account disposed of are deter-
mined 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) provides that
a specific identification of the units of a
digital asset sold, disposed of, or trans-
ferred 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, dis-
posed 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
can be made only if adequate records are
maintained for all units of a specific digi-
tal asset held in a single wallet or account
to establish that a unit is removed from the
wallet or account for purposes of subse-
quent transactions.
The Treasury Department and the
IRS request comments on methods by
which taxpayers using unhosted wallets
can more easily track purchase dates,
times, and/or basis of specific units of a
digital asset upon the transfer of some
or all of the units between custodial bro-
kers and unhosted wallets. The Treasury
Department and the IRS also request com-
ments on whether the above ordering rules
for unhosted wallets should be applied
on a wallet-by-wallet basis as proposed,
or whether these rules should instead be
applied on a digital asset address-by-digi-
tal asset address basis or some other basis.
Additionally, the Treasury Department
and the IRS request comments on alter-
native proposals for these ordering rules
if unhosted wallets have systems that can
otherwise account for their customers’
transactions.
For multiple units of a type of digital
asset that are left in the custody of a bro-
ker, proposed §1.1012-1(j)(3)(ii) provides
that the taxpayer can make an adequate
identification of the units sold, disposed
of, or transferred by specifying to the bro-
ker, 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 iden-
tifier (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 are treated as the units of the
digital asset sold, disposed of, or trans-
ferred 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 trans-
fers. Identifying the units sold, disposed
of, or transferred solely on the taxpayer’s
books or records is not an adequate iden-
tification of the digital assets if the assets
are held in the custody of a broker. The
Treasury Department and the IRS request
comments on whether this ordering rule
for digital assets left in the custody of a
broker should apply on an account-by-ac-
count basis or whether brokers have sys-
tems that can otherwise account for their
customers’ transactions. Additionally,
comments are also requested regarding
whether exceptions should be made to
the ordering rule for digital assets left in
the custody of a broker to allow brokers
to take into account reasonably reliable
purchase date information received from
outside sources, and if so, what types of
purchase date information should be con-
sidered reasonably reliable.
For customers that do not provide the
broker with an adequate identification of
the units sold, disposed of, or transferred,
proposed §1.1012-1(j)(3)(i) provides that
the units disposed of for purposes of deter-
mining the basis and holding period of
such units is determined in order of time
from the earliest units of that same digital
asset purchased within or transferred into
the taxpayer’s account with the broker.
For this purpose, units of a particular dig-
ital asset are treated as transferred into the
taxpayer’s account as of the date and time
of the transfer. Once transfer statement
reporting under section 6045A is required,
however, the Treasury Department and
the IRS anticipate that these rules would
be revised to take into account the basis
and holding period information provided
to the broker on the transfer statement. A
rule of that kind would conform the sub-
stantive rules applicable to taxpayers to
the reporting required from brokers.
Lastly, proposed §1.1012-1(j)(4) clari-
fies that the taxpayer’s method of specifi-
cally identifying the units of a particular
digital asset sold, disposed of, or trans-
ferred is not a method of accounting. This

Bulletin No. 2023–38 869 September 18, 2023
means that each time a taxpayer sells,
disposes of, or transfers units of a partic-
ular digital asset, the taxpayer can decide
how to specifically identify those units,
for example, by the earliest acquired,
the latest acquired, or the highest basis.
Therefore, a change in the method of spe-
cifically identifying the digital asset sold,
disposed of, or transferred is not a change
in method of accounting to which sections
446 and 481 of the Code apply.
III. Proposed §1.6045-4
In addition to reporting on dispositions
by real estate buyers of digital assets in
exchange for real estate under the pro-
posed §1.6045-1 rules described earlier,
real estate reporting persons should also
report on the fair market value of digital
assets received by transferors (sellers)
of real estate in real estate transactions.
Accordingly, these proposed regulations
expand the information real estate report-
ing persons are required to report on
information returns filed, and payee state-
ments furnished, with respect to real estate
transactions. Proposed §1.6045-4(h)(1)
(vii) provides that for payments made
to a transferor using digital assets, a real
estate reporting person should report the
name and number of units of the digital
asset used to make the payment, the date
and time the payment was made, the trans-
action identification of the digital asset
transfer as defined in proposed §1.6045-
1(a)(26), and the digital asset address
(or addresses) as defined in proposed
§1.6045-1(a)(20) into which the digital
assets are transferred. Additionally, pro-
posed §1.6045-4(i) expands the definition
of gross proceeds to be reported to include
payments using digital assets received by
the real estate transferor. For purposes of
proposed §1.6045-4, a digital asset has
the same meaning set forth in proposed
§1.6045-1(a)(19).
Under existing §1.6045-4(i)(1), the
term gross proceeds means the total cash
received and to be received by or on
behalf of the transferor in connection with
the real estate transaction. These proposed
regulations make three main changes
to this definition to ensure all payments
using digital assets will be included in
the amount reported. First, proposed
§1.6045-4(i)(1) clarifies that the total cash
received by, or on behalf of, the transferor
in connection with a real estate transaction
includes cash received from a digital asset
payment processor (as defined in proposed
§1.6045-1(a)(22)(i)) in exchange for the
digital assets paid to that processor by
the real estate buyer. Thus, if a buyer pur-
chases real estate using a digital asset pay-
ment processor that accepts digital assets
in return for the payment of cash to the
real estate transferor, the cash received by
that transferor includes the cash amount
received from the digital asset payment
processor.
Second, although existing §1.6045-
4(i)(1) uses the phrase “cash . . . to be
received,” the remainder of the regulation
uses the phrase “consideration treated as
cash” to refer to what is meant by “cash
. . . to be received.” To maintain consis-
tency throughout the regulation, proposed
§1.6045-4(i)(1) replaces the “cash . . . to
be received” phrase with “consideration
treated as cash” in the two places where
the former phrase appears in the regula-
tion. The Treasury Department and the
IRS intend this change as a clarification
and not as a substantive change to any
information that is currently required to
be reported under the existing regulation.
Finally, proposed §1.6045-4(i)(1) pro-
vides that gross proceeds also include the
value of digital assets received by, or on
behalf of, the transferor in connection
with the real estate transaction. Proposed
§1.6045-4(i)(1)(ii) provides that the value
of digital assets received includes the fair
market value of digital assets actually
received. In addition, when a transferor
receives an obligation to pay digital assets
to, or for the benefit of, the transferor
in the future, the value of digital assets
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 the obliga-
tion. Digital assets actually received by,
or on behalf of, the transferor from or at
the direction of a digital asset payment
processor are included in digital assets
received for purposes of this rule. The
fair market value of digital assets received
by, or on behalf of, the transferor must be
determined by the broker based on the val-
uation techniques provided in proposed
§1.6045-1(d)(5)(ii). See Parts I.E.2 and II
of this Explanation of Provisions.
In a change unrelated to transac-
tions involving digital assets, proposed
§1.6045-4 is also updated to reflect the
section 6045(e)(5) exception from report-
ing for gross income up to $250,000 of
gain on the sale or exchange of a princi-
pal residence if certain conditions are met.
Section 6045(e)(5) was added to the Code
by section 312 of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, 111 Stat.
788 (Aug. 5, 1997), as amended by the
Internal Revenue Service Restructuring
and Reform Act of 1998, Pub. L. 105-206,
112 Stat. 805 (July 22, 1998). Proposed
§1.6045-4(c)(2)(iv) provides that no infor-
mation return is required with respect to a
sale or exchange of an interest in a prin-
cipal residence provided the real estate
reporting person obtains from the seller
a written certification consistent with
guidance designated by the Secretary.
This guidance is currently provided in
Rev. Proc. 2007-12, 2007-1 C.B. 357. In
addition, proposed §1.6045-4(c)(2)(iv)
also provides that if a residence has more
than one owner, the 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 certifi-
cation 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. Finally, proposed
§1.6045-4(c)(2)(iv) provides that a report-
ing person who relies on a certification
made in compliance with paragraph (c)(2)
(iv) will not be liable for penalties under
section 6721 for failure to file an infor-
mation return, or under section 6722 for
failure to furnish a payee statement to
the seller, unless the reporting person has
actual knowledge, or reason to know, that
any assurance is incorrect.
Additionally, proposed §1.6045-4 is
updated to reflect the statutory changes
made to section 6045(e)(3), which pro-
vides that it is unlawful for any real estate
reporting person to separately charge any
customer for complying with the report-
ing under section 6045. Section 6045(e)
(3) was modified by section 1704(o)(1)
of the Small Business Job Protection Act
of 1996, Pub. L. 104-188, 110 Stat. 1755
(Aug. 20, 1996), to provide that notwith-
standing the prohibition against real estate

September 18, 2023 870 Bulletin No. 2023–38
reporting persons separately charging cus-
tomers for complying with section 6045
reporting obligations, real estate reporting
persons may take their costs of comply-
ing with the requirements of section 6045
into account in establishing their charge
for performing services in connection
with real estate transactions. Proposed
§1.6045-4(o) has been revised to reflect
this statutory change.
Finally, in another change unrelated to
transactions involving digital assets, the
list of governmental exempt transferors
in existing §1.6045-4(d)(2)(ii)(A) is clar-
ified by listing the specific territorial juris-
dictions to which the existing exemption
for “a possession of the United States”
applies.
IV. Proposed §§1.6045A-1 and
1.6045B-1
As discussed in the introductory para-
graph to this Explanation of Provisions,
these proposed regulations do not pro-
vide 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 dig-
ital 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, as discussed in Part I.A.2.
of this Explanation of Provisions, because
it is unclear whether sections 6045A and
6045B are currently being applied to
assets that qualify both as digital assets
and specified securities under the existing
rules, the Treasury Department and the
IRS have decided to delay transfer state-
ment reporting under section 6045A(a)
and issuer reporting under section 6045B
for these dual classification assets until
regulations or other guidance is issued.
Accordingly, proposed §1.6045A-1(a)
(1)(vi) has been added to specifically
exempt from transfer statement report-
ing any specified security that is also a
digital asset. Transferors that nonetheless
choose to provide a transfer statement
reporting some or all of the information
described in section 6045A are not subject
to penalties under section 6722 for fail-
ure to report this information correctly. In
addition, proposed §1.6045B-1(a)(6) sim-
ilarly exempts issuers from reporting on
any specified security that is also a digital
asset. Accordingly, under these rules, the
transfer of a specified security within the
meaning of proposed §1.6045-1(a)(14)
(i) through (iv) or an issuer of a specified
security within the meaning of proposed
§1.6045-1(a)(14)(i) through (iv) will not
be subject to the section 6045A and sec-
tion 6045B reporting rules if the specified
security also falls within the definition of
a digital asset under proposed §1.6045-
1(a)(19). Issuers that nonetheless choose
to provide this reporting are not subject to
penalties under either section 6721 or sec-
tion 6722 for failure to report or furnish
this information correctly.
The Treasury Department and the IRS
will consider guidance for these dual clas-
sification assets as part of the implemen-
tation of more general transfer statement
reporting under section 6045A(a), bro-
ker information reporting under section
6045A(d), and digital asset issuer report-
ing under section 6045B as part of a later
phase of information reporting guidance.
Comments are requested as to whether
sections 6045A and 6045B should be made
applicable for securities that are also dig-
ital assets prior to the implementation of
this later phase of the information report-
ing guidance. Comments are requested
regarding who would be the responsible
party required to provide the reporting if
section 6045B is made applicable to secu-
rities that are also digital assets prior to
the implementation of this later phase of
information reporting guidance.
V. Proposed §1.6050W-1
Some digital asset brokers currently
treat payments of cash for digital assets,
or exchanges of one digital asset for
a different digital asset, as reportable
payments under section 6050W. These
proposed regulations do not take a posi-
tion regarding the appropriateness under
existing regulations of treating payments
of cash for digital assets, or payments of
one digital asset in exchange for a differ-
ent digital asset, as reportable payments
under section 6050W. To the extent these
transactions are reportable under proposed
§1.6045-1 after the applicability date of
these proposed regulations, however,
these transactions must be reported under
section 6045. Therefore, to avoid duplica-
tive reporting, proposed §1.6050W-1(c)
(5)(i)(A) provides that in the case of a
payor that makes a payment using digi-
tal assets as part of a third party network
transaction involving the exchange of the
payor’s digital assets for goods or ser-
vices, if that payment constitutes a sale of
digital assets by the payor under the bro-
ker reporting rules under section 6045, the
amount paid to that payor in settlement of
that exchange will be subject to the broker
reporting rules (including any exemptions
from these rules) and not section 6050W.
Additionally, for goods or services pro-
vided by a payee that are digital assets,
proposed §1.6050W-1(c)(5)(i)(B) pro-
vides that if the exchange is a sale of dig-
ital assets by the payee under the broker
reporting rules under section 6045, the
payment to the payee in settlement of that
exchange will be reportable under the bro-
ker reporting rules (including any exemp-
tions from these rules) and not section
6050W. Accordingly, the broker reporting
rules (and not the section 6050W rules)
will apply to both the payor and the payee
in an exchange of digital assets for differ-
ent digital assets.
Rules avoiding duplication are also pro-
vided for certain exchanges involving dig-
ital assets for goods or services that could
potentially be treated as barter exchanges.
As noted, if the purchaser of the goods or
services in this type of exchange is subject
to reporting under proposed §1.6045-1
due to the use of digital assets to make
payment, proposed §1.6050W-1(c)(5)(i)
(A) provides that reporting is not required
under section 6050W. To avoid duplica-
tive reporting under proposed §§1.6045-
1(e) and 1.6050W-1(a) with respect to the
payee who sells goods and services in this
type of exchange (that is, in return for dig-
ital assets), proposed §1.6050W-1(c)(5)(i)
(B) also provides that any digital asset that
is paid to a person (payee) in a third party
network transaction that is reportable
under proposed §1.6045-1(e) (without
regard to whether the payee is an exempt
recipient under proposed §1.6045-1(f)(2)
(ii) or an exempt foreign person under
proposed §1.6045-1(g)) must be reported
under section 6050W and not the barter
exchange rules under proposed §1.6045-
1(e). As a result, reporting will be required

Bulletin No. 2023–38 871 September 18, 2023
under section 6050W with respect to a
payee who sells goods or services (other
than digital assets) in exchange for digital
assets in third party network transactions
to the extent the fair market value of the
aggregate payments made to that payee
exceed the de minimis exception as pro-
vided in section 6050W(e) for reportable
payments made on or after January 1,
2023. See Notice 2023-10, 2023-3 I.R.B.
403 (January 17, 2023) (delaying the
effective date of the modified de mini-
mis exception under section 6050W(e)
for payments made during calendar year
2022). The de minimis exception under
section 6050W is not applicable to the
reporting of information required with
respect to digital asset sales or exchanges
under section 6045.
In certain circumstances, such as when
a TPSO functions as a digital asset pay-
ment processor as described in proposed
§1.6045-1(a)(22)(i)(B), a payment made
with digital assets by a customer directly
to a TPSO’s participating payee may be
a third party network transaction subject
to reporting. For example, if a customer
makes a payment pursuant to instructions
provided by a TPSO that has an agree-
ment with a participating payee to receive
digital assets as payment, the payment to
that payee should be treated as a payment
made in settlement of a reportable pay-
ment transaction despite the fact that the
payment was not first made to the TPSO.
To clarify that reporting under section
6050W is required in this example with
respect to the participating payee, pro-
posed §1.6050W-1(a)(2) provides that in
the case of a TPSO that has the contractual
obligation to make payments to participat-
ing payees, a payment in settlement of a
reportable payment transaction includes
the submission of an instruction to a pur-
chaser to transfer funds directly to the
account of the participating payee for pur-
poses of settling the reportable payment
transaction.
VI. Proposed §§31.3406(b)(3)-2,
31.3406(g)-2, and 31.3406(g)-1
Section 3406 of the Code requires
certain payors of reportable payments,
including payments required to be
reported by a broker or a barter exchange
under section 6045, to deduct and with-
hold a tax on the payment at the statu-
tory backup withholding rate (currently
24 percent) if the payee fails to provide
a TIN or provides an incorrect TIN. The
existing rules under §31.3406(b)(3)-2(a)
provide generally that any payment made
by a broker or barter exchange that is
required to be reported under section 6045
is a reportable payment that is subject to
backup withholding, and that the amount
subject to backup withholding is the
amount of gross proceeds as determined
under existing §1.6045-1(d)(5). Except
for the addition of digital assets to the
title to proposed §31.3406(b)(3)-2, these
proposed regulations do not make any
substantive changes to these general rules
under §31.3406(b)(3)-2 because they are
broad enough to cover digital asset trans-
actions that are reportable under section
6045. The remainder of §31.3406(b)(3)-2
provides the backup withholding rules
for specific types of transactions report-
able under section 6045. Specifically,
§31.3406(b)(3)-2(b)(2) provides backup
withholding rules for brokers reporting on
foreign currency contracts and regulated
futures contracts subject to section 1256.
The text of these existing rules is broad
enough to also apply to forward contracts
calling for the delivery of digital assets as
well as forward contracts that are cryp-
tographically recorded on a distributed
ledger. Additionally, §31.3406(b)(3)-2(b)
(3) and (4) provide backup withholding
rules for brokers reporting on securities
sales made through a margin account
and security short sales. Because these
rules are limited to securities, they do not
apply to most digital assets.
5
Comments
are requested as to whether any changes
should be made to these rules, either to
address digital assets that may also be
treated as securities for Federal income
tax purposes or to address short sales of
digital assets. The Treasury Department
and the IRS also request comments
regarding whether any additional rules
are needed to address how backup with-
holding should apply to transactions
involving digital assets.
Existing §31.3406(g)-2(e) provides
that real estate reporting persons are not
required to backup withhold on a pay-
ment made with respect to a real estate
transaction that is subject to reporting
under section 6045(a) and (e) and exist-
ing §1.6045-4. This rule was intended to
apply to the reportable payment made to
the transferors, or sellers, of real estate.
Proposed §31.3406(g)-2(e) has been
revised to clarify that this rule does not
apply to reportable payments made with
respect to the disposition of digital assets
by a real estate buyer to purchase real
estate. Rather, sales of digital assets in
return for real estate that are effected
by brokers should be subject to backup
withholding under proposed §31.3406(b)
(3)-2 to ensure that all customers who
exchange digital assets for services or
property in transactions effected by a
broker are treated consistently without
regard to the type of property acquired.
Accordingly, proposed §31.3406(g)-2(e)
provides that real estate reporting per-
sons must backup withhold under section
3406 and in accordance with the rules in
proposed §31.3406(b)(3)-2 on reportable
payments made with respect to real estate
buyers who exchange digital assets for
real estate.
Under existing §31.3406(g)-1(e), an
exception provides that a payor is not
required to backup withhold on gross pro-
ceeds if the sale is effected at an office
outside the United States (as defined in
existing §1.6045-1(g)(3)(iii)) unless the
payor has actual knowledge that the payee
is a U.S. person. These proposed regula-
tions amend §31.3406(g)-1(e) to apply
this exception to a sale of digital assets
effected at an office outside the United
States by a CFC digital asset broker that is
not conducting activities as an MSB with
respect to that sale and to a sale of digital
assets effected by a non-U.S. digital asset
broker that is not conducting activities as
an MSB with respect to that sale. These
proposed regulations also clarify that, with
respect to sales other than sales of digital
assets, the reference to existing §1.6045-
1(g)(3)(iii) is intended to encompass sales
described in that section without regard to
whether the sale is considered effected at
5
No inference is intended as to whether a digital asset is treated as a security for any other legal regime, including the Federal securities laws and the Commodity Exchange Act, or to otherwise
impact the interpretation or applicability of those laws, which are outside the scope of these regulations.

September 18, 2023 872 Bulletin No. 2023–38
an office inside the United States under
existing §1.6045-1(g)(3)(iii)(B).
VII. Request for Comments
Comments are requested on all aspects
of these proposed regulations, including
the following:
A. Questions from the Explanation of
Provisions
The comments specially requested
throughout the discussion in the
Explanation of Provisions are consoli-
dated here in this Part VII Request for
Comments. Comments are requested on
the following questions:
1. Does the proposed definition of digi-
tal asset accurately and appropriately
define the type of assets to which
these regulations should apply? See
Part I.A.1 of this Explanation of
Provisions.
2. Does the definition of digital asset
or the reporting requirements with
respect to digital assets inadver-
tently capture transactions involving
non-digital asset securities that may
use distributed ledger technology,
shared ledger, or similar technology
to process orders without effect-
ing sales? Should any definitions
or reporting rules be modified to
address other transactions involv-
ing tokenized or digitized financial
instruments that are used to facil-
itate back-office processing of the
transaction? See Part I.A.2. of this
Explanation of Provisions.
3. If an exception is necessary for trans-
actions involving non-digital asset
securities that may use distributed
ledger technology or similar technol-
ogy to process orders without effect-
ing sales, how should it be drafted so
that it does not sweep in other trans-
actions (such as tokenized securities,
or other digital assets that are secu-
rities) that should not be exempted
from the reporting requirements?
For example, should, and if so how
should, reporting requirements dis-
tinguish between, and thus avoid
double-counting of, sales of digital
assets from use of distributed ledger
technology or similar technology
for mere recordkeeping, clearing, or
settlement of tokenized securities or
other assets? See Part I.A.2. of this
Explanation of Provisions.
4. How common are digital asset
options that are also section 1256
contracts? Are there less burdensome
alternatives for reporting these digital
asset option transactions? For exam-
ple, would it be less burdensome to
allow brokers to report transactions
involving section 1256 contracts that
are also digital assets or the delivery
of non-digital assets that underlie a
digital asset option as a sale under
proposed §1.6045-1(a)(9)(ii)? See
Part I.A.3 of this Explanation of
Provisions.
5. Is there is anything factually unique
in the way short sales of digital
assets, options on digital assets, and
other financial product transactions
involving digital assets are under-
taken compared to similar transac-
tions involving non-digital assets,
and do these transactions raise any
additional reporting issues that have
not been addressed in these proposed
regulations? See Part I.A.3 of this
Explanation of Provisions.
6. Are there alternative information
reporting approaches that could be
used by digital asset trading plat-
forms that collect and retain no infor-
mation or collect and retain limited
information about the identity of
their customers that would satisfy tax
compliance objectives while reducing
privacy concerns? See Part I.B of this
Explanation of Provisions.
7. Are there any technological or other
technical issues that might affect the
ability of a non-custodial digital asset
trading platform that is a person who
qualifies as a broker to obtain and
transmit the information required
under these proposed regulations, and
how might these issues be overcome?
See Part I.B of this Explanation of
Provisions.
8. In light of the fact that digital asset
trading platforms operate with vary-
ing degrees of centralization and
effective control by founders or oth-
ers, does the application of reporting
rules only to “persons” (as described
in Part I.B of this Explanation of
Provisions) adequately limit the
scope of reporting obligations to plat-
forms that have one or more individu-
als or entities that can update, amend,
or otherwise cause the platform to
carry out the diligence and reporting
rules of these proposed regulations?
See Part I.B of this Explanation of
Provisions.
9. Should the provision of connection
software by a wallet provider to a
trading platform (that customers of
the trading platform can then use to
access their wallets from the trading
platform) be considered a facilita-
tive service resulting in the wallet
provider being treated as a broker?
See Part I.B of this Explanation of
Provisions.
10. What additional functions potentially
provided by wallet software should
be considered sufficient to treat the
wallet provider as providing facil-
itative services? See Part I.B of this
Explanation of Provisions.
11. What other factors should be consid-
ered relevant to determining whether
a person maintains sufficient control
or influence over provided facilitative
services to be considered being in a
position to know either the identity
of the party that makes a sale or the
nature of the transaction potentially
giving rise to gross proceeds from a
sale? See Part I.B of this Explanation
of Provisions.
12. Under what circumstances should
an operator of a digital asset trad-
ing platform be considered to main-
tain or not to maintain sufficient
control or influence over the facili-
tative services offered by that plat-
form? Should, and if so how should,
the ability of users of the platform,
shareholders or holders of gover-
nance tokens to vote on aspects of
the platform’s operation be con-
sidered? How are these decentral-
ized organizational and governance
structures similar to or different
from other existing organizational or
governance structures (e.g., share-
holder votes, mutual organizations)?
Should this conclusion be impacted
by the existence of full or even par-
tial-access administration keys or
the ability of the operator to replace

Bulletin No. 2023–38 873 September 18, 2023
the existing protocol with a new or
modified protocol if that replace-
ment does not require holding a vote
of governance token holders or com-
plying with these voting restrictions?
See Part I.B of this Explanation of
Provisions.
13. To what extent should holders of gov-
ernance tokens be treated as operat-
ing a digital asset trading platform
business as an unincorporated group
or organization? Please provide
examples of fact patterns involving
governance tokens and explain any
differences in those fact patterns rele-
vant to assessing the degree of control
or influence exercisable by holders of
those tokens. See Part I.B.1 of this
Explanation of Provisions.
14. Are there alternative information
reporting approaches that could be
used by digital asset payment proces-
sors effecting payments to merchants
on behalf of customers in transac-
tions where the payment processor
is an agent of a merchant that would
satisfy tax compliance objectives
while reducing privacy concerns?
See Part I.B.3 of this Explanation of
Provisions.
15. What is the frequency with which
creators or issuers of digital assets
redeem digital assets? See Part I.B.4
of this Explanation of Provisions.
16. Should the broker reporting regula-
tions apply to initial coin offerings,
simple agreements for future tokens,
and similar contracts? See Part I.B.4
of this Explanation of Provisions.
17. Are the types of consideration
for which digital assets may be
exchanged in a sale transaction suf-
ficiently broad to capture current
and anticipated transactions in which
taxpayers regularly dispose of digital
assets for consideration? See Part I.C
of this Explanation of Provisions.
18. Are there any logistical concerns
about the reporting on contracts
involving the delivery of digital assets
created by these proposed regula-
tions? See Part I.C of this Explanation
of Provisions.
19. What is the frequency with which
forward contracts involving digi-
tal assets are traded in practice? Are
there any additional issues that should
be considered to enable brokers to
report on these transactions? See Part
I.C of this Explanation of Provisions.
20. Should the definition of sale or other
parts of these proposed regulations
be revised to address transactions
not addressed in these proposed reg-
ulations, such as the transfer of dig-
ital assets to and from a liquidity
pool by a liquidity pool provider,
or the wrapping and unwrapping of
digital assets? See Part I.C of this
Explanation of Provisions.
21. Are there other less burdensome
alternatives to reporting transac-
tion ID information and digital asset
addresses with respect to digital asset
sales and certain digital asset trans-
fer-in transactions that would still
ensure the IRS receives the informa-
tion necessary to determine taxpay-
ers’ gains and losses? See Part I.D of
this Explanation of Provisions.
22. Should an annual digital asset sale
threshold, above which the broker
would report transaction ID informa-
tion and digital asset addresses, be
used? If so, what should that threshold
be? See Part I.D of this Explanation
of Provisions.
23. Should the time reported using UTC
time be reported using a 12-hour
clock (designating a.m. or p.m. as
appropriate) or a 24-hour clock? To
what extent should all brokers be
required to use the same 12-hour or
24-hour clock for these purposes?
See Part I.D of this Explanation of
Provisions.
24. Is a uniform time standard overly
burdensome, and are there circum-
stances under which more flexibility
should be provided? See Part I.D of
this Explanation of Provisions.
25. Are there alternatives to basing the
transaction date on the UTC for cus-
tomers who are present in different
time zones known to the broker at the
time of the transaction? See Part I.D
of this Explanation of Provisions.
26. Should the fair market value of ser-
vices giving rise to digital asset trans-
action costs (including the services of
any broker or validator involved in
executing or validating the transfer)
be determined by looking to the fair
market value of the digital assets used
to pay for the transaction costs? Are
there circumstances under which an
alternative valuation rule would be
more appropriate? See Part I.E.2 of
this Explanation of Provisions.
27. Are there any suggestions that could
work to avoid duplicative multiple
broker reporting for sale transac-
tions involving digital asset brokers
without sacrificing the certainty
that at least one of the multiple bro-
kers will report? See Part I.H of this
Explanation of Provisions.
28. Is there an alternative approach that
could be objectively applied to dif-
ferentiate between a U.S. digital asset
broker’s U.S. business and non-U.S.
business for purposes of allowing
different documentation to be used
for the broker’s non-U.S. busi-
ness, and how could this alternative
approach avoid being readily subject
to manipulation? See Part I.I.1 of this
Explanation of Provisions.
29. Are the U.S. indicia listed in proposed
§1.6045-1(g)(4)(iv)(B)(1) through
(5) appropriate and sufficient? See
Part I.I.3 of this Explanation of
Provisions.
30. Should the regulations define when a
broker has reason to know that a dig-
ital asset broker is organized within
the United States, and are there sug-
gestions for objective indicators that a
digital asset broker is organized in the
United States? See Part I.I.3 of this
Explanation of Provisions.
31. Are there administrable rules that
would allow CFC and non-U.S. dig-
ital asset brokers conducting activi-
ties as MSBs to apply different rules
to their U.S. and non-U.S. business
activities while still ensuring that they
are reporting on transactions of their
U.S. customers? See Part I.I.4 of this
Explanation of Provisions.
32. Should different diligence and doc-
umentation rules apply to CFC and
non-U.S. digital asset brokers con-
ducting activities as MSBs with
respect to the non-U.S. part of their
business, and if so, on what basis
should a determination be made as
to when these different diligence and
documentation rules would apply?
See Part I.I.4 of this Explanation of
Provisions.

September 18, 2023 874 Bulletin No. 2023–38
33. What U.S. regulatory schemes appli-
cable to a CFC digital asset broker or
a non-U.S. digital asset broker other
than registration with FinCEN should
be sufficient to cause such a digital
asset broker to be subject to the same
diligence, documentation and report-
ing rules as a digital asset broker con-
ducting activities as an MSB? How
can such digital asset brokers be iden-
tified by the IRS? Please also address
questions 31 and 32 relating to digital
asset brokers conducting activities as
an MSB.
34. Would a rule requiring brokers to
obtain documentation on account
holders or partners, beneficiaries, or
owners (as applicable) of customers
that are foreign intermediaries or for-
eign flow-through entities increase
transparency sufficiently to justify
the increased burden on brokers?
Is that trade-off different for digital
asset-only brokers, securities-only
brokers, or brokers that effect sales
or exchanges in both categories?
How frequently and in what circum-
stances do securities brokers rely on
the existing section 6045 regulations
to not document account holders or
partners, beneficiaries, or owners (as
applicable) of customers that are for-
eign intermediaries or foreign flow-
through entities? See Part I.I.5.g of
this Explanation of Provisions.
35. Would a coordination provision
for brokers that effect transactions
involving both non-digital asset secu-
rities and digital assets be helpful to
brokers, and if so, which proposed
rules applicable to digital asset bro-
kers should apply to non-digital asset
securities brokers? See Part I.I.6 of
this Explanation of Provisions.
36. Are there additional broker-facili-
tated transactions involving digital
assets that would still be subject to
reporting under the barter exchange
rules after the applicability date of
these proposed regulations? For
example, are there broker-mediated
transactions that are not report-
able payment transactions under
§1.6050W-1(a)(1) with respect to
the client that receives the digital
assets as payment? See Part I.J of
this Explanation of Provisions.
37. Is it appropriate to treat stablecoins,
or a subset of stablecoins, as digital
assets for purposes of these regula-
tions? What characteristics should be
considered when assessing whether
stablecoins, or a subset of stablecoins,
should be treated as digital assets
under these regulations? See Part I.K
of this Explanation of Provisions.
38. Should the regulations exclude
reporting on transactions involving
the disposition of U.S. dollar related
stablecoins that give rise to no gain
or loss, and if so, how should those
stablecoin transactions be identified?
See Part I.K of this Explanation of
Provisions.
39. Should any other changes be made
to the regulations or other rules to
ensure adequate reporting of transac-
tions involving the receipt or dispo-
sition of stablecoins? See Part I.K of
this Explanation of Provisions.
40. In the case of cascading digital asset
transaction costs (that is, a digi-
tal asset transaction cost paid with
respect to the use of a digital asset
to pay for a digital asset transaction
cost), should all such costs be treated
as digital asset transaction costs asso-
ciated with the original transaction?
See Part II.A of this Explanation of
Provisions.
41. Is the allocation of one-half of total
digital asset transaction costs paid to
the disposition of digital assets for
purposes of determining the amount
realized and the allocation of the
other half to the acquisition of the
received digital assets for purposes
of determining basis administrable?
See Part II.A of this Explanation of
Provisions.
42. Would a 100 percent allocation of dig-
ital asset transaction costs to the dis-
posed-of digital asset in an exchange
of one digital asset for a different
digital asset be less burdensome?
See Part II.A of this Explanation of
Provisions.
43. Are there methods or functionalities
that unhosted wallets can provide to
assist taxpayers with the tracking of
purchase dates, times, and/or basis of
specific units of a digital asset upon
the transfer of some or all of those
units between custodial brokers and
unhosted wallets? See Part II.C of this
Explanation of Provisions.
44. Should the ordering rules for unhosted
wallets be applied on a wallet-by-wal-
let basis as proposed, or should these
rules be applied on a digital asset
address-by-digital asset address basis
or some other basis? See Part II.C of
this Explanation of Provisions.
45. Are there any alternatives to requir-
ing 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?
See Part II.C of this Explanation of
Provisions.
46. Should exceptions be made to the
ordering rule for digital assets left in
the custody of a broker to allow bro-
kers to take into account reasonably
reliable purchase date information
received from outside sources? If so,
what types of purchase date infor-
mation should be considered reason-
ably reliable? See Part II.C of this
Explanation of Provisions.
47. Should the current rules under sec-
tion 6045A applicable to transfers of
securities from one broker to another
remain applicable for securities that
are also digital assets prior to the
implementation of a later phase of
the information reporting guidance?
See Part IV of this Explanation of
Provisions.
48. Who would be the responsible party
required to provide the reporting if
section 6045B is made applicable to
securities that are also digital assets
prior to the implementation of this
later phase of information report-
ing guidance? See Part IV of this
Explanation of Provisions.
49. Should any changes be made to the
backup withholding rules under
existing §31.3406(b)(3)-2(b)(3)
or (4) to address digital assets that
may also be treated as securities for
Federal income tax purposes or to
address short sales of digital assets?
Are any additional rules needed to
address how backup withholding
should apply to transactions involv-
ing digital assets? See Part VI of this
Explanation of Provisions.

Bulletin No. 2023–38 875 September 18, 2023
B. Additional questions
Comments are also requested on any
other aspect of these proposed regulations
not specifically discussed in these pro-
posed regulations, including on the fol-
lowing questions:
1. Are there any suggestions for what
the IRS should consider in planning
for the receipt, storage, retrieval, and
usage of the information required
to be reported under these proposed
regulations?
2. These proposed regulations antic-
ipate that reporting brokers may
voluntarily engage with acquiring
brokers to obtain basis information
with respect to transactions in which
the reporting broker does not already
have adjusted basis information.
What would encourage reporting bro-
kers to voluntarily obtain and provide
this information?
Applicability Dates
The regulations regarding computa-
tion of gain or loss and the basis of dig-
ital assets under sections 1001 and 1012
are proposed to apply to taxable years for
all sales and acquisitions of digital assets
on or after January 1 of the calendar year
immediately following the date of pub-
lication of a Treasury decision adopting
these rules as final regulations in the
Federal Register. Taxpayers, however,
may rely on these proposed regulations
under sections 1001 and 1012 for dispo-
sitions in taxable years ending on or after
August 29, 2023, provided the taxpayer
consistently follows the proposed regu-
lations under sections 1001 and 1012 in
their entirety and in a consistent manner
for all taxable years through the appli-
cability date of the final regulations.
The proposed §1.6045-1 regulations
require brokers to report the gross pro-
ceeds from the sale of digital assets if
the sale is effected on or after January
1, 2025. According to the terms of pro-
posed §1.6045-1(d)(2)(i)(C), brokers are
required to report the adjusted basis and
the character of any gain or loss with
respect to a sale if the sale or exchange
is effected on or after January 1, 2026.
For assets that are commodities pursu-
ant to the Commodity Futures Trading
Commission’s certification procedures
described in 17 CFR 40.2, these regula-
tions are proposed to apply to sales of
such commodities on or after January
1, 2025, without regard to the date such
certification procedures were under-
taken. The changes made by the proposed
§1.6045-4 regulations, applicable to
reporting on real estate transactions, are
proposed to apply to real estate transac-
tions with dates of closing occurring on or
after January 1, 2025. The changes made
by these proposed regulations appli-
cable to transfer statements (proposed
§1.6045A-1) and organizational actions
(proposed §1.6045B-1), applicable to
specified securities described in proposed
§1.6045-1(a)(14)(i) through (iv) that are
also digital assets as defined in proposed
§1.6045-1(a)(19), are proposed to apply
on or following the date of publication
of a Treasury decision adopting these
rules as final regulations in the Federal
Register. The regulations applicable to
payments made in settlement of payment
card and third party network transactions
(proposed §1.6050W-1) are proposed to
apply to payments made using digital
assets on or after January 1, 2025. The
regulations applicable to the penalties for
failing to file or furnish an information
return (proposed §§1.6721-1 and 1.6722-
2) are proposed to apply to information
returns required to be filed with respect
to sales effected on or after January 1,
2025. Finally, the regulations applica-
ble to backup withholding (proposed
§§31.3406(b)(3)-2, 31.3406(g)-1(e), and
31.3406(g)-2(e)) are proposed to apply to
sales of digital assets on or after January
1, 2025.
Special Analyses
These proposed regulations were
subject to review under section 6(b) of
Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) between the Treasury Department
and the Office of Management and Budget
regarding review of tax regulations.
I. Regulatory Planning and Review –
Economic Analysis
Executive Orders 13563 and 12866
direct agencies to assess costs and
benefits of available regulatory alterna-
tives and, if regulation is necessary, to
select regulatory approaches that max-
imize net benefits (including potential
economic, environmental, public health
and safety effects, distributive impacts,
and equity). Executive Order 13563
emphasizes the importance of quantify-
ing both costs and benefits, of reducing
costs, of harmonizing rules, and of pro-
moting flexibility.
These proposed regulations were des-
ignated by the Office of Information and
Regulatory Affairs (OIRA) as subject to
review under Executive Order 12866 pur-
suant to the Memorandum of Agreement
(April 11, 2018) (MOA) between the
Treasury Department and the Office of
Management and Budget (OMB) regard-
ing review of tax regulations. OIRA desig-
nated these regulations as significant under
section 1(c) of the MOA. Accordingly,
OMB reviewed these regulations.
A. Background
A digital asset is a representation of
value that uses cryptography to verify
transactions and maintain records using
a distributed ledger as opposed to a cen-
tralized authority. Digital assets have
gained popularity in recent years as both a
method of payment and as an investment
vehicle. Their popularity has grown due
to the potential for low transaction fees,
decentralization (that is, a lack of associa-
tion with a central government and lack of
intermediation by financial institutions),
and because the distributed ledger record
of transactions does not include the identi-
ties of the parties involved in the transac-
tion. A “distributed ledger technology” is
a decentralized infrastructure used to store
and maintain data as opposed to using one
centralized server.
One example of distributed ledger tech-
nology is a blockchain. A blockchain refers
to a cryptographically secured digital led-
ger that maintains a record of transactions
that occur on the network. Transactions
are recorded in “blocks” and added to a
“chain” that represents the entire history
of transactions. This history is then shared
and synchronized across many nodes,
which then each keep a copy of the block-
chain. When transactions are added to the
blockchain, they include unique codes

September 18, 2023 876 Bulletin No. 2023–38
called “public keys” that identify the digi-
tal asset addresses involved. While a pub-
lic key is unique to a digital asset owner, it
does not reveal personal information such
as a name or physical address. In this way,
the blockchain preserves a layer of confi-
dentiality that allows digital asset owners
to feel their privacy is better protected on
the distributed ledger.
The confidentiality which helped dig-
ital assets gain popularity presents chal-
lenges for tax compliance. Because the
distributed ledger does not identify digital
asset owners past a public key, compliance
currently relies primarily on self-reported
information.
B. Need for these proposed regulations
Information reporting is essential
to the integrity of the tax system. The
Internal Revenue Service (IRS) esti-
mated in its 2019 tax gap analysis that net
misreporting as a percent of income for
income with little to no third-party infor-
mation reporting is 55 percent. In com-
parison, misreporting for income with
some information reporting, such as cap-
ital gains, is 17 percent, and for income
with substantial information reporting,
such as dividend and interest income, is
just five percent.
Prior to these proposed regulations,
many transactions involving digital
assets were outside the scope of infor-
mation reporting rules. Digital assets are
treated as property for Federal income
tax purposes. The regulations under sec-
tion 6045 of the Internal Revenue Code
(Code) require brokers to file infor-
mation returns for customers that sell
certain types of property noting 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 trans-
actions, but the existing regulations do
not require reporting of amounts received
in digital assets. Section 6050W of the
Code requires information reporting by
payment settlement entities on certain
payments made with respect to payment
card and third party network transac-
tions. However, the existing regulations
are silent as to whether certain exchanges
involving digital assets are reportable
payments under section 6050W.
C. Overview
These proposed regulations add digital
assets to the list of property for which bro-
kers must file information returns under
section 6045. In effect, these proposed
regulations would require brokers to
report sales of digital assets if, in return,
customers receive cash, stored-value
cards, different digital assets, services, or
other property that is subject to reporting
under section 6045. Real estate persons
would also be required to file information
returns reporting digital assets received in
real estate transactions. Finally, to avoid
duplicative reporting, a broker who is
also a payment settlement entity would be
required to report the sale of digital assets
used to make a payment associated with a
payment card or third party network trans-
action under section 6050W, to the extent
the payment is not subject to reporting
under section 6045.
Furthermore, these proposed regula-
tions provide the tax rules for determin-
ing a taxpayer’s amount realized on the
disposition of digital assets and basis in
purchased digital assets. Specifically, the
proposed regulations address exchanges
of digital assets for services or other prop-
erty, including different digital assets, and
dispositions of less than all of a taxpay-
er’s holdings of a particular digital asset if
the taxpayer purchased those holdings at
different times or for different prices. The
proposed regulations also provide rules
for allocating transaction costs when one
digital asset is exchanged for another dig-
ital asset.
These provisions are analyzed in Part
D of these Special Analyses.
D. Economic analysis
1. Baseline
In this analysis, the Treasury
Department and the IRS assess the
benefits and costs of these proposed reg-
ulations compared to a no-action baseline
that reflects anticipated Federal income
tax-related behavior in the absence of
these regulations.
a. Economic Effects of these Proposed
Regulations
The worldwide digital asset market is
estimated to be valued at around $1 tril-
lion as of January 2023.
6
It is currently
unknown how much of the global market
cap or what share of monthly transactions
is held by U.S. taxpayers.
b. Alternatives considered for the
definition of digital assets
A digital asset is defined in the
Infrastructure Investment and Jobs Act,
Pub. L. 117-58, 135 Stat. 429 (2021)
(IIJA) to be any digital representation of
value which is recorded on a cryptograph-
ically secured distributed ledger or any
similar technology as specified by the
Secretary of the Treasury. The definition
of digital assets in these proposed regula-
tions does not include other types of vir-
tual assets, such as those that exist only in
a closed system (such as a video game).
The proposed definition is not intended
to include uses of distributed ledger tech-
nology for ordinary commercial purposes
that do not create new transferable assets,
such as tracking inventory, which may be
unlikely to give rise to sales as defined for
purposes of the regulations.
These proposed regulations extend
the information reporting rules under
section 6045 to brokers who, in the ordi-
nary course of a trade or business, act as
agents, principals, or digital asset middle-
men for others to effect sales or exchanges
of digital assets for cash, broker services,
or property of a type that is subject to
reporting by the brokers (including dif-
ferent digital assets, securities, and real
estate) under section 6045 or to effect on
behalf of customers payments of digital
assets associated with payment card and
third party network transactions subject
to reporting under section 6050W. These
proposed regulations also clarify that the
6
See CryptoSlate.com and CoinMarketCap.com.

Bulletin No. 2023–38 877 September 18, 2023
definition of broker for purposes of section
6045 includes certain digital asset trading
platforms, digital asset payment proces-
sors, certain digital asset hosted wallet
providers, and persons who regularly offer
to redeem digital assets that were created
or issued by that person. In addition, these
proposed regulations would require real
estate reporting persons to report on real
estate purchasers who use digital assets
to acquire real estate in a reportable real
estate transaction and extend the infor-
mation that must be reported with respect
to sellers of real estate to include the fair
market value of digital assets received by
sellers in exchange for real estate. Finally,
in the case of a transaction involving the
exchange of digital assets for goods (other
than digital assets) or services, these pro-
posed regulations treat the provision of
the goods or services as reportable under
section 6050W and the disposition of the
digital assets as reportable under section
6045.
The Treasury Department and the IRS
considered whether newer forms of digi-
tal assets, such as those referred to as sta-
blecoins, should be subject to the section
6045 broker reporting rules. A stablecoin
is a form of digital asset that is generally
designed to track the value of another
asset and is intended to have a stable
value. It was determined that broker
reporting should be required for stable-
coins. However, the principal reporting
on stablecoins is likely to come from
platforms that facilitate the purchase and
sale of other digital assets along with sta-
blecoins. Stablecoin issuers that redeem
stablecoins are included in the definition
of broker because, notwithstanding their
nomenclature, the value of a stablecoin
is not always stable and therefore may
give rise to gain or loss. Stablecoin issu-
ers effect these redemptions on behalf
of their customers and know the gross
proceeds paid to their customers. The
Treasury Department and the IRS con-
sidered whether to carve out transactions
involving stablecoins that are linked to
the U.S. dollar or to other foreign cur-
rencies from the definition of a sale for
which reporting is required. These pro-
posed regulations do not carve out stable-
coin transactions from the definition of
sale because a broker may not be able to
identify which stablecoins will perfectly
and consistently reflect the value of the
currencies to which they are linked.
The Treasury Department and the IRS
also considered whether transactions
featuring non-fungible tokens (NFTs)
should be subject to the proposed reg-
ulations. NFTs differ from some other
digital assets, including cryptocurrency,
due to their non-fungible nature—that
is, they are unique and, thus, not directly
interchangeable with other NFTs. For pur-
poses of these proposed regulations, NFTs
also are digital assets that may represent
artwork; antiques; written compositions,
articles, or commentaries; music; videos;
films; fashion designs; or sports or other
entertainment memorabilia, the sale of
which is not currently subject to report-
ing under section 6045. However, there is
no indication in the IIJA or its legislative
history that Congress intended to exclude
certain digital assets from section 6045
reporting. NFTs are digital assets that are
bought, sold, and traded on digital asset
trading platforms similar to other digi-
tal assets. The disposition of NFTs may
give rise to gain or loss, and the report-
ing of gross proceeds and basis informa-
tion is equally useful to taxpayers and the
IRS as reporting on other digital assets.
Ultimately, the Treasury Department and
the IRS decided that transactions involv-
ing NFTs should be included under the
proposed regulations.
c. Alternatives considered for allocating
transaction costs
While the majority of the proposed
regulations deal with information report-
ing rules for brokers, the proposed regu-
lations also deal with operative rules of
substantive tax law for customers con-
ducting the underlying transactions being
reported, including rules with respect to
the allocation of digital asset transaction
costs. The term digital asset transaction
costs (including transaction fees, trans-
fer taxes, and commissions) means the
amount paid in cash or property (includ-
ing digital assets) to effect the disposition
or acquisition of a digital asset. Some
digital asset brokers will charge a single
transaction fee in the case of an exchange
of one digital asset for a different digital
asset. In some cases, these transaction fees
may be adjusted depending on the type of
digital asset acquired or disposed of in the
exchange, with transactions involving less
commonly traded digital assets carrying
higher transaction fees than transactions
involving more commonly traded digital
assets. The Treasury Department and the
IRS considered various approaches to
allocating digital asset transaction costs
that are charged in an exchange of one
digital asset for another. Consideration
was given to whether these proposed regu-
lations should permit taxpayers or brokers
to designate how to allocate digital asset
transaction costs by, for example, entirely
reducing the amount realized or entirely
increasing basis; however, this allocation
would not reflect the economic reality
that the costs are allocable to a particular
transaction that includes both the purchase
of one digital asset and the disposition of
a different digital asset. Furthermore, a
single uniform rule is easier to administer
and less susceptible to manipulation.
Ultimately, to avoid the administrative
complexities associated with distinguish-
ing between special broker fee allocations
that appropriately reflect the economics
of the transaction and broker fee alloca-
tions that reflect tax-motivated requests,
these proposed regulations provide that
in an exchange of one digital asset for a
different digital asset, one-half of any
digital asset transaction cost paid in cash
or property to effect the exchange is allo-
cable to the disposition of the transferred
digital asset for purposes of determining
the amount realized and one-half is allo-
cable to the acquisition of the received
digital asset for purposes of determining
the basis of that received digital asset. To
clarify, these proposed regulations provide
that in an exchange of two different digi-
tal assets where transaction costs are paid
or withheld, the amount realized from the
exchange is the cash received plus the fair
market value of other property (includ-
ing digital assets), or services received,
reduced by one half of the total digital
asset transaction costs. Economically, this
decision likely has little effect on the mar-
ket since prices will adjust to reflect the
relative elasticities of supply and demand.
d. Economic effects on brokers
The Treasury Department and the IRS
estimate that approximately 600 to 9,500

September 18, 2023 878 Bulletin No. 2023–38
brokers will be impacted by these pro-
posed regulations. The lower bound of
this estimate is derived using Form 1099
issuer data through 2021 and statistics
from CoinMarketCap.com. The upper
bound of this estimate is based on IRS
data for brokers with nonzero revenue
who may deal in digital assets. These pro-
posed regulations increase costs for bro-
kers who do not already maintain records
of customers’ digital asset transactions.
These proposed regulations will require
brokers to collect and store customers’
information, including names, addresses,
and tax identification numbers. Brokers
will also be required to collect and store
information about customers’ digital asset
transactions. While the ongoing costs of
reporting information to the IRS may be
small, there will be larger costs associated
with the initial setup for brokers. To the
extent that they do not have such a sys-
tem in place, brokers will need to build a
system of collecting and storing this infor-
mation, as well as reporting this informa-
tion to the IRS and taxpayers, or will need
to find a service provider to do so. They
will also need to develop and maintain
the ability to backup withhold and deposit
withheld tax with the IRS for applicable
taxpayers. Some of these costs may be
curtailed by working with existing third
parties that currently assist some brokers
with voluntary reporting. These regula-
tions may also increase costs for those
brokers who do voluntarily report under
the current rules, since these brokers will
need to ensure that their current reporting
systems are compliant with the proposed
reporting rules.
A reasonable burden estimate for the
average time to complete these forms for
each customer is between 7.5 minutes
and 10.5 minutes, with a mid-point of 9
minutes (or 0.15 hours). The Treasury
Department and the IRS estimate that 13
to 16 million customers will be impacted
by these proposed regulations. Taking the
mid-points of the ranges for the number
of taxpayers that are expected to report
gain (or loss) from digital asset transac-
tions (i.e., form recipients) and number of
brokers expected to be impacted by these
regulations (14.5 million recipients and
5,050 brokers, respectively), we expect
the average broker to incur 425 hours of
time burden and $27,000 of monetized
burden for the ongoing costs per year
based on calculations using wage and
compensation data from the Bureau of
Labor Statistics that capture the wage,
benefit, and overhead costs of a typical
tax preparer.
7
The total estimated aggre-
gate annual burden is 2,146,250 hours.
The total estimated monetized annual bur-
den is $136,350,000. These estimates are
based on survey data collected from filers
of similar information returns, such as
Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions, and Form
1099-K, Payment Card and Third Party
Network Transactions. Although these
estimates are likely to change once these
proposed regulations are effective, the
Treasury Department and the IRS do not
have data that would allow for an accurate
estimate of these changes.
Additionally, start-up costs are esti-
mated to be between three and eight times
annual costs. Given that we expect per
firm annual estimated burden hours to
be 425 hours and $27,000 of estimated
monetized burden, we estimate 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 bur-
den. Using the mid-points, start-up total
estimated aggregate burden hours is
11,804,375 and total estimated monetized
burden is $749,925,000.
However, these proposed regulations
also work to mitigate some potential com-
pliance costs for brokers. First, the clarity
provided by these proposed regulations
on which types of transactions (namely
those involving digital assets) are subject
to reporting will allow brokers to create a
consistent reporting plan and not collect
additional information for other types of
transactions that do not otherwise require
information reporting. Second, the appli-
cation of one fixed rule for allocating
transaction costs gives brokers a clear rule
to follow and resolves any uncertainty
with how to treat those transaction costs
for reporting purposes.
Prior to these proposed regulations,
brokers who chose to report on digital asset
transactions took different approaches to
collecting information and reporting due
to a lack of clear policy guidelines. Any
economic inefficiencies created by this
uncertainty (such as competition between
brokers regarding collecting personal
information) would now be resolved.
e. Economic effects on digital asset
owners
The Treasury Department and the IRS
estimate that 13 to 16 million digital asset
owners will be impacted by these pro-
posed regulations. This estimated range
may be low, since it relies on informa-
tion reported on Forms 8949, Sales and
Other Dispositions of Capital Assets, by
individuals, Forms 1099-B, Forms 1099-
K, Forms 1099-MISC, Miscellaneous
Income, and Forms 1099-NEC,
Nonemployee Compensation, provided by
brokers and/or payment settlement entities
prior to the passage of IIJA and individuals
that checked yes on the Form 1040, U.S.
Individual Income Tax Return, question
regarding virtual currency transactions.
Because the existing regulations were pre-
viously silent as to the information report-
ing obligations of brokers for many digital
asset transactions prior to IIJA, these data
are likely not complete even for those who
did file. Payment settlement entities were
also only required to file a Form 1099-K if
the payee had more than 200 transactions
and $20,000 in gross proceeds, further
limiting the information available. The
Treasury Department and the IRS do not
have adequate data to estimate the level
of noncompliance regarding digital asset
reporting by digital asset owners.
These proposed regulations will have
different effects on different types of dig-
ital asset owners. The majority of digital
asset owners will see greatly reduced costs
of monitoring and tracking their own dig-
ital 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 will likely increase the number
7
See https://www.bls.gov/oes/tables.htm and https://www.bls.gov/news.release/ecec.toc.htm.

Bulletin No. 2023–38 879 September 18, 2023
of digital asset owners and may increase
existing owners’ trade volume.
Due to the volatile nature of digital
asset values, and due to the precision
allowed for digital asset holdings, digi-
tal 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 main-
tenance costs. Eliminating these high
entry costs will allow more potential digi-
tal asset owners to enter the market.
These proposed regulations also make
clear which types of digital assets are sub-
ject to reporting requirements and which
are not. Without this clarification, digital
asset owners may have failed to properly
maintain records for some of their trans-
actions, believing them to not be subject
to reporting per the existing regulations.
Similarly, these digital asset owners may
have also overallocated resources to mon-
itoring taxable transactions that are now
required to be reported, adding unneces-
sary costs to using digital assets.
On the other hand, those digital asset
owners who prefer to use digital assets
due to the pseudonymity of the block-
chain will see an additional privacy cost
of making transactions with digital assets,
since brokers will be required to collect
information from them for tax reporting
purposes. These digital asset owners may
decrease their volume of digital asset trad-
ing through brokers.
II. Paperwork Reduction Act
The collections of information in these
proposed regulations are required under
section 6045 of the Internal Revenue
Code (the Code). The collection of infor-
mation with respect to dispositions of dig-
ital assets in these proposed regulations is
set forth in proposed §1.6045-1 and the
collection of information with respect to
dispositions of real estate in consideration
for digital assets in these proposed regu-
lations is set forth in proposed §1.6045-4.
Responses to these collections of informa-
tion are mandatory.
Section 1.6045-1(d) of these proposed
regulations would generally require bro-
kers to report to the customer and the IRS
the gross proceeds paid to the customer
or credited to the customer’s account
upon the broker’s sale of digital assets
on behalf of the customer, as well as, in
certain circumstances, the customer’s
adjusted basis in, and date of purchase of,
the digital assets sold. This information is
necessary to allow the customer and the
IRS to determine the amount and charac-
ter of the customer’s gain (or loss) from
the sale of digital assets. Section 1.6045-
4(i) of these proposed regulations would
generally require real estate reporting
persons (treated as brokers for purposes
of proposed §1.6045-1) to report to the
real estate transferor and to the IRS the
fair market value of digital assets paid to
the transferor as consideration in a real
estate transaction. This information is
necessary to allow the transferor and the
IRS to determine the total gross proceeds
from digital assets paid in the real estate
transaction.
The IRS intends that the collection
of information pursuant to proposed
§1.6045-1 will be conducted through
a form prescribed by the Secretary for
digital asset sales, and that the collec-
tion of information pursuant to proposed
§1.6045-4 will be conducted through a
revised Form 1099-S, Proceeds From
Real Estate Transactions. For purposes
of the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)), the reporting burden
associated with the collection of informa-
tion with respect to proposed §§1.6045-1
and 1.6045-4 will be reflected in the
Paperwork Reduction Act Submissions
associated with those Forms. The OMB
Control Number for the Form 1099-S is
1545-0997. Currently, there is no OMB
Control Number for the form that will be
prescribed by the Secretary for the collec-
tion of information pursuant to proposed
§1.6045-1.
The form prescribed by the Secretary
for digital asset sales will be used by all
digital asset brokers, digital asset pay-
ment processors, and certain other brokers
with a reporting requirement. The revised
Form 1099-S will be used by all real estate
reporting persons with a reporting require-
ment. The Treasury Department and the
IRS request comments on all aspects of
information collection burdens related to
these proposed regulations. In addition,
when available, drafts of IRS forms will
be posted for comment at www.irs.gov/
draftforms.
Regarding the form that will be pre-
scribed by the Secretary for sales of
digital assets, 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 infor-
mation. A reasonable burden estimate for
the average time to complete these Forms
for each customer is between 7.5 minutes
and 10.5 minutes, with a mid-point of 9
minutes (or 0.15 hours). The Treasury
Department and the IRS estimate that 13
to 16 million customers will be impacted
by these proposed regulations. Taking the
mid-points of the ranges for the number
of taxpayers that are expected to report
gain (or loss) from digital asset transac-
tions (i.e., form recipients) and number
of brokers expected to be impacted by
these regulations (14.5 million recipi-
ents and 5,050 brokers, respectively),
we expect the average broker to incur
425 hours of time burden and $27,000 of
monetized burden for the ongoing costs
per year. The total estimated aggregate
annual burden hours is 2,146,250. The
total estimated monetized annual bur-
den is $136,350,000. These estimates are
based on survey data collected from filers
of similar information returns, such as
Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions, and Form
1099-K, Payment Card and Third Party
Network Transactions. Although these
estimates are likely to increase once these
proposed regulations are effective, the
Treasury Department and the IRS do not
have data that would allow for an accurate
estimate of these increases.
Additionally, start-up costs are esti-
mated to be between three to eight times
annual costs. Given that we expect per
firm annual estimated burden hours to
be 425 hours and $27,000 of estimated
monetized burden, we estimate 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 bur-
den. Using the mid-points, start-up total
estimated aggregate burden hours is

September 18, 2023 880 Bulletin No. 2023–38
11,804,375 and total estimated monetized
burden is $749,925,000.
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 2,573,400
Form 1099-S responses with a total esti-
mated time burden for those responses of
411,744 hours (or 9.6 minutes per Form).
See https://www.reginfo.gov/public/do/
PRAViewICR?ref_nbr=201806-1545-
024. Neither a material change in the aver-
age time to complete the revised Form,
nor a material increase in the number of
Forms that will be filed is expected once
these proposed 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. There is no
available data to predict the increase in the
number of Forms to be filed. The Treasury
Department and the IRS request com-
ments on all aspects of these estimates.
Written comments and recommenda-
tions for the proposed information col-
lection may be submitted via the Federal
eRulemaking Portal at www.regulations.
gov (indicate IRS and REG-122793-
19) by following the online instructions
for submitting comments and may also
be sent to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer,
SE:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection
of information should be received by
October 30, 2023.
Comments are specifically requested
concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the duties of the IRS,
including whether the information will
have practical utility (including underly-
ing assumptions and methodology);
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with
the proposed collection of information
may be minimized, including through the
application of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of services to provide
information.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
III. Regulatory Flexibility Act
When the IRS issues a proposed
rulemaking imposing a collection of
information requirement on small enti-
ties, the Regulatory Flexibility Act
(RFA) requires the agency to “prepare
and make available for public comment
an initial regulatory flexibility analysis,”
which will “describe the impact of the
proposed rule on small entities.” 5 U.S.C.
603(a). Unless an agency determines that
a proposal will not have a significant eco-
nomic impact on a substantial number of
small entities, section 603 of the RFA
requires the agency to present an initial
regulatory flexibility analysis (IRFA) of
the proposed rule.
As discussed in Part I.D.2.c. of this
Special Analyses, the expected num-
ber of impacted issuers of information
returns under these proposed regulations
is between 600 and 9,500 (mid-point
5,050). Small Business Administration
regulations provide small business size
standards by North American Industry
Classification System (NAICS) Industry.
See 13 CFR 121.201. The NAICS includes
virtual currency exchange services in the
NAICS code for Commodity Contracts
Dealing (523130). According to 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 150 of the 9,500
firms identified as impacted issuers in the
upper bound estimate exceed the $41.5
million threshold. This implies there
could be 450 to 9,350 impacted small
business issuers under the Small Business
Administration small business size stan-
dards. Notwithstanding these estimates
and analysis, the Treasury Department
and the IRS have not yet determined
whether the proposed rule, when final-
ized, will likely have a significant eco-
nomic impact on a substantial number
of small entities. The determination of
whether reporting by small brokers and
real estate reporting persons on certain
digital asset transactions will have a sig-
nificant economic impact on a substantial
number of these entities requires further
study. However, because there is a possi-
bility of significant economic impact on
a substantial number of small entities, an
Initial Regulatory Flexibility Analysis is
provided in these proposed regulations.
The Treasury Department and the IRS
invite comments on both the number of
entities affected and the economic impact
on small entities.
A. Need for and objectives of the rule
As discussed earlier in this pream-
ble, the existing information reporting
rules do not address how certain trans-
actions involving digital assets must be
reported to the party who disposes of the
digital assets in exchange for cash, ser-
vices, stored-value cards, or other prop-
erty (including different digital assets).
Information reporting by brokers and real
estate reporting persons under section
6045 of the Code with respect to certain
digital asset dispositions and digital asset
payments received by real estate transfer-
ors would lead to higher levels of taxpayer
compliance because the income earned
by taxpayers engaging in transactions
involving digital assets would be made
transparent to both the IRS and taxpay-
ers. Clear information reporting rules that
report gross proceeds and, in some cases,
adjusted basis for taxpayers who engage
in digital asset transactions will help
the IRS to identify taxpayers who have
engaged in these transactions, and thereby
help to reduce the overall tax gap. The
proposed rule is also expected to facil-
itate the preparation of tax returns (and
reduce the number of inadvertent errors or
intentional misstatements shown on those
returns) by taxpayers who engage in digi-
tal asset transactions.

Bulletin No. 2023–38 881 September 18, 2023
B. Affected small entities
As discussed above, we anticipate
9,350 of the 9,500 (or 98 percent) impacted
issuers in the upper bound estimate could
be small businesses.
C. Impact of the rule and alternatives
considered
1. Proposed reporting and compliance
requirements
Section 1.6045-1(d) of these proposed
regulations would generally require bro-
kers to report to the IRS and the customer
the gross proceeds paid to the customer or
credited to the customer’s account upon
the broker’s sale of digital assets on behalf
of the customer, as well as, in certain cir-
cumstances, the customer’s adjusted basis
in, and date of purchase of, the digital
assets sold. This information is neces-
sary to allow the IRS and the customer
to determine the amount and character
of the customer’s gain (or loss) from the
sale of digital assets. Section 1.6045-4(i)
of these proposed regulations would also
generally require real estate reporting per-
sons (treated as brokers for purposes of
proposed §1.6045-1) to report to the IRS
and the real estate transferor the fair mar-
ket value of digital assets paid to the real
estate transferor as consideration in a real
estate transaction. This information is nec-
essary to allow the IRS and the real estate
transferor to determine the total gross
proceeds from digital assets paid in the
real estate transaction and assist the IRS
and the real estate transferor to determine
whether, and to what extent, the gross pro-
ceeds are taxable income to the real estate
transferor.
As previously stated in the Paperwork
Reduction Act section of this preamble,
the form prescribed by the Secretary for
reporting sales of digital assets pursuant
to §1.6045-1(d) of these proposed reg-
ulations is expected to create an average
estimated per customer burden on brokers
of between 7.5 minutes 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 bro-
ker burden of between 1,275 and 3,400
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 digi-
tal assets paid to real estate transferors as
consideration in a real estate transaction
pursuant to §1.6045-4(i) of these pro-
posed regulations is not expected to mate-
rially change overall costs to complete the
revised Form. Because we expect that fil-
ers 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 build-
ing an internal information return report-
ing 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 associ-
ated with using third party contractors.
2. Reporting alternatives considered for
small businesses
The Treasury Department and the
IRS considered alternatives to these pro-
posed 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 9,350 of the 9,500 (or 98 per-
cent) impacted issuers in the upper bound
estimate could be small businesses. First,
one purpose of these proposed regula-
tions 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 effec-
tiveness of these proposed regulations. In
addition, such an exception or delay could
have the unintended effect of incentiviz-
ing 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 state-
ments 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 transac-
tions are themselves small businesses,
these proposed regulations will help
these businesses with their own tax return
preparation efforts.
D. Duplicate, overlapping, or relevant
Federal rules
The proposed rule would not conflict
or overlap with any relevant Federal rules.
As discussed above, in certain instances,
the proposed rule ensures duplicative
reporting is not required.
The Treasury Department and the IRS
invite comments on any impact this rule
would have on small entities. Pursuant to
section 7805(f) of the Code, this notice
of proposed rulemaking will be submit-
ted to the Chief Counsel for the Office
of Advocacy of the Small Business
Administration for comment on its impact
on small entities.
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 man-
date that may result in expenditures in any
one year by a State, local, or tribal govern-
ment, 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 proposed rule
does not have federalism implications,
does not impose substantial direct compli-
ance costs on State and local governments,

September 18, 2023 882 Bulletin No. 2023–38
and does not preempt State law within the
meaning of the Executive order.
Comments and Requests to Participate
in the Public Hearing
Before these proposed amendments to
the regulations are adopted as final reg-
ulations, consideration will be given to
any comments that are submitted timely
to the IRS as prescribed in this preamble
under the ADDRESSES heading. The
Treasury Department and the IRS request
comments on all aspects of the proposed
rules. All comments that are submitted
by the public will be made available
at https://www.regulations.gov. Once
submitted to the Federal eRulemaking
Portal, comments cannot be edited or
withdrawn.
A public hearing has been scheduled
for November 7, 2023, beginning at 10
a.m. ET, in the Auditorium at the Internal
Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. If the
number of requests to speak at the hearing
exceed the number that can be accommo-
dated in one day, a second public hearing
date for this proposed regulation will be
held on November 8, 2023. In this event
and to the extent possible, persons request-
ing to testify in person will be assigned to
speak on the first day of the public hear-
ing. Due to building security procedures,
visitors must enter at the Constitution
Avenue entrance. In addition, all visitors
must present photo identification to enter
the building. Because of access restric-
tions, visitors will not be admitted beyond
the immediate entrance area more than 30
minutes before the public hearing starts.
Participants may alternatively attend the
public hearing by telephone.
The rules of 26 CFR 601.601(a)(3)
apply to the public hearing. Persons who
wish to present oral comments at the pub-
lic hearing must submit written or elec-
tronic comments and an outline of the
topics to be discussed as well as the time
to be devoted to each topic by October 30,
2023, as prescribed in the preamble under
the ADDRESSES section. For those
requesting to speak during the public hear-
ing, send an outline of topic submissions
electronically via the Federal eRulemak-
ing Portal at https://www.regulations.gov
(indicate IRS and REG-122793-19). If no
outlines are received by October 30, 2023,
the public hearing will be cancelled. If the
public hearing is cancelled, a notice of
cancellation of the public hearing will be
published in the Federal Register.
Individuals who want to testify in per-
son at the public hearing must send an
email to publichearings@irs.gov to have
your name added to the building access
list. The subject line of the email must
contain the regulation number REG-
122793-19 and the language “TESTIFY
In Person”. For example, the subject
line may say: “Request to TESTIFY In
Person at Hearing for REG-122793-19”.
Individuals who want to testify by tele-
phone at the public hearing must send
an email to publichearings@irs.gov to
receive the telephone number and access
code for the public hearing. The subject
line of the email must contain the reg-
ulation number “REG-122793-19” and
the language “TESTIFY Telephonically”.
For example, the subject line may say:
“Request to TESTIFY Telephonically at
Hearing for REG-122793-19”.
The email by persons requesting to
testify either in person or telephonically
should include a copy of the speaker’s
public comments and outline of topics. A
period of ten minutes will be allocated to
each person for making comments. After
the deadline for receiving outlines has
passed, the IRS will prepare an agenda
containing the schedule of speakers.
Copies of the agenda with the order of the
speakers will be made available free of
charge at the public hearing and will also
be uploaded to https://www.regulations.
gov.
Individuals who want to attend the
public hearing in person without testify-
ing must also send an email to publichear-
ings@irs.gov to have their names added
to the building access list. The subject
line of the email must contain the regu-
lation number “REG-122793-19” and the
words “ATTEND in Person”. For exam-
ple, the subject line may say: “Request
to ATTEND Hearing in Person for REG-
122793-19”. Requests to attend the public
hearing must be received by 5 p.m. ET on
November 3, 2023.
Individuals who want to attend the pub-
lic hearing by telephone without testifying
must also send an email to publichear-
ings@irs.gov to receive the telephone
number and access code for the public
hearing. The subject line of the email must
contain the regulation number “REG-
122793-19” and the words “ATTEND
Hearing Telephonically”. For example,
the subject line may say: “Request to
ATTEND Hearing Telephonically for
REG-122793-19”. Requests to attend the
public hearing must be received by 5 p.m.
ET on November 3, 2023.
Hearings will be made accessible to
people with disabilities. To request special
assistance during the telephonic hearing,
contact the Publications and Regulations
Branch of the Office of Associate Chief
Counsel (Procedure and Administration)
by sending an email to publichearings@
irs.gov (preferred) or by telephone at
(202) 317-5306 (not a toll-free number)
by November 2, 2023.
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 vis-
iting the IRS website at https://www.irs.
gov.
Drafting Information
The principal authors of these regula-
tions are Roseann Cutrone, Office of the
Associate Chief Counsel (Procedure and
Administration) and Kyle Walker and
Harith Razaa, Office of the Associate
Chief Counsel (Income Tax and
Accounting). However, other person-
nel from the Treasury Department and
the IRS, including John Sweeney and
Alan Williams, Office of Associate Chief
Counsel (International), and Pamela
Lew, Office of Associate Chief Counsel
(Financial Institutions and Products), par-
ticipated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.

Bulletin No. 2023–38 883 September 18, 2023
26 CFR Part 31
Employment taxes, Income taxes,
Penalties, Pensions, Railroad retirement,
Reporting and recordkeeping require-
ments, Social security, Unemployment
compensation.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
parts 1, 31, and 301 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 com-
puting the gain or loss upon the sale,
exchange, or other disposition of digital
assets, as defined in §1.6045-1(a)(19), 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).
(b) Amount realized in a sale,
exchange, or other disposition of digital
assets for cash, other property, or ser-
vices – (1) Computation of amount real-
ized – (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 real-
ized is the excess of:
(A) The sum of:
(1) Any cash received;
(2) The fair market value of any prop-
erty 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 ser-
vices received; over
(B) The amount of digital asset transac-
tion 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 (including withheld) to pay dig-
ital asset transaction costs, as defined in
paragraph (b)(2)(i) of this section, such
use is a disposition of the digital assets for
services.
(iii) Application of general rule to
certain sales, exchanges, or other dispo-
sitions of digital assets. The following
paragraphs apply the rules of this section
to certain sales, exchanges, or other dispo-
sitions of digital assets.
(A) Sales or other dispositions of dig-
ital 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 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 prop-
erty. 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 para-
graph (b)(1)(iv) of this section, is the sum
of the fair market value of such property
and services received (including services
received 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 dif-
fering 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 described in paragraph
(b)(1)(ii) of this section, reduced by the
amount of digital asset transaction costs
allocable to the disposition of the trans-
ferred 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 trans-
action costs means the amount paid in
cash or property (including digital assets)
to effect the disposition or acquisition of
a digital asset. Digital asset transaction
costs include transaction fees, transfer
taxes, and commissions.
(ii) Allocation of digital asset trans-
action costs. This paragraph (b)(2)(ii)
provides the rules for allocating digital
asset transaction costs to the disposition
or acquisition of a digital asset.
(A) In general. Except as provided in
paragraph (b)(2)(ii)(B) of this section, in
the case of a sale or disposition of digital
assets, the total digital asset transaction
costs paid by the taxpayer are allocable to
the disposition of the digital assets. Such
costs include any digital asset transaction
costs paid by the taxpayer on the sale or
disposition of a digital asset used or with-
held to pay other digital asset transaction
costs.
(B) Special rule for certain exchanges.
In the case of an exchange of digital assets
described in paragraph (b)(1)(iii)(C) of
this section, one-half of the total digital
asset transaction costs paid by the tax-
payer to effect the exchange are allocable
to the disposition of the transferred digital
assets, and the other half of such costs are
allocable to the acquisition of the received

September 18, 2023 884 Bulletin No. 2023–38
digital assets for purposes of determining
basis under §1.1012-1(a). See §1.1012-
1(h). Such costs include any digital asset
transaction costs paid by the taxpayer on
the sale or disposition of a digital asset
used or withheld to pay other digital asset
transaction costs. Accordingly, any other
allocation or specific assignment of digital
asset transaction costs is disregarded.
(3) Time for determining fair mar-
ket value of digital assets. Generally,
the fair market value of a digital asset
is determined as of the date and time of
the exchange 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 reason-
able 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 dig-
ital 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. The fair market value of the services
performed by X equals $10. X then performs the ser-
vices, and TP transfers 10 units of digital asset A to
X. Additionally, TP pays, in cash, $1 of transaction
fees 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 allo-
cated 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)(B) of this section, TP must
allocate one-half of such costs ($1) to the disposition
of the 10 units of digital asset A and must allocate the
remaining one-half ($1) to the acquisition of the 20
units of digital asset B. Under paragraphs (b)(1)(i)
and (b)(3) of this section, TP’s amount realized from
the exchange is $19, 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 digi-
tal asset transaction costs allocated to the disposition
of digital asset A ($1). TP recognizes a gain of $14
on the exchange ($19 amount realized reduced by $5
adjusted basis in the 10 units of digital asset A).
(iii) Example 3: Digital asset transaction costs
paid with digital assets in an exchange of digi-
tal 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 costs 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 dig-
ital asset B. TP also pays to BEX an additional unit
of digital asset C 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)(B) of this section,
TP must allocate one-half of such costs ($1.50) to the
disposition of the 10 units of digital asset A and the
remaining one-half ($1.50) to the acquisition of the
20 units of digital asset B. None of the digital asset
transaction costs are allocable to the disposition of
digital asset C. Under paragraphs (b)(1)(i) and (b)(3)
of this section, TP’s amount realized on the disposi-
tion of digital asset A is $18.50, 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 trans-
action over the allocated digital asset transaction
costs ($1.50). Under paragraph (b)(1)(i) of this sec-
tion, TP’s amount realized on the disposition of the 3
units of digital asset C is $3, which is the fair market
value of the services received as of the date and time
of the transaction. TP recognizes a gain of $13.50 on
the disposition of 10 units of digital asset A ($18.50
amount realized over $5 adjusted basis) and a gain of
$1.50 on the disposition of the 3 units of digital asset
C ($3 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 para-
graph (b)(2)(ii)(B) of this section, TP must allocate
one-half of such costs to the disposition of the 10
units of digital asset A and must allocate the other
half of such costs to the acquisition of the 18 units
of digital asset B. Under paragraphs (b)(1)(i) and (b)
(3) of this section, TP’s amount realized on the 10
units of digital asset A is $19, 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 transac-
tion over the allocated digital asset transaction costs
($1). TP recognizes a gain on the 10 units of digi-
tal asset A transferred of $14 ($19 amount realized
reduced by $5.00 adjusted basis in the 10 units).
(c) Applicability date. This section
applies to all sales, exchanges, and dispo-
sitions of digital assets on or after January
1 of the calendar year immediately fol-
lowing [date of publication of final regu-
lations in the Federal Register].
Par. 4. Section 1.1012-1 is amended
by:
1. Adding paragraph (h);
2. Adding reserved paragraph (i); and
3. Adding paragraph (j).
The additions read as follows:
§1.1012-1 Basis of property.
* * * * *
(h) Determination of basis of digi-
tal 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), received
in a purchase for cash, a transfer in con-
nection 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 instru-
ment described in paragraph (h)(1)(v)
of this section, or in a part sale and part
gift transfer described in paragraph (h)(1)

Bulletin No. 2023–38 885 September 18, 2023
(vi) of this section. Except as provided in
paragraph (h)(1)(ii), (v), or (vi) of this sec-
tion, 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 alloca-
ble digital asset transaction costs as deter-
mined 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 pur-
chase the digital assets plus any allocable
digital asset transaction costs as deter-
mined under paragraph (h)(2)(ii)(A) of
this section.
(ii) Basis of digital assets received in
connection with the performance of ser-
vices. For rules regarding digital assets
received in connection with the perfor-
mance 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 materi-
ally in kind or in extent, other than digital
assets, 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 plus
one-half of the total allocable digital asset
transaction costs as determined under
paragraph (h)(2)(ii)(B) of this section.
(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 paragraph (h) of
this section has the same meaning as in
§1.1001-7(b)(2)(i).
(ii) Allocation of digital asset transac-
tion costs. This paragraph (h)(2)(ii) pro-
vides the rules for allocating digital asset
transaction costs to the acquisition of dig-
ital assets described in paragraph (h)(1) of
this section.
(A) Allocation of digital asset trans-
action costs on a purchase or exchange
for digital assets. Except for an exchange
described in paragraph (h)(2)(ii)(B) of this
section, the total digital asset transaction
costs paid by the taxpayer are allocable to
the digital assets received.
(B) Special rule for the allocation
of digital asset transaction costs on an
exchange of digital assets for other digital
assets. In the case of an exchange of digi-
tal assets for other digital assets differing
materially in kind or in extent, one-half
of the total digital asset transaction costs
paid by the taxpayer is allocable to the
disposition of the transferred digital assets
for purposes of determining the amount
realized under §1.1001-7(b)(1). The other
half of such costs is allocable to the acqui-
sition of the digital assets for purposes
of determining the basis of such digital
assets under paragraph (h)(1) of this sec-
tion. Accordingly, any other allocation or
specific assignment of digital asset trans-
action costs is disregarded.
(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 mar-
ket value used in determining the amount
realized on the sale or disposition of the
transferred property for purposes of sec-
tion 1001 of the Code. Generally, the cost
of a digital asset received is determined at
the date and time of the exchange. The spe-
cial 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 exam-
ples illustrate the application of this sec-
tion. 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 inves-
tor, 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 one-half of the digital asset transaction
costs ($1) to the disposition of the 10 units of digital
asset A and allocates the other half of such costs ($1)
to the acquisition of 20 units of digital asset B. Under
paragraphs (h)(1)(iv) and (h)(3) of this section, TP’s
basis in the 20 units of digital asset B received is $21,
which is the sum of the fair market value of the 20
units of digital asset B received ($20), plus the allo-
cated digital asset transaction costs ($1).
(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 trans-
action fees, each unit of digital asset C has a fair mar-
ket 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 one-half of the digital asset transaction
costs ($1) to the disposition of the 10 units of digital
asset A and must allocate the remaining one-half of
such costs ($1) to the acquisition of the 20 units of
digital asset B. Under paragraphs (h)(1)(iv) and (h)
(3) of this section, TP’s basis in the 20 units of digital
asset B is $21, which is the sum of the fair market
value of the 20 units of digital asset B received ($20)
plus the allocated digital asset transaction costs ($1).
(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 pay-
ment 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 one-half of the digital asset transaction
costs ($1) to the disposition of the 10 units of digital

September 18, 2023 886 Bulletin No. 2023–38
asset A and must allocate the remaining one-half of
such costs ($1) to the acquisition of the 18 units of
digital asset B received. Under paragraphs (h)(1)
(iv) and (h)(3) of this section, TP’s total basis in the
digital asset B units is $19, which is the sum of the
fair market value of the 18 units of digital asset B
received ($18) plus the allocated digital asset trans-
action costs ($1).
(5) Applicability date. This paragraph
(h) is applicable to all acquisitions and
dispositions of digital assets on or after
January 1 of the calendar year immedi-
ately following [date of publication of
final regulations in the Federal Register].
* * * * *
(j) Sale, disposition, or transfer of
digital assets – (1) In general. Except as
provided in paragraph (j)(3) of this sec-
tion for digital assets in the custody of a
broker, if a taxpayer sells, disposes of, or
transfers less than all units of the same
digital asset, as defined in §1.6045-1(a)
(19), held in a single wallet or account,
as defined in §1.6045-1(a)(23), the basis
and holding period of the disposed units
are determined by making a specific
identification of the units in the wallet
or account that are sold, disposed of, or
transferred, as provided in paragraph (j)
(2) of this section. If a specific identifi-
cation is not made, units in the wallet or
account are disposed of in order of time
from the earliest acquired. For purposes
of the preceding sentence, the date the
units were transferred into the taxpayer’s
wallet or account is disregarded.
(2) Specific identification of digital
assets. 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 ref-
erence 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. A specific identification can be
made only if adequate records are main-
tained for all units of a specific digital
asset held in a single wallet or account to
establish that a disposed unit is removed
from the wallet or account for purposes of
subsequent transactions.
(3) Digital assets in the custody of
a broker – (i) Unit of a digital asset
sold, disposed of, or transferred.
Notwithstanding the general rule set forth
in paragraph (j)(1) of this section, where
multiple units of the same digital asset are
left in the custody of a broker, as defined
in §1.6045-1(a)(1), and, no later than
the date and time of sale, disposition, or
transfer, the taxpayer does not provide
the broker with an adequate identification
of which units are sold, disposed of, or
transferred, as provided in paragraph (j)
(3)(ii) of this section, the basis and hold-
ing period of the units disposed of, sold,
or transferred must be determined in order
of time from the earliest units acquired of
that same digital asset in the taxpayer’s
account with the broker.
(ii) Identification of units. Where mul-
tiple units of the same digital asset are left
in the custody of a broker, an adequate
identification occurs if, no later than the
date and time of the sale, disposition, or
transfer, the taxpayer specifies to the bro-
ker having custody of the digital assets the
particular units of the digital asset to be
sold, disposed of, or transferred by ref-
erence to any identifier, such as purchase
date and time or purchase price that the
broker designates as sufficiently specific
to determine the units transferred in order
to determine the basis and holding period
of such units. The taxpayer is responsible
for maintaining records to substantiate the
identification.
(4) Method for specifically identify-
ing units of a digital asset. A method of
specifically identifying the units of a dig-
ital 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 dig-
ital 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 apply.
(5) Examples. The following examples
illustrate the application of this section.
Unless the facts specifically state other-
wise, the transactions described in the
following examples occur after the appli-
cability date set forth in paragraph (j)(6)
of this section. For purposes of the exam-
ples under this paragraph (j)(5), assume
that TP is a digital asset investor.
(i) Example 1: Identification of the digital asset
not in the custody of a broker—(A) Facts. On
September 1, Year 2, TP transfers two lots of digi-
tal asset DE to a newly opened digital asset wallet
that is not in the custody of a broker, as defined in
§1.6045-1(a)(1). The first lot transferred into TP’s
wallet, with a transaction ID 1114ABC, comes
from digital asset address AAA123 and 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, with
transaction ID 9996XYZ, comes from digital asset
address BBB456 and consists of 20 units of dig-
ital 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 con-
sumer goods from Merchant M. To make payment,
TP transfers 10 units of digital asset DE from TP’s
wallet to CPP, a digital asset payment processor that
then pays $100 to M. 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, that is, from
digital asset address BBB456 and purchased with
transaction ID 9996XYZ.
(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, specifying that the 10 units sold
were from the 20 units acquired in transaction ID
9996XYZ, is a specific identification within the
meaning of paragraph (j)(2) of this section. TP’s
notation in its records that the 10 units sold were
from the 20 units that had previously been at digi-
tal asset address BBB456 is also a specific identi-
fication within the meaning of paragraph (j)(2) of
this section. Either of these notations is sufficient to
identify the basis and holding period of the 10 units
of digital asset DE sold. Accordingly, TP has identi-
fied the units disposed of for purposes of determin-
ing 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
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 trans-
fer to CPP, TP did not keep a record of the specific
10 units of digital asset DE that TP intended to sell.
(B) Analysis. TP did not make a specific iden-
tification 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 the earliest acquired. 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, trans-
ferred into the wallet with transaction ID 1114ABC
(that is, the units previously held in digital asset
address AAA123).
(iii) Example 3: Identification of the digital
asset sold at broker—(A) Facts. On August 1, Year
1, TP opens an 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 an account
at BEX, an unrelated broker and purchases through
BEX 20 units of digital asset DE for $5 per unit.

Bulletin No. 2023–38 887 September 18, 2023
On August 1, Year 3, TP transfers the digital assets
TP holds with CRX into TP’s account with BEX.
BEX does not account for its customers’ digital
asset holdings by transaction ID, but rather keeps
a centralized account of its customers’ holdings.
BEX has a policy that purchase or transfer date and
time, if necessary, is a sufficiently specific identifier
for customers to determine the basis and holding
period of 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 transferred into
TP’s account with BEX on August 1, Year 3. 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 para-
graph (j)(3)(ii) of this section, TP provided an ade-
quate identification of the 10 units of digital asset
DE sold.
(iv) Example 4: Identification of the
digital asset sold at 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.
(B) Analysis. Because TP did not specify to BEX
no later than the date and time of the sale the par-
ticular 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, TP must
use the ordering rule provided in paragraph (j)(3)(i)
of this section to determine the units of digital asset
DE sold. Pursuant to this rule, the units sold must
be attributed to the earliest units of digital asset DE
purchased within or transferred into the TP’s account
with BEX. The 10 units of digital asset DE sold must
be attributed to 10 of the 20 units of digital asset DE
purchased by TP at BEX on January 1, Year 2, which
are the earliest units of digital asset DE acquired in
TP’s account.
(6) Applicability date. This paragraph
(j) is applicable to all acquisitions and
dispositions of digital assets on or after
January 1 of the calendar year immedi-
ately following [date of publication of
final regulations in the Federal Register].
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 con-
tained 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 transac-
tions 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
digital asset payment processors.
(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 obli-
gation, 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) Position to know.
(A) Identity.
(B) Nature of the transaction.
(iii) Facilitative service.
(A) In general.
(B) Special rule involving sales of dig-
ital assets under paragraphs (a)(9)(ii)(B)
and (C) of this section.
(22) Digital asset payment processor.
(i) In general.
(ii) Special rule for digital asset trans-
fers pursuant to paragraph (a)(22)(i)(A) of
this section.
(iii) Processor agreement.
(23) Held in a wallet or account.
(24) Hosted wallet.
(25) Stored-value card.
(26) Transaction identification.
(27) Unhosted wallet.
(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.
(ii) Excepted sales.
(iii) Multiple brokers.
(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 agri-
cultural commodities and commodity
certificates.
(i) Agricultural commodities.

September 18, 2023 888 Bulletin No. 2023–38
(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 cer-
tain information returns relating to digital
assets.
(i) Digital assets that constitute securi-
ties or commodities.
(ii) Digital assets that constitute real
estate.
(iii) Digital assets that constitute con-
tracts covered by section 1256(b).
(iv) Examples.
(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) Acquisition information for sales
of certain digital assets.
(D) Penalty relief for certain digital
asset reporting.
(ii) Specific identification of specified
securities.
(A) In general.
(B) Specific identification of digital
assets.
(iii) Penalty relief for reporting infor-
mation not subject to reporting.
(A) Noncovered securities.
(B) Digital assets sold before applica-
bility date.
(iv) Information from other parties and
other accounts.
(A) Transfer and issuer statements for
securities.
(B) Other information with respect to
securities.
(v) Failure to receive a complete trans-
fer 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 and time.
(i) In general.
(ii) Special rules for digital asset sales.
(iii) Examples.
(5) Gross proceeds.
(i) In general.
(ii) Sales of digital assets.
(A) In general.
(B) Consideration value not readily
ascertainable.
(C) Reasonable valuation method for
digital assets.
(D) Digital asset data aggregator.
(iii) Digital asset transactions effected
by digital asset payment processors.
(iv) Allocation of digital asset transac-
tion 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 transac-
tion costs.
(iii) Adjustments for wash sales.
(A) In general.
(B) Securities in different accounts.
(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) [Reserved]
(viii) Examples.
(ix) [Reserved]
(x) Examples.
(7) Long-term or short-term gain or
loss.
(i) In general.
(ii) Adjustments for wash sales.
(A) In general.
(B) Securities in different accounts.
(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 trans-
actions or offsetting positions.
(8) Conversion into United States dol-
lars 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.
(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) CFC digital asset broker.
(C) Non-U.S. digital asset broker.
(D) Conducting activities as a money
services business.

Bulletin No. 2023–38 889 September 18, 2023
(E) Foreign kiosk.
(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 MSBs.
(A) Place of effecting sale.
(B) Determination of foreign status.
(iv) Rules for non-U.S. digital asset
brokers not conducting activities as MSBs.
(A) Sale outside the United States.
(B) Sale treated as effected at an office
inside the United States as a result of U.S.
indicia.
(C) Consequences of treatment as sale
effected at an office inside the United
States.
(D) Type of documentation that may be
obtained where there are U.S. indicia.
(1) Collection of U.S. indicia other
than U.S. place of birth.
(2) Collection of information showing
U.S. place of birth.
(v) Rules for CFC digital asset brokers
and non-U.S. digital asset brokers con-
ducting activities as MSBs.
(vi) Rules applicable to brokers that
obtain or are required to obtain documen-
tation for a customer and presumption
rules.
(A) In general.
(1) Documentation of foreign status.
(2) Presumption rules.
(3) Grace period to collect valid docu-
mentation in the case of indicia of a for-
eign customer.
(4) Blocked income.
(B) Reliance on beneficial ownership
withholding certificates to determine for-
eign status.
(C) Reliance on documentary evidence
to determine foreign status.
(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.
(2) Foreign flow-through entities.
(3) U.S. branches that are not beneficial
owners.
(F) Transition rule for obtaining docu-
mentation to treat a customer as an exempt
foreign person.
(vii) Barter exchanges.
(5) Examples.
(6) Examples.
(h) Identity of customer.
(1) In general.
(2) Examples.
(i) [Reserved]
(j) Time and place for filing; cross-ref-
erences to penalty and magnetic media fil-
ing requirements.
(k) Requirement and time for furnish-
ing 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.
(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 date.
(r) Cross-references.
Par. 6. Section 1.6045-1 is amended
by:
1. Revising paragraphs (a), (b), (c)(3)
(i)(B)(3), and (c)(3)(i)(C)(2) introductory
text;
2. In paragraph (c)(3)(xi)(A), removing
the language “(d)(2)(i)” and adding the
language “(d)(2)(i)(A)” in its place, wher-
ever it appears;
3. Adding paragraph (c)(8);
4. Revising paragraphs (d)(2)(i)
through (iii);
5. In paragraph (d)(2)(iv)(A), revising
the heading and the first sentence;
6. Revising the heading in paragraph
(d)(2)(iv)(B);
7. In paragraph (d)(2)(v), revising the
heading and the first sentence;
8. Revising the heading of paragraph
(d)(2)(vi);
9. In paragraph (d)(2)(vii), revising
the introductory text and designating

September 18, 2023 890 Bulletin No. 2023–38
Examples 1 and 2 as paragraphs (d)(2)
(vii)(A) and (B), respectively;
10. In newly designated paragraphs
(d)(2)(vii)(A) and (B), redesignating the
paragraphs in the first column as the para-
graphs in the second column:
Old paragraphsNew paragraphs
(d)(2)(vii)(A)(i)
and (ii)
(d)(2)(vii)(A)(1)
and (2)
(d)(2)(vii)(B)(i)
and (ii)
(d)(2)(vii)(B)(1)
and (2)
11. In newly redesignated paragraph
(d)(2)(vii)(B)(2), removing the language
“(d)(2)(i)” and “(d)(2)(iii)” and adding the
language “(d)(2)(i)(A)” and “(d)(2)(iii)
(A)” in their places, respectively;
12. Adding paragraphs (d)(2)(vii)(C)
through (F);
13. Revising paragraphs (d)(4) and (5);
14. In paragraph (d)(6)(i), revising the
first and second sentences;
15. In paragraph (d)(6)(ii)(A), revis-
ing the heading and the first sentence and
removing the language “on or after January
1, 2014,” and adding the language “on or
after January 1, 2014, or upon the vesting
or exercise of a digital asset-based compen-
sation arrangement granted or acquired on
or after January 1, 2025,” in its place;
16. Adding paragraph (d)(6)(ii)(C);
17. In paragraph (d)(6)(iii)(A), revising
the first sentence;
18. Redesignating paragraph (d)(6)
(vii) as paragraph (d)(6)(viii);
19. Adding new reserved paragraph (d)
(6)(vii);
20. In newly redesignated paragraph
(d)(6)(viii), designating Examples 1
through 4 as paragraphs (d)(6)(viii)(A)
through (D), respectively;
21. In newly designated paragraphs
(d)(6)(viii)(A) and (C), redesignating the
paragraphs in the first column as the para-
graphs in the second column:
Old paragraphsNew paragraphs
(d)(6)(viii)(A)(i),
(ii), and (iii)
(d)(6)(viii)(A)(1),
(2), and (3)
(d)(6)(viii)(C)(i)
and (ii)
(d)(6)(viii)(C)(1)
and (2)
22. In newly redesignated paragraph
(d)(6)(viii)(B), removing the language
“Example 1” and “(d)(2)(iii)” and adding
the language “paragraph (d)(6)(viii)(A)
(1) of this section (the facts in Example
1)” and “(d)(2)(iii)(A)” in their places,
respectively;
23. Adding reserved paragraph (d)(6)
(ix) and paragraph (d)(6)(x);
24. In paragraph (d)(7)(ii)(A), remov-
ing the language “covered securities” and
adding the language “covered securities
described in paragraphs (a)(15)(i)(A)
through (G) of this section” in its place;
25. Adding paragraph (e)(2)(iii);
26. Revising paragraph (g)(1) intro-
ductory text;
27. In the first sentence of paragraphs
(g)(1)(i) and (iii), removing the language
“With respect to a sale” and adding the
language “With respect to a sale as defined
in paragraph (a)(9)(i) of this section (relat-
ing to sales other than sales of digital
assets) that is” in its place;
28. Revising paragraph (g)(2);
29. In paragraph (g)(3)(ii), removing
the language “this paragraph (g)” and add-
ing the language “paragraph (g)(1) of this
section” in its place;
30. In paragraph (g)(3)(iii)(A), revising
the first sentence;
31. Redesignating paragraph (g)(4) as
paragraph (g)(5) and adding a new para-
graph (g)(4);
32. In newly redesignated paragraph
(g)(5):
i. Removing the language “this para-
graph (g)” in the introductory text and
adding the language “paragraphs (g)(1)
through (3) of this section” in its place;
and
ii. Designating Examples 1 through
8 as paragraphs (g)(5)(i) through (viii),
respectively;
33. In newly designated paragraph (g)
(5)(ii), removing “Example 1” and adding
“paragraph (g)(5)(i) of this section (the
facts in Example 1)” in its place;
34. In newly designated paragraph (g)
(5)(iii), removing “Example 2” and adding
“paragraph (g)(5)(ii) of this section (the
facts in Example 2)” in its place;
35. In newly designated paragraph (g)
(5)(iv), removing “Example 1” and adding
“paragraph (g)(5)(i) of this section (the
facts in Example 1)” in its place;
36. In newly designated paragraphs (g)
(5)(v) and (vi), removing “Example 4”
and adding “paragraph (g)(5)(iv) of this
section (the facts in Example 4)” in its
place;
37. In newly designated paragraphs
(g)(5)(vii) and (viii), redesignating the
paragraphs in the first column as the para-
graphs in the second column:
Old paragraphsNew paragraphs
(g)(5)(vii)(i) and
(ii)
(g)(5)(vii)(A) and
(B)
(g)(5)(viii)(i) and
(ii)
(g)(5)(viii)(A) and
(B)
38. In newly designated paragraph
(g)(5)(viii) introductory text, removing
“Example 7” and adding “paragraph (g)(5)
(vii) of this section (the facts in Example
7)” in its place;
39. Adding paragraph (g)(6);
40. Revising paragraphs (j) and (m)(1);
41. Adding paragraph (m)(2)(ii)(C);
42. In paragraph (n)(6)(i), removing
the language “(a)(9)” and adding the lan-
guage “(a)(9)(i)” in its place;
43. Revising paragraph (q); and
44. Adding paragraph (r).
The revisions and additions read as
follows:
§1.6045-1 Returns of information of
brokers and barter exchanges.
(a) Definitions. The following defini-
tions 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 sec-
tion 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 §1.6045-4(a).
However, with respect to a sale (includ-
ing a redemption or retirement) effected

Bulletin No. 2023–38 891 September 18, 2023
at an office outside the United States
under paragraph (g)(3)(iii) of this section
(relating to sales other than sales of digital
assets) or under paragraph (g)(4) of this
section (relating to 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 addition, a broker
does not include an international organi-
zation 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 responsi-
ble for paying to such person or crediting
to such person’s account the gross pro-
ceeds on the sale; or
(D) A digital asset middleman, as
defined in paragraph (a)(21) of this sec-
tion, that effects the sale of a digital asset
for such person.
(ii) Special rules for payment trans-
actions involving digital assets. In addi-
tion to the persons defined as customers
in paragraph (a)(2)(i) of this section, the
term customer includes:
(A) The person who transfers, or is
treated under paragraph (a)(22)(ii) of this
section as transferring, digital assets to a
digital asset payment processor in a sale
described in paragraph (a)(9)(ii)(D) of this
section;
(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 digi-
tal 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 mem-
bers 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 ser-
vices 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 for-
ward 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 inter-
est 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 pub-
lished 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 prop-
erty 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 clos-
ing transaction means a lapse, expiration,
settlement, abandonment, or other termi-
nation of a position. For purposes of the
preceding sentence, a position includes a
right or an obligation under a forward con-
tract, a regulated futures contract, a secu-
rities futures contract, or an option.
(9) Sale – (i) In general. The term
sale means any disposition of securi-
ties, commodities, options, regulated
futures contracts, securities futures con-
tracts, or forward contracts and includes
redemptions of stock, retirements of debt
instruments (including a partial retire-
ment 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 regu-
lated futures contract, a securities futures
contract, or a forward contract, a sale
under this paragraph (a)(9)(i) 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 con-
tract, 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

September 18, 2023 892 Bulletin No. 2023–38
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 inter-
est 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 and
a mark to fair market value under section
475 or 1296 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 pursu-
ant 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 execu-
tory. For transactions 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 or 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 per-
son 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 consti-
tute 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 report-
ing person defined in §1.6045-4(e) with
respect to real property or 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 sales effected by
digital asset payment processors. In the
case of a digital asset payment proces-
sor as defined in paragraph (a)(22) of
this section, the term sale also includes
the payment by a party of a digital asset
to a digital asset payment processor in
return for the payment of cash or a differ-
ent digital asset to a second party, or the
treatment under paragraph (a)(22)(ii) of
this section of the digital asset as paid by
a party to the digital asset payment pro-
cessor in exchange for cash or a different
digital asset paid to a second party. In the
case of a digital asset payment processor
defined in either paragraph (a)(22)(i)(B)
or (C) of this section, a sale of a digital
asset includes any payment by a party of
a digital asset to that digital asset payment
processor, or to a second party pursuant
to instructions provided by that digital
asset payment processor or its agent in
exchange for goods or services provided
to the first party.
(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 cor-
poration 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 sec-
tion 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 mid-
dleman with respect to grants or purchases
of options, exercises of call options, or
enterings into contracts that require deliv-
ery of personal property or an interest
therein is not of itself effecting a sale. A
broker that has on its books a forward con-
tract under which delivery is made effects
such delivery.
(11) Foreign currency. The term for-
eign 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 speci-
fied 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 for-
eign 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 clas-
sified 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 mort-
gage investment conduit (REMIC), cer-
tain 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 para-
graph (a)(19) of this section; or
(vi) Any forward contract described in
paragraph (a)(7)(iii) of this section requir-
ing the delivery of a digital asset.
(15) Covered security. The term cov-
ered 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

Bulletin No. 2023–38 893 September 18, 2023
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 state-
ment (as described in §1.6045A-1) report-
ing 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, 2023.
(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 hosted wallet services on
or after January 1, 2023, 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, 2023.
(ii) Acquired in an account. For pur-
poses 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, recapital-
ization, corporate division, or other sim-
ilar action is considered acquired for cash
in an account.
(iv) Exceptions. Notwithstanding para-
graph (a)(15)(i) of this section, the follow-
ing specified securities are not covered
securities:
(A) Stock acquired in 2011 that is trans-
ferred 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 rein-
vestment plan after 2011 remains a cov-
ered 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 report-
ing 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 acquisi-
tion 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 for-
eign person.
(D) A security for which reporting
under this section is required by §1.6049-
5(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 pay-
ment 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 obli-
gation, 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 Internal Revenue Code
(Code) (for example, a regular interest in
a REMIC as defined in section 860G(a)(1)
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 secu-
rities futures contract means a contract
described in section 1234B(c) 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 cryptograph-
ically 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.
(ii) No inference. Nothing in this para-
graph (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 con-
tract, or forward contract for any other
purpose of the Code.
(20) Digital asset address. For pur-
poses of this section, the term digital asset
address means the unique set of alphanu-
meric 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.

September 18, 2023 894 Bulletin No. 2023–38
(21) Digital asset middleman – (i) In
general. The term digital asset middleman
means any person who provides a facili-
tative service as described in paragraph
(a)(21)(iii) of this section with respect to
a sale of digital assets wherein the nature
of the service arrangement 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 from the sale.
(ii) Position to know – (A) Identity. A
person ordinarily would know or be in a
position to know the identity of the party
that makes the sale if that person maintains
sufficient control or influence over the facil-
itative services provided to have the ability
to set or change the terms under which its
services are provided to request that the
party making the sale provide that party’s
name, address, and taxpayer identification
number upon request. For purposes of the
previous sentence, a person with the abil-
ity to change the fees charged for facilita-
tive services is an example of a person that
maintains sufficient control or influence
over provided facilitative services to have
the ability to set or change the terms under
which its services are provided to request
that the party making the sale provide that
party’s name, address, and taxpayer identi-
fication number upon request.
(B) Nature of the transaction. A person
ordinarily would know or be in a posi-
tion to know the nature of the transaction
potentially giving rise to gross proceeds
from a sale if that person maintains suffi-
cient control or influence over the facilita-
tive services provided to have the ability to
determine whether and the extent to which
the transfer of digital assets involved in a
transaction gives rise to gross proceeds,
including by reference to the consider-
ation that the person receives or pursu-
ant to the operations of or modifications
to an automatically executing contract
or protocol to which the person provides
access. For purposes of the previous sen-
tence, a person with the ability to change
the fees charged for facilitative services is
an example of a person that maintains suf-
ficient control or influence over provided
facilitative services to have the ability to
determine whether and the extent to which
the transfer of digital assets involved in a
transaction gives rise to gross proceeds.
(iii) Facilitative service – (A) In gen-
eral. A facilitative service includes the
provision of a service that directly or indi-
rectly 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, pro-
viding order matching services, provid-
ing market making functions, providing
services to discover the most competitive
buy and sell prices, or providing escrow
or escrow-like services to ensure both
parties to an exchange act in accordance
with their obligations. A facilitative ser-
vice does not include validating distrib-
uted ledger transactions (whether through
proof-of-work, proof-of-stake, or any
other similar consensus mechanism) with-
out providing other functions or services
if provided by a person solely engaged in
the business of providing such validating
services. A facilitative service also does
not include the selling of hardware or the
licensing of software for which the sole
function is to permit persons to control
private keys which are used for access-
ing digital assets on a distributed ledger if
such functions are conducted by a person
solely engaged in the business of selling
such hardware or licensing such software.
Software that provides users with direct
access to trading platforms from the wal-
let platform is not an example of software
with the sole function of providing users
with the ability to control private keys to
send and receive digital assets.
(B) Special rule involving sales of dig-
ital assets under paragraphs (a)(9)(ii)(B)
and (C) of this section. A facilitative ser-
vice includes 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 sec-
tion by a broker that is in the business of
effecting sales of such property. A facilita-
tive service also includes any service per-
formed by a real estate reporting person
as defined in §1.6045-4(e) with respect
to a real estate transaction in which dig-
ital assets are paid by the real estate
buyer in full or partial consideration for
the real estate. Finally, a facilitative ser-
vice includes the acceptance or process-
ing of digital assets as payment for any
service provided by a broker described
in paragraph (a)(1) of this section deter-
mined without regard to any sales under
paragraph (a)(9)(ii)(C) of this section that
are effected by such broker.
(22) Digital asset payment processor –
(i) In general. For purposes of this section,
the term digital asset payment processor
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:
(A) Regularly facilitating payments
from one party to a second party by
receiving digital assets from the first party
and exchanging those digital assets into
cash or different digital assets paid to the
second party;
(B) Acting as a third party settlement
organization (as defined in §1.6050W-
1(c)(2)) that facilitates payments, either
by making or submitting instructions to
make payments, using one or more digital
assets in settlement of a reportable pay-
ment transaction under §1.6050W-1(a)(2),
without regard to whether the third party
settlement organization contracts with an
agent to make, or to submit the instruc-
tions to make, such payments; or
(C) Acting as a payment card issuer
that facilitates payments, either by mak-
ing or submitting 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 payment made by
the merchant acquiring entity, or its agent,
in settlement of a reportable payment
transaction under §1.6050W-1(a)(2).
(ii) Special rule for digital asset trans-
fers pursuant to paragraph (a)(22)(i)(A)
of this section. For purposes of paragraph
(a)(22)(i)(A) of this section, the transfer of
a digital asset from one party to a second
party, such as a vendor of goods or ser-
vices, pursuant to a processor agreement
between that second person and a pay-
ment processor must be treated as if the
digital asset was paid by the first party to
the payment processor in exchange for
cash or a different digital asset paid to the
second party.
(iii) Processor agreement. For pur-
poses of paragraph (a)(22)(ii) of this sec-
tion, the term processor agreement means
an agreement between a payment proces-
sor and a second party, such as a vendor of
goods or services, that in order to facilitate

Bulletin No. 2023–38 895 September 18, 2023
one party’s payment to that second party
provides for the temporary fixing of the
exchange rate to be applied to the digital
asset received by that second party from
the first party as payment in a transaction.
(23) Held in a wallet or account. For
purposes of this section, 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 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 consid-
ered held in a wallet. References to vari-
ations 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.
(24) Hosted wallet. A hosted wallet is
a custodial service provided to a user that
electronically stores the private keys to
digital assets held on behalf of others.
(25) 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 con-
vertible foreign currency, or any digital
asset, without regard to whether the card
is in physical or digital form.
(26) Transaction identification. For
purposes of this section, the term trans-
action 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 dig-
ital asset from one digital asset address to
another. A transaction ID includes terms
such as a “Txid” or “transaction hash.”
(27) Unhosted wallet. An unhosted
wallet is a non-custodial means of stor-
ing, 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 wal-
let) or through hardware or physical media
that is disconnected from the Internet (a
cold wallet).
(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 pur-
suant to instructions from the owner of the property.
(iii) A depositary trust or other person who reg-
ularly acts as an escrow agent in corporate acquisi-
tions, 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 cor-
poration, 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 corpora-
tion 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 cus-
tomers, 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
or as a digital asset middleman as defined in para-
graph (a)(21) of this section.
(vii) A digital asset payment processor 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 act on behalf of other persons 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 dig-
ital assets in such an exchange.
(ix) A person who in the ordinary course of a trade
or business operates a non-custodial trading platform
or website that stands ready to effect sales of digital
assets for others by allowing persons to exchange
digital assets directly with other persons for cash,
stored-value cards, or different digital assets, includ-
ing by providing access to automatically executing
contracts, protocols, or other software programs that
automatically effect such sales.
(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) A person who sells or licenses software to
unhosted wallet users if that person as part of its trade
or business also offers services to such wallet users
that effect sales of digital assets, provided the person
would ordinarily know or be in a position to know
the identity of the wallet users that effect the sales
and the nature of the transactions potentially giving
rise to gross proceeds from the sales as described in
paragraphs (a)(21)(ii)(A) and (B) of this section.
(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 agent
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 func-
tions or services.
(x) A person solely engaged in the business of
selling hardware or licensing software, the sole func-
tion 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 organiza-
tion whose members include retail merchants, whole-
sale 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 credit-
ing 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 prop-
erty 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 quan-
tity of lead is a forward contract under paragraph (a)
(7)(ii) of this section.

September 18, 2023 896 Bulletin No. 2023–38
(6) Example 6: Customer. The only customers
of a depository 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 obli-
gor 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 indi-
vidual not otherwise exempt from reporting, main-
tains 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 indi-
vidual 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 trans-
fer 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 indi-
vidual 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 noncov-
ered 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: Digital asset payment pro-
cessor, sale, and customer—(i) Facts. Company
Z is an online retailer of merchandise that accepts
digital asset DE as a form of payment. To facilitate
the use of digital asset DE as payment, Z contracts
with CPP, an unrelated party that is in the business of
facilitating payments using digital assets. Under Z’s
contractual 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. Customer R
seeks to purchase merchandise from Z that is priced
at $15 (or 15 units of DE). After R initiates purchase,
R is directed to CPP’s website where R is directed
to transfer 15 units of DE to a digital asset address
controlled by CPP. CPP then pays $15 in cash to Z,
who in turn processes R’s merchandise order.
(ii) Analysis. CPP is a digital asset payment pro-
cessor within the meaning of paragraph (a)(22)(i)(A)
of this section because CPP, in the ordinary course
of its business, effects payments from customers to
retailers by receiving digital assets from customers
in exchange for cash paid to retailers. CPP is also a
broker under paragraph (a)(1) of this section because
CPP stands ready to effect sales of digital assets to
be made by others. R’s payment of 15 units of DE
to CPP in return for the payment of $15 cash to Z is
a sale of digital assets under paragraph (a)(9)(ii)(D)
of this section. Additionally, because R transferred
digital assets to CPP in a sale described in paragraph
(a)(9)(ii)(D) of this section, R is CPP’s customer
under paragraph (a)(2)(ii)(A) of this section. Finally,
CPP’s payment to Z may also be a third party net-
work transaction under §1.6050W-1(c) subject to
reporting under §1.6050W-1(a) if CPP is a third
party settlement organization under the definition in
§1.6050W-1(c)(2).
(13) Example 13: Digital asset payment proces-
sor, sale, and customer—(i) Facts. The facts are the
same as in paragraph (b)(12)(i) of this section (the
facts in Example 12), except that under Z’s contrac-
tual arrangement with CPP, when Z’s purchasers
seek to make payments using DE and are directed
to CPP’s website, they are instructed to transfer their
units of DE to a digital asset address owned by Z
pursuant to a temporarily fixed exchange rate of DE
for cash, which CPP communicates to Z and which
Z passes along to its purchasers. Additionally, the
purchasers are required to provide CPP with the
information CPP will need, such as name, address,
and taxpayer identification number, to report the
purchaser’s sale of DE. To effect the purchase of Z’s
merchandise, R transfers 15 units of DE directly to
Z’s wallet. CPP provides similar services to other
retail purchasers and merchants.
(ii) Analysis. CPP is a digital asset payment pro-
cessor within the meaning of paragraph (a)(22) of
this section because CPP, in the ordinary course of
its business, effects payments from customers (Z’s
purchasers) in exchange for digital assets paid to a
second person (Z) pursuant to a processor agree-
ment that provides for the temporary fixing of the
exchange rate to be applied to the digital assets
received by the retailer (Z). Such transactions are
treated for purposes of paragraph (a)(22)(i) of
this section as if R paid the digital assets to CPP
in exchange for cash or different digital assets. R’s
payment of digital assets directly to Z pursuant to
a temporarily fixed exchange rate of DE for cash
is a sale of the digital assets within the meaning of
paragraph (a)(9)(ii)(D) of this section because the
transaction is treated for purposes of paragraph (a)
(22)(i) of this section as if R paid the digital assets
to CPP in exchange for cash or different digital
assets. R’s payment of digital assets directly to Z
pursuant to the temporarily fixed exchange rate of
DE for cash is a sale without regard to whether Z,
after the payment is made, decides to exchange the
digital assets pursuant to that fixed exchange rate. R
is CPP’s customer under paragraph (a)(2)(ii)(A) of
this section because R is the person who is treated
as transferring digital assets to a digital asset pay-
ment processor in a sale as defined in paragraph
(a)(9)(ii)(D) of this section. Finally, the transfer
of DE units by R to Z pursuant to CPP’s instruc-
tions may also be a third party network transaction
under §1.6050W-1(c) subject to reporting under
§1.6050W-1(a) if CPP is a third party settlement
organization under the definition in §1.6050W-1(c)
(2).
(14) Example 14: Third party settlement orga-
nization as digital asset payment processor—(i)
Facts. The facts are the same as in paragraph (b)(12)
(i) of this section (the facts in Example 12) except
that CPP is also a third party settlement organization,
as defined in §1.6050W-1(c)(2), with respect to the
payments it makes (or submits instructions for others
to make) to Z. To process R’s payment and settle the
transaction, CPP submits instructions to R to transfer
15 units of digital asset DE to a digital asset address
held in a wallet owned by Z. Z, in turn, processes R’s
merchandise order. Z does not have any arrangement
with CPP to temporarily fix the exchange rate of DE
for cash.
(ii) Analysis. CPP is a digital asset payment pro-
cessor as defined in paragraph (a)(22)(i)(B) of this
section because it is a third party settlement orga-
nization that submitted an instruction to R to make
payment to Z in settlement of a reportable payment
transaction under §1.6050W-1(a)(2) using digital
asset DE. Accordingly, CPP is a broker under para-
graph (a)(1) of this section, and the transaction is a
sale of R’s 15 units of digital asset DE under para-
graph (a)(9)(ii)(D) of this section.
(15) Example 15: 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 digital asset payment processor. 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.
(16) Example 16: Payment card issuer as digi-
tal asset payment processor—(i) Facts. Customer
S purchases goods for 10 units of digital asset DE
from merchant M using a digital asset DE credit card
issued by Bank X. Merchant M is one of a network
of unrelated persons that has agreed to accept credit
cards issued by Bank X as payment under an agree-
ment that provides standards and mechanisms for
settling the transaction between a merchant acquiring
bank and the persons who accept the cards. Under
these standards, payments are made by customers, to
the issuing bank, and by the issuing bank to the mer-
chant acquiring bank in units of DE. Bank MAB is
the merchant acquiring entity within the meaning of
§1.6050W-1(b)(2) with the contractual obligation to
make payments to merchant M for goods provided to
S in this transaction. The arrangement between mer-
chant M and Bank MAB provides that M may direct
Bank MAB to make payment to M in either digital
asset DE or cash. To make payment for S’s purchase
of goods from merchant M, at Bank X’s direction,
S transfers 10 units of digital asset DE to Bank X.
Bank X pays the 10 units of DE, less its processing

Bulletin No. 2023–38 897 September 18, 2023
fee, to Bank MAB, which amount Bank MAB pays,
less its processing fee, to M.
(ii) Analysis. Bank MAB is a merchant acquir-
ing entity under §1.6050W-1(b)(2), and the pay-
ment made by Bank MAB to merchant M is in
settlement of a reportable payment transaction
under §1.6050W-1(a)(2). Accordingly, Bank X is a
digital assets payment processor as defined in para-
graph (a)(22)(i)(C) of this section because Bank X
is a payment card issuer that made payment to Bank
MAB in DE in a transaction that is associated with
Bank MAB’s reportable payment transaction under
§1.6050W-1(a)(2). Additionally, S’s payment of DE
is a sale transaction under paragraph (a)(9)(ii)(D) of
this section because that payment was made pursuant
to the instructions provided by Bank X.
(17) Example 17: Effect and digital asset mid-
dleman—(i) Facts. P2X, a business that is jointly
operated by several individuals, created a website
that regularly provides online services to customers
in order to match would-be sellers of digital assets
with would-be buyers. As part of this business,
P2X directs matched buyers and sellers to use auto-
matically executing contracts to settle the desired
exchange without any additional services from P2X.
The software underlying the automatically executing
contracts was originally developed and then open-
sourced by Z, a person unrelated to P2X. Z does not
maintain the software and does not receive any fee
when transactions are settled using the software.
Customers undertaking transactions using the auto-
matically executing contracts are charged a small
percentage of the transaction value as a fee that is
transferred to unrelated persons (miners) who val-
idate transactions on the applicable blockchains.
Additionally, P2X has modified the software so
that buyers and sellers using P2X’s platform are
charged an additional 1% transaction fee, which is
automatically taken from the accounts of buyers and
sellers and transferred to P2X when transactions are
executed.
(ii) Analysis with respect to P2X. The group of
individuals that operate P2X are treated for U.S.
Federal income tax purposes as a business entity
that is a partnership, or as a sole proprietorship,
depending on the facts, and therefore as a person
within the meaning of paragraph (a)(13) of this sec-
tion. P2X provides facilitative services as described
in paragraph (a)(21)(iii)(A) of this section because
it provides buyers and sellers a digital marketplace
for digital assets as well as automatically executing
contracts to effectuate sales of digital assets. P2X
is in a position to know the identity of the parties
that make sales on its platform within the meaning
of paragraph (a)(21)(ii)(A) of this section because it
can request the name, address, and taxpayer identifi-
cation number of each digital asset buyer and seller
in advance of the sale. P2X is also in a position to
know the nature of the transactions potentially giv-
ing rise to gross proceeds from sales within the
meaning of paragraph (a)(21)(ii)(B) of this section
because it can determine that information from the
transaction fees P2X collects from each transaction.
Accordingly, P2X acts as a digital asset middleman
within the meaning of paragraph (a)(21) of this sec-
tion to effect sales of digital assets on behalf of oth-
ers on its platform within the meaning of paragraph
(a)(10)(i)(D) of this section.
(iii) Analysis with respect to Z. Although the soft-
ware developed by Z that underlies the automatically
executing contracts facilitates sales of digital assets
on P2X’s platform, Z is not in a position to know
the identity of the parties that make sales using these
contracts within the meaning of paragraph (a)(21)(ii)
(A) of this section because Z open-sourced the soft-
ware and has no connection to P2X. As a result, Z
does not have the power to set or change the terms
under which its software can be used. Accordingly, Z
is not a digital asset middleman within the meaning
of paragraph (a)(21) of this section.
(18) Example 18: Digital asset middleman—(i)
Facts. The facts are the same as in paragraph (b)(17)
(i) of this section (the facts in Example 17) except
Individual K utilizes P2X’s website to find a coun-
terparty and to trade 10 units of digital asset DE,
which are held in a personal unhosted wallet, for 50
units of digital asset ST. When the transfer of K’s
10 units of DE to the counterparty is validated on
the blockchain, a small percentage of the 10 units are
withheld from the amount received by K’s counter-
party and are, instead, transferred to Miner M, who
performed the validation of the transaction on the DE
blockchain.
(ii) Analysis. The validation services provided by
M are not facilitative services under paragraph (a)
(21)(iii)(A) of this section. Accordingly, M is not a
digital asset middleman within the meaning of para-
graph (a)(21) of this section and is also not a broker
under paragraph (a)(1) of this section.
(19) Example 19: Digital asset middleman—(i)
Facts. The facts are the same as in paragraph (b)(17)
(i) of this section (the facts in Example 17), except
that P2X’s automatically executing contract charges
a flat transaction fee (instead of a fee that is contin-
gent on the value of the transaction) that is paid to
P2X upon the execution of a trade.
(ii) Analysis with respect to P2X. For the same
reasons discussed in paragraph (b)(17)(ii) of this
section (the analysis in Example 17), P2X provides
facilitative services and is in a position to know the
identity of the parties that make sales on its plat-
form. Although P2X cannot determine the nature of
the transactions potentially giving rise to gross pro-
ceeds from sales within the meaning of paragraph (a)
(21)(ii)(B) of this section that are undertaken on its
website from the flat transaction fees P2X collects
from each transaction, P2X has the ability to alter
the automatically executing contracts to provide
that information to P2X. Additionally, because P2X
provides facilitative services that matches would-be
sellers of digital assets with would-be buyers, P2X is
in a position to know the nature of the transactions
potentially giving rise to gross proceeds from sales.
Accordingly, P2X acts as a digital asset middleman
under paragraph (a)(21) of this section to effect
transactions on behalf of P2X platform users.
(20) Example 20: Effect—(i) Facts. Individual
J is an artist in the business of creating non-fungi-
ble tokens (NFTs) representing ownership interests
in J’s artwork for sale. Transfers of J’s NFTs are
recorded on a cryptographically secured distrib-
uted ledger called the DE blockchain. J regularly
sells these newly created NFTs to buyers in return
for units of digital asset DE. To find buyers and to
execute these transactions, J uses the services of
P2X, an unrelated digital asset broker that provides
a digital marketplace for NFT 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 plat-
form, buyer K purchases J’s NFT-4 for 1,000 units of
DE. At the direction of P2X, J and K execute their
exchange using an automatically executing contract,
which automatically transfers J’s NFT-4 to K and K’s
1,000 units of DE to J. The contract also automati-
cally transfers P2X’s transaction fee from K’s wallet
to P2X.
(ii) Analysis. NFT-4 is a digital representa-
tion of value that is recorded on a cryptographi-
cally secured distributed ledger and is not cash.
Accordingly, NFT-4 is a digital asset under para-
graph (a)(19) of this section. Although J is a prin-
cipal in the exchange of the NFT-4 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 redeem-
ing those digital assets, as described in paragraph
(a)(10)(i)(B) of this section. Because J creates the
NFTs as part of J’s business, J is also not acting as
a dealer as described in paragraph (a)(10)(i)(C) of
this section in these transactions. Accordingly, J is
not effecting sales of digital assets on behalf of oth-
ers under the definition of effect under paragraph
(a)(10)(i)(B) or (C) of this section.
(21) Example 21: Digital asset middleman—(i)
Facts. Corporation H is solely engaged in the busi-
ness of developing and selling H-brand unhosted
hardware wallets. H-brand wallets permit users to
store private keys used for accessing digital assets
on hardware devices that can either be connected to
or disconnected from the Internet. Users who seek
to transfer digital assets controlled by an H-brand
hardware wallet must connect the H-brand wallet
to the Internet and use connecting software (not
licensed by H) to execute the transfer. Once H sells
a hardware wallet to a customer, H does not have
access to any information about transactions the cus-
tomer undertakes using the connecting software not
licensed by H.
(ii) Analysis. The sale by H of the H-brand wal-
lets is not a facilitative service under paragraph (a)
(21)(iii)(A) of this section. Accordingly, H is not act-
ing as a digital asset middleman under paragraph (a)
(21) of this section with respect to digital asset sale
transactions made by H-brand wallet users.
(22) Example 22: Digital asset middleman—(i)
Facts. Corporation S is engaged in the business of
operating and maintaining a website that licenses
S-brand unhosted wallets (or S-Wallets) that are
accessible online and allow users to control private
keys to digital assets and transfer (and receive) dig-
ital assets directly from (and into) their S-Wallets.
S requests each user’s name, address, and tax iden-
tification number when first licensing its S-Wallets.
S also provides each S-Wallet user a digital asset
trading service (S-Trades) that compares pricing at
several unrelated non-custodial trading platforms to
facilitate access to the most competitive buy and sell
prices offered by these unrelated platforms. Sales
of digital assets from S-Wallets using S-Trade are
automatically executed from digital assets held in
S-Wallets using contracts that deduct and pay a 1%
transaction fee to S from digital assets transferred
out of the S-Wallets. This fee is in addition to any

September 18, 2023 898 Bulletin No. 2023–38
fees charged by the unrelated non-custodial trading
platforms.
(ii) Analysis. The access provided by S to
unrelated digital asset brokers and market-mak-
ing services are facilitative services as described in
paragraph (a)(21)(iii)(A) of this section. Because S
has the ability to request each wallet user’s name,
address, and taxpayer identification number, S is in
a position to know the identity of the S-Wallet users
under paragraph (a)(21)(ii)(A) of this section. S is
also in a position to know the nature of the trans-
actions potentially giving rise to gross proceeds of
S-Wallet users from digital asset sales using S-Trade
under paragraph (a)(21)(ii)(B) of this section
because S can determine the gross proceeds from
the 1% transaction fee it collects on each transaction
by operation of the automatically executing contract
to which it provides access. Accordingly, S is acting
as a digital asset middleman with respect to the sale
transactions made by S-Wallet users using S-Trade.
(23) Example 23: Digital asset middleman—(i)
Facts. The facts are the same as in paragraph (b)(22)
(i) of this section (the facts in Example 22), except S
does not provide the S-Trade digital asset trading ser-
vice, with wallet connection services, or with direct
platform access to any digital asset trading platform
that facilitates the purchase or sale of digital assets.
S-Wallet users seeking to make exchanges of digital
assets from their S-Wallets at one of these unrelated
non-custodial trading platforms must initiate the
trade on the unrelated trading platform, which in turn
will provide the functionality for users of S-Wallets
to trade digital assets held in their S-Wallets using
the services of that unrelated trading platform.
Trades using these unrelated trading platforms are
completed directly from the users’ S-Wallets using
automatically executing contracts that deduct and
pay a 0.9% transaction fee to the non-custodial trad-
ing platforms. The unrelated trading platforms do
not pay compensation to S for the wallet connection
service these platforms provide to S-Wallet users in
making trades on the unrelated trading platforms.
(ii) Analysis. Because the software licensed by
S provides S-Wallet users solely with the ability to
control digital assets directly from their S-Wallets,
S does not provide S-Wallet users with a facilitative
service as described in paragraph (a)(21)(iii)(A) of
this section. Accordingly, S is a not acting as a digi-
tal asset middleman under paragraph (a)(21) of this
section with respect to sale transactions made by
S-Wallet users on unrelated trading platforms.
(24) Example 24: Digital asset middleman and
effect—(i) Facts. SBK is in the business of effect-
ing sales of stock and other securities on behalf of
customers. To open an account with SBK, each cus-
tomer must provide SBK with their 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 ser-
vice 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 para-
graph (a)(9)(i) of this section by a broker that is in
the business of effecting sales of stock and other
securities. Because SBK is a broker under paragraph
(a)(1) of this section with respect to any type of sale
under paragraph (a)(9) of this section, SBK’s accep-
tance of 1 unit of DE as payment for SBK’s commis-
sion is also a facilitative service under paragraph (a)
(21)(iii)(B) of this section. Additionally, SBK is in
a position to know, under paragraphs (a)(21)(ii)(A)
and (B) of this section, P’s identity and the nature of
P’s transaction involving the 20 units of DE and the
commission payment. 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.
(25) Example 25: Digital asset middleman and
effect—(i) Facts. B is an individual that purchases
real estate from individual S in exchange for cash
and 1,000 units of digital asset DE. The transaction
is a real estate transaction under §1.6045-4(b) and is
closed by closing attorney CA, who is a real estate
reporting person under §1.6045-4(e). As part of per-
forming its services as closing attorney, CA requests
the name, address, and tax identification number
from both B and S.
(ii) Analysis. The closing services provided by
CA are facilitative services under paragraph (a)(21)
(iii)(B) of this section because CA is performing ser-
vices as a real estate reporting person as defined in
§1.6045-4(e) 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. As
part of its services in closing the real estate transac-
tion, CA is in a position to know B’s identity and the
nature of B’s real estate transaction under paragraphs
(a)(21)(ii)(A) and (B) of this section. Accordingly,
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 S under §1.6045-4(a).
(26) Example 26: 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 cryptogra-
phy to secure transactions that are digitally recorded
on a cryptographically secured distributed ledger
called the DL blockchain. CRX is a digital asset bro-
ker 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 block-
chain, 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.
(27) Example 27: Digital asset and security. M
owns 10 units of a fund that was formed to invest in
digital assets. M’s units of the fund are held in a secu-
rities brokerage account and are not recorded using
cryptographically secured distributed ledger technol-
ogy. Although the fund’s underlying investments are
comprised of one or more digital assets, M’s invest-
ment is in units of the fund, which are not digital
assets under paragraph (a)(19) of this section because
transactions involving these fund units are not secured
using cryptography and are not digitally recorded on a
distributed ledger, such as a blockchain.
(28) Example 28: 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 for-
ward contract. J’s delivery of digital asset DE pur-
suant 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)(ii)(A)(3)
and (a)(9)(i) of this section, CRX may treat the deliv-
ery of DE as a sale without separating the profit or
loss on the forward contract from the profit or loss
on the delivery.
(29) Example 29: Digital asset—(i) Facts. On
February 7, Year 1, J purchases a regulated futures
contract on digital asset DE through futures com-
mission 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 reg-
ulated futures contract.
(ii) Analysis. Although the regulated futures
contract’s underlying assets are comprised of digi-
tal 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 involv-
ing the contract are not secured using cryptography
and are not digitally recorded using cryptographi-
cally 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.
(30) Example 30: 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, at an exercise price of $5,000 for the contract. On
the last Friday in June, Year 1, the fair market value
of the DE covered by the regulated futures contract
is $5,050. J delivers the DE in settlement of the reg-
ulated 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

Bulletin No. 2023–38 899 September 18, 2023
delivery of digital asset DE pursuant to the settle-
ment of the regulated futures contract is a sale of the
underlying digital asset DE.
(c) * * *
(3) * * *
(i) * * *
(B) * * *
(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 forego-
ing, a wholly owned agency or instrumen-
tality of any one or more of the foregoing,
or a pool or partnership composed exclu-
sively of any of the foregoing;
* * * * *
(C) * * *
(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 recipi-
ent 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 securi-
ties and for sales of digital assets, a broker
may treat a customer as an exempt recipi-
ent if one of the following applies—
* * * * *
(8) Special coordination rules for cer-
tain information returns relating to digital
assets – (i) Digital assets that constitute
securities or commodities. 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 of
a security not described in paragraph (c)
(8)(iii) of this section or of a commodity,
the broker must report the sale only as a
sale of a digital asset under paragraph (a)
(9)(ii) of this section. See paragraph (d)(2)
(i)(B) of this section for the information
required to be reported for such a sale.
(ii) Digital assets that constitute real
estate. For any transaction involving a sale
of a digital asset under paragraph (a)(9)(ii)
of this section that also constitutes a sale
of reportable real estate under §1.6045-
4(b)(2) that is subject to reporting under
§1.6045-4(a), the broker must report the
transaction as a sale only of reportable real
estate under §1.6045-4(b)(2).
(iii) Digital assets that constitute con-
tracts covered by section 1256(b). For a
sale of a digital asset 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 appro-
priate, the application of the rules in para-
graph (m)(3) of this section.
(iv) Examples. The following examples
illustrates the rules of this paragraph (c)
(8):
(A) Example 1: Digital asset securities—(1)
Facts. Digital asset broker CRX effects on behalf
of its customers sales of DSK, which is a security
within the meaning of paragraph (a)(3) of this sec-
tion. Transactions involving DSK are recorded on a
cryptographically secured distributed ledger called
the DSK blockchain. L is an individual customer
of CRX that is not otherwise exempt from report-
ing. Using CRX’s services, L exchanges 100 units
of DSK for $200 in cash. CRX does not record this
transaction on the DSK blockchain, but instead
records the transaction on CRX’s private ledger.
(2) Analysis. DSK is both a security under para-
graph (a)(3) of this section and a digital asset under
paragraph (a)(19) of this section. L’s sale of 100
units of DSK for $200 in cash constitutes a sale of
securities for cash under paragraph (a)(9)(i) of this
section and a sale of digital assets in exchange for
cash under paragraph (a)(9)(ii)(A)(1) of this section.
Accordingly, pursuant to the coordination rule set
forth in paragraph (c)(8)(i) of this section, CRX is
required to report this transaction as a sale of digital
assets under paragraph (a)(9)(ii) of this section and
not as a sale of securities.
(B) Example 2: Digital asset representing real
estate—(1) Facts. Digital asset broker CRX effects
on behalf of its customers sales of tokenized real
estate interests, including RE, which is a digital rep-
resentation of value representing a partial ownership
interest in a physical building in City X. Transactions
involving RE are recorded on a cryptographically
secured distributed ledger called the Z blockchain.
S is an individual customer of CRX that is not oth-
erwise exempt from reporting. S sells 1 unit of RE
for $20,000 in cash to another customer of CRX,
Individual B. The transfer of the RE token from S’s
digital asset address to B’s digital asset address is
recorded on the Z blockchain.
(2) Analysis. RE is both an interest in reportable
real estate under §1.6045-4(b)(2) and a digital asset
under paragraph (a)(19) of this section. Although the
sale of the RE unit by L to B for $20,000 in cash
constitutes a sale of a digital asset in exchange for
cash under paragraph (a)(9)(ii)(A)(1) of this section,
L’s sale of the RE unit also constitutes a real estate
transaction under §1.6045-4(b)(1) that is subject to
reporting under §1.6045-4(a). Accordingly, pursuant
to the coordination rule set forth in paragraph (c)(8)
(ii) of this section, CRX is required to report this
transaction as a sale of a reportable real estate inter-
est under §1.6045-4(a) and not as a sale of a digital
asset.
(C) Example 3: Digital asset representing real
estate—(1) Facts. The facts are the same as in
paragraph (c)(8)(iv)(B) of this section (the facts in
Example 2), except that S’s sale of the RE token to B
is for $500 instead of $20,000 in cash.
(2) Analysis. Although RE constitutes both an
interest in reportable real estate under §1.6045-4(b)
(2) and a digital asset under paragraph (a)(19) of
this section, S’s sale of RE is for a total consider-
ation of less than $600. Pursuant to the de minimis
transaction rule under §1.6045-4(c)(1)(iii), the sale
of RE is not subject to reporting under §1.6045-4(a).
Accordingly, CRX is required to report this transac-
tion as a sale of a digital asset under paragraph (c)
of this section.
(d) * * *
(2) * * *
(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 cus-
tomer, the property sold, the Committee
on Uniform Security Identification
Procedures (CUSIP) number of the secu-
rity 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 chap-
ter), 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 instru-
ments. 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 digi-
tal asset transactions. 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 the form prescribed by the Secretary the

September 18, 2023 900 Bulletin No. 2023–38
name, address, and taxpayer identification
number of the customer; the name and
number of units of the digital asset sold;
the sale date and time; 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); the transaction ID as
defined in paragraph (a)(26) of this sec-
tion in connection with the sale, if any; the
digital asset address as defined in para-
graph (a)(20) of this section (or digital
asset addresses if multiple) from which
the digital asset was transferred in con-
nection with the sale, if any; whether the
sale was for cash, stored-value cards, or in
exchange for services, or other property;
and any other information required by the
form in the manner and number of copies
required by the form or instructions. In the
case of any sale described in the previous
sentence that is also described in para-
graph (c)(8)(i) of this section, the broker
must also report any information required
under paragraph (d)(2)(i)(A) of this sec-
tion to the extent required by the form or
instructions. For each such sale of a digi-
tal 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 and
time of such transfer in; the transaction
ID of such transfer in, if any; the digital
asset address (or digital asset addresses
if multiple) from which the digital asset
was transferred, if any; and the number of
units transferred in by the customer. If a
sale of a digital asset gives rise to digital
asset transaction costs that are paid using
digital assets, the sale of the digital asset
to pay for the digital asset transaction
costs must also be reported as a sale.
(C) Acquisition information for sales
of certain digital assets. For each sale
described in paragraph (a)(9) of this sec-
tion on or after January 1, 2026, of a cov-
ered security defined in paragraph (a)(15)
(i)(H), (J), or (K) of this section, for which
a broker is required to make a return of
information under paragraph (d)(2)(i) of
this section, the broker must also report
the adjusted basis of the covered security
sold calculated in accordance with para-
graph (d)(6) of this section, the date and
time such covered security was purchased,
and whether any gain or loss with respect
to the covered security sold is long-term
or short-term (within the meaning of sec-
tion 1222).
(ii) Specific identification of speci-
fied 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 secu-
rity 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 con-
sistently 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 fol-
lowed by the earliest securities purchased
or acquired, whether covered securities or
noncovered securities.
(B) Specific identification of digital
assets. For a specified security described
in paragraph (a)(14)(v) of this section, a
broker must report a sale of less than the
entire position in an account of such spec-
ified security that was acquired on differ-
ent dates or at different prices consistently
with the adequate identification of the dig-
ital asset to be sold. See §1.1012-1(j)(3)
(ii) for rules relating to the identification
of units sold, exchanged, or transferred. If
the customer does not provide an adequate
and timely identification for the sale, the
broker must first report the sale of the ear-
liest units of the digital asset purchased
within or transferred into the customer’s
account at the broker. Units of a digital
asset are transferred into the customer’s
account as of the date and time of the
transfer.
(iii) Penalty relief for reporting infor-
mation 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 iden-
tifies the sale as a sale of a noncovered
security. A broker that chooses to report
this information for a noncovered secu-
rity is not subject to penalties under sec-
tion 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) Digital assets sold before appli-
cability 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, or the adjusted
basis and the character of any gain or loss
with respect to a sale of a covered security
described in paragraph (a)(15)(i)(H), (J),
or (K) of this section if the sale is effected
prior to January 1, 2026. A broker that
chooses to report this information on either
the Form 1099-B, “Proceeds From Broker
and Barter Exchange Transactions,” or
when available the form prescribed by the
Secretary pursuant to paragraph (d)(2)(i)
(B) of this section is not subject to penal-
ties under section 6721 or 6722 for failure
to report this information correctly.
(iv) * * *
(A) Transfer and issuer statements
for securities. When reporting a sale of a
covered security other than a digital asset
described in paragraph (a)(19) of this sec-
tion, 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 fur-
nished 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. * * *
(B) Other information with respect to
securities. * * *
(v) Failure to receive a complete trans-
fer 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 secu-
rity 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. * * *
(vi) Reporting by other parties after a
sale of securities -- * * *

Bulletin No. 2023–38 901 September 18, 2023
(vii) Examples. The following exam-
ples illustrate the rules of this paragraph
(d)(2). Unless otherwise indicated, all
events and transactions described in para-
graphs (d)(2)(vii)(C) through (F) of this
section (Examples 3 through 6) occur after
the applicability date set forth in para-
graph (q) of this section.
* * * * *
(C) Example 3: Reporting required by broker
providing hosted wallet services—(1) Facts. TRX is
a digital asset broker that also provides hosted wallet
services. As part of TRX’s regular operations, TRX
does not record customer purchases of DE on the
DE blockchain, but instead holds all digital assets
in a TRX omnibus account. TRX, in turn, keeps a
centralized record on which it allocates digital assets
held on behalf of each of its customers. K, an indi-
vidual not otherwise exempt from reporting, pur-
chases 100 units of digital asset DE in a hosted wallet
account at TRX. On March 9, Year 1, K directs TRX
to transfer the 100 units to CRX, another digital asset
broker that owns and operates a digital asset trading
platform and provides hosted wallet services. CRX
does not record customer purchases of DE on the
DE blockchain, but instead holds all digital assets
in a CRX omnibus account and keeps a central-
ized record on which it allocates digital assets held
on behalf of each of its customers. The transaction
ID of this transfer to CRX is kbcsj123. The digital
asset address from which the units were transferred
is 2hh77100. K directs CRX to sell the 100 units of
DE on April 1, Year 1. CRX does not record K’s sale
on the DE blockchain, but instead reallocates the 100
units of DE previously allocated to K back to CRX’s
omnibus account.
(2) Analysis. Under paragraph (d)(2)(i)(B) of this
section, CRX is required to make a return of informa-
tion with respect to K’s sale of 100 units of DE. CRX
must report the gross proceeds from the sale, the date
(April 1, Year 1) and time of the sale, the name of the
digital asset (DE) sold, and the number of units (100)
sold, and any other information required by the form
prescribed by the Secretary pursuant to paragraph
(d)(2)(i)(B) of this section. CRX is not required to
report the transaction ID of the sale transaction or
the digital asset address from which the units were
transferred because CRX did not record K’s sale on
the DE blockchain (and therefore there is no trans-
action ID or digital asset address in connection with
the sale). Because K previously transferred the DE
units treated as sold into K’s account at CRX, para-
graph (d)(2)(i)(B) of this section requires that CRX
also report the transaction ID (kbcsj123) associated
with the transferred-in digital assets, the digital asset
address (2hh77100) from which the digital assets
were transferred, and the date (March 9, Year 1) and
time the units were transferred to CRX.
(D) Example 4: Reporting required by broker not
providing hosted wallet services—(1) Facts. J, an
individual not otherwise exempt from reporting, pur-
chases 500 units of digital asset DE in an unhosted
wallet. Of these 500 units purchased, 350 are held
at digital asset address 1ss9925 and 150 are held at
digital asset address 2tt8875. On April 28, Year 1, J
exchanges all 500 units of DE for 500 units of ST
using the services of P2X, a digital asset broker that
effects sales of digital assets directly between cus-
tomers by providing customers with access to auto-
matically executing contracts. The transaction ID of
J’s exchange is ghj789.
(2) Analysis. Under paragraph (d)(2)(i)(B) of this
section, P2X is required to make a return of informa-
tion with respect to J’s sale of 500 units of DE. P2X
must report the gross proceeds from the sale, the date
(April 28, Year 1) and time of the sale, the name of
the digital asset (DE) sold, the number of units (500)
sold, and any other information required by the form
prescribed by the Secretary pursuant to paragraph (d)
(2)(i)(B) of this section. Additionally, P2X must also
report the transaction ID (ghj789) of the sale trans-
action and the digital asset addresses (350 units from
1ss9925 and 150 units from 2tt8875) from which the
digital assets were transferred.
(E) Example 5: Reporting required by real
estate reporting person—(1) Facts. J, an unmarried
individual not otherwise exempt from reporting,
agrees to exchange with B, an individual not oth-
erwise exempt from reporting, J’s principal resi-
dence, Blackacre, which has a fair market value of
$225,000 for digital assets with a value of $225,000.
Prior to closing, J provides CA 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). At closing,
B transfers the digital assets directly from B’s wal-
let to J’s wallet. CA is the closing attorney and real
estate reporting person under §1.6045-4 with respect
to the transaction.
(2) Analysis. Although CA is not required to
file an information report with respect to the gross
proceeds received by J as a result of the exception
to reporting provided under §1.6045-4(c)(2), CA
is required to report on the form prescribed by the
Secretary pursuant to paragraph (d)(2)(i)(B) of this
section the gross proceeds received by B ($225,000)
in exchange for B’s sale of digital assets in this
transaction because B’s exchange of digital assets
for Blackacre is a sale under paragraph (a)(9)(ii)(B)
of this section and CA is a broker under paragraph
(a)(1) of this section notwithstanding the exception
from reporting to J.
(F) Example 6: 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 $1 per
unit. On January 1, Year 2, TP opens a hosted wal-
let 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 August 3, Year 3, TP directs
BEX to sell 10 units of DE but does not specify
which units are to be sold. 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 dig-
ital 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 sec-
tion. Pursuant to that rule, the units sold must be
attributed to the earliest units of digital asset DE
purchased within or transferred into TP’s account.
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 pur-
chased prior to the date (August 1, Year 3) when TP
transferred the other units purchased at CRX into
the account.
* * * * *
(4) Sale date and time – (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 led-
ger technology, such as a blockchain or
similar technology, the broker must report
the date and time of sale as the date and
time when the transactions are recorded
on the ledger. For sales of digital assets
that are effected on a system outside of
a blockchain, the broker must report the
date and time of sale as the date and time
when the transactions are recorded on that
outside system without regard to the date
and time that the transactions may be later
recorded on a blockchain. Unless other-
wise specified on the form prescribed by
the Secretary pursuant to paragraph (d)
(2)(i)(B) of this section or its instructions,
all dates and times reported with respect
to a digital asset transaction should be set
forth in hours, minutes, and seconds using
Coordinated Universal Time (UTC).
(iii) Examples. The following exam-
ples illustrate the rules of this paragraph
(d)(4). Unless otherwise indicated, all
events and transactions in the following
examples occur after the applicability date
set forth in paragraph (q) of this section.
(A) Example 1: Digital assets sale date and
time—(1) Facts. J, an individual not otherwise
exempt from reporting, purchases 500 units of dig-
ital asset DE in an unhosted wallet. On April 28,
Year 1, J initiates an exchange of these 500 units of
DE for 500 units of ST using the services of P2X, a
digital asset broker that effects sales of digital assets
by providing customers with access to automati-
cally executing contracts. The completed exchange
is recorded on the DE blockchain at 10:00:00 a.m.
UTC on April 28, Year 1.
(2) Analysis. Under paragraph (d)(4) of this sec-
tion, the date and time P2X must report with respect
to J’s sale is April 28, Year 1, at 10:00:00 a.m. UTC
because that is the time the sale transaction was
recorded on the DE distributed ledger.

September 18, 2023 902 Bulletin No. 2023–38
(B) Example 2: Digital assets sale date and
time—(1) Facts. The facts are the same as in para-
graph (d)(4)(iii)(A)(1) of this section (the facts
in Example 1), except J initiates the exchange on
December 31, Year 1, at 10:00:00 p.m. Eastern
Standard Time (EST), which is the time zone J was in
at the time of the exchange. The completed exchange
is recorded on the DE blockchain at 3:00:00 a.m.
UTC on January 1, Year 2.
(2) Analysis. Under paragraph (d)(4) of this sec-
tion, P2X must report the date and time of the trans-
action using UTC time. Because the transaction was
recorded at 3:00:00 a.m. UTC on January 1, Year 2,
P2X must report J’s sale in calendar year of Year 2
as of that UTC date and time and not in calendar year
of Year 1.
(C) Example 3: Digital assets sale date and
time—(1) Facts. TRX is a digital asset broker that
also provides hosted wallet services. As part of
TRX’s regular operations, TRX does not record cus-
tomer purchases of DE on the DE blockchain, but
instead holds all digital assets in a TRX omnibus
account. TRX, in turn, keeps a centralized record
on which it allocates digital assets held on behalf of
each of its customers. On January 1, Year 1, K, an
individual not otherwise exempt from reporting, pur-
chases 100 units of digital asset DE in a hosted wallet
account at TRX. On March 9, Year 4, K directs TRX
to sell, and TRX sells, the 100 units of DE. TRX does
not record K’s sale on the DE blockchain, but instead
debits from K’s account the 100 units of DE previ-
ously allocated to K’s account. TRX’s records reflect
that this debit was recorded on March 9, Year 4, at
10:45:00 a.m. UTC.
(2) Analysis. Under paragraph (d)(4) of this sec-
tion, the date and time TRX must report with respect
to K’s sale is March 9, Year 4, at 10:45:00 a.m. UTC
because that is the time the sale transaction was
recorded on TRX’s internal records.
(D) Example 4: Information reporting required—
(1) Facts. The facts are the same as in paragraph (d)
(4)(iii)(C)(1) of this section (the facts in Example
3), except TRX keeps its records using Eastern
Standard Time (EST), and those records reflect that
the debited units associated with K’s transaction was
recorded on March 9, Year 4, at 9:45:00 a.m. EST.
(2) Analysis. Under paragraph (d)(4) of this
section, TRX must convert the time recorded in its
records using EST into UTC time. Because 9:45:00
a.m. EST on March 9, Year 4, is equivalent to 2:45:00
p.m. UTC, the date and time TRX must report with
respect to K’s sale is March 9, Year 4, at 2:45:00 p.m.
UTC.
(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 sec-
tion, 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 qual-
ified stated interest reported under para-
graph (d)(3) of this section and increased
by any amount not paid or credited by rea-
son 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 custom-
er’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 commis-
sions and transfer taxes related to the sale
of the security. For securities sold pursu-
ant 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, pro-
vided 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 pro-
ceeds of each share if the stock is sold at
separate times on the same calendar day in
executing a single trade order and the bro-
ker 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 bro-
ker 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)
through (D) of this section apply solely
for purposes of this section.
(A) In general. Except as otherwise
provided in this section, gross proceeds
from the sale of a digital asset are equal
to the sum of the total amount in U.S. dol-
lars paid to the customer or credited to the
customer’s account from the sale plus the
fair market value of any property or ser-
vices 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 sub-
ject to §1.1001-1(g), the amount realized
attributable to the debt instrument is deter-
mined under §1.1001-7(b)(1)(iv) rather
than by reference to the fair market value
of the debt instrument. See paragraph (d)
(5)(iv) of this section for a special rule
setting forth how digital asset transaction
costs are to be allocated in an exchange
of one digital asset for a different digital
asset. 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 valu-
ation 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 digi-
tal 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 aggre-
gator as defined in paragraph (d)(5)(ii)(D)
of this section, provided such valuations
apply a reasonable valuation method for
digital assets as described in paragraph (d)
(5)(ii)(C) of this section.
(B) 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 ordi-
narily be identical to the value of the dig-
ital 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 digi-
tal assets, received. If the broker or digital
asset data aggregator, in the case of digital
assets, reasonably determines that the fair

Bulletin No. 2023–38 903 September 18, 2023
market value of the services or property
received cannot be determined with rea-
sonable accuracy, the fair market value of
the received services or property must be
determined by reference to the fair mar-
ket 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 unde-
terminable value.
(C) 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 capital-
ization and other factors relevant to the
valuation of digital assets traded through
digital asset trading platforms. A valua-
tion 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 trad-
ing platforms having low trading volume,
or otherwise inappropriately weighs fac-
tors associated with a price that would
make that price an unreliable indicator of
value.
(D) Digital asset data aggregator. A
digital asset data aggregator is an infor-
mation service provider that provides
valuations of digital assets based on any
reasonable valuation method.
(iii) Digital asset transactions effected
by digital asset payment processors. The
amount of gross proceeds under para-
graph (d)(5)(ii) of this section received by
a party who sells a digital asset through
a digital asset payment processor is equal
to: the sum of the amount paid in cash, or
the fair market value of the amount paid
in digital assets by that digital asset pay-
ment processor to a second party, plus any
digital asset transaction costs 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. For purposes of this paragraph
(d)(5)(iii), if a digital asset payment pro-
cessor transfers digital assets to a second
person pursuant to a processor agreement
that temporarily fixes the exchange rate
in a transaction described in paragraph
(a)(22)(ii) of this section, the fair market
value of the amount paid in digital assets
is the amount determined by reference to
the fixed exchange rate.
(iv) Allocation of digital asset trans-
action costs. The term digital asset trans-
action costs means the amount paid in
cash or property (including digital assets)
to effect the disposition or acquisition of
a digital asset. Digital asset transaction
costs include transaction fees, transfer
taxes, and commissions. Except as pro-
vided in the following sentence, 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 disposition of the digital assets. In an
exchange of one digital asset for another
digital asset differing materially in kind
or in extent, one-half of any digital asset
transaction costs paid by the customer in
cash or property to effect the exchange is
allocable to the disposition of the trans-
ferred digital asset and the other half of
such costs is allocable to the acquisition
of the received digital asset.
(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 after the applicability date set forth
in paragraph (q) of this section.
(A) Example 1: Determination of gross pro-
ceeds—(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) 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 one-half of the value
of the CM unit sold to pay the digital asset transac-
tion cost to CRX). 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). One-half of such costs ($1) is allocable to the
sale of the DE units. Accordingly, CRX must report
gross proceeds of $79 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 pro-
ceeds—(1) Facts. CPP, a digital asset payment pro-
cessor, 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 pur-
chases 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 pur-
chase merchandise from a U.S. retail 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. Under paragraph (d)(5)(iv) of this
section, B paid digital asset transaction costs of $20.
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 mer-
chandise 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). 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).
(C) Example 3: Determination of gross pro-
ceeds—(1) Facts. STR, a U.S. retail corporation,
advertises that it accepts digital asset FE as payment
for its merchandise. Customers making purchases at
STR using digital asset FE are directed to create an
account with digital asset payment processor CXX,
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% transac-
tion fee, which is paid by STR and not STR’s cus-
tomers. S, an individual not otherwise exempt from
reporting, seeks to purchase merchandise from STR
for $1,000. 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 pur-
chase transaction. Pursuant to this exchange rate, S
then transfers 500 units of FE to CXX, which, in

September 18, 2023 904 Bulletin No. 2023–38
turn, pays STR $980 ($1,000 less a 2% transaction
fee equal to $20).
(2) Analysis. Under paragraph (d)(5)(iii) of this
section, the gross proceeds amount that CXX must
report with respect to this sale is $1,000, which is
the sum of the amount in U.S. dollars paid by CPP
to STR ($980) plus the $20 digital asset transaction
costs withheld from the payment due to STR. Under
paragraph (d)(5)(iv) of this section, S has no allo-
cable digital asset transaction costs. Therefore, the
$980 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 defi-
nition in §1.6050W-1(c)(2).
(D) Example 4: Determination of gross proceeds
in a real estate transaction—(1) Facts. J, an unmar-
ried individual not otherwise exempt from reporting,
agrees to exchange with B, an individual not other-
wise exempt from reporting, J’s principal residence,
Blackacre, which has a fair market value of $300,000
for cash in the amount of $75,000 and digital assets
with a value of $225,000. At closing, B transfers the
digital assets directly from B’s wallet to J’s wallet.
CA is the closing attorney, real estate reporting per-
son under §1.6045-4, and broker under paragraph (a)
(1) of this section with respect to the transaction.
(2) Analysis. CA is required to report on the
form prescribed by the Secretary pursuant to para-
graph (d)(2)(i)(B) of this section 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 pro-
ceeds received by J ($75,000 cash and $225,000 in
digital assets) as consideration for J’s disposition of
Blackacre.
(6) * * *
(i) * * * 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 commis-
sions 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 orga-
nizational action taken by an issuer of a
specified security other than a digital asset
during the period the broker holds cus-
tody 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. * * *
(ii) * * *
(A) Cost basis for specified securities
acquired for cash. For a specified security
acquired for cash, the initial basis gener-
ally is the total amount of cash paid by
the customer or credited against the cus-
tomer’s account for the specified security,
increased by the commissions, transfer
taxes, and digital asset transaction costs
related to its acquisition. * * *
* * * * *
(C) Digital assets acquired in exchange
for property – (1) In general. This para-
graph (d)(6)(ii)(C) applies solely for pur-
poses of this section. For a digital asset
acquired in exchange for property that
is not a debt instrument described in
§1.1012-1(h)(1)(v), 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 acqui-
sition of the digital asset pursuant to the
rules under paragraph (d)(6)(ii)(C)(2) of
this section. 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 transac-
tion 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 aggrega-
tor as defined in paragraph (d)(5)(ii)(D)
of this section, provided such valuations
apply a reasonable valuation method for
digital assets as described in paragraph
(d)(5)(ii)(C) of this section. If the bro-
ker or digital asset data aggregator rea-
sonably 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 rea-
sonable accuracy, the fair market value of
the received digital asset must be treated
as zero. 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 trans-
action costs. Except as provided in the
following sentence, in the case of an
acquisition of digital assets, the total digi-
tal asset transaction costs paid by the cus-
tomer are allocable to the digital assets
received. In an exchange of one digital
asset for a different digital asset differing
materially in kind or in extent, one-half
of the total digital asset transaction costs
paid by the customer in cash or property
to effect the exchange is allocable to the
disposition of the transferred digital asset
and one-half of such costs is allocable to
the acquisition of the received digital asset
for the purpose of determining basis.
(iii) * * *
(A) * * * A broker must apply the wash
sale rules under section 1091 of the Code
if both the sale and purchase transactions
are of covered securities described in
paragraphs (a)(15)(i)(A) through (G) 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). * * *
* * * * *
(x) Examples. The following exam-
ples illustrate the rules of paragraphs (d)
(5) and (6) of this section as applied to
digital assets. Unless otherwise indicated,
all events and transactions in the follow-
ing 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 ser-
vices. In performing these services, CRX
holds and records all customer purchase
and sale transactions using CRX’s cen-
tralized omnibus account. CRX does not
record any of its customer’s purchase or
sale transactions on the relevant cryp-
tographically secured distributed ledgers.
Additionally, unless otherwise indicated,
all events and transactions in the follow-
ing examples occur after the applicability
date for reporting acquisition information
set forth in paragraph (d)(2)(i)(C) of this
section.
(A) Example 1: Determination of basis in digi-
tal 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,

Bulletin No. 2023–38 905 September 18, 2023
purchases 20 units of CM for $20 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. The units of CM purchased by K are
covered securities under paragraph (a)(15)(i) of this
section because they were purchased in K’s account
at CRX by a broker (CRX) providing hosted wallet
services. Accordingly, under paragraphs (d)(2)(i)(B)
and (C) of this section, CRX must report the disposi-
tion by K of 1 unit of CM as a sale by K. 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 initial basis in
DE, $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 basis in dig-
ital 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. Under paragraph (d)(5)(iv) of this
section, K has digital asset transaction costs of $2,
which is the value of 1 unit of CM. Under paragraphs
(d)(2)(i)(B) and (C) 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 CRX
by a broker (CRX) providing hosted wallet services,
the units of DE and CM are covered securities under
paragraph (a)(15)(i) of this section, and CRX must
report K’s adjusted basis in the 10 units of DE and
1 unit of CM. Under paragraph (d)(5)(ii)(A) of this
section, the gross proceeds from K’s sale of the DE
units is $99 (the fair market value of the 50 units
of ST that K received less one-half of the $2 digi-
tal asset transaction costs paid by K, or $1, paid in
CM), that is allocable to the sale of the DE units.
The gross proceeds from K’s sale of the single unit of
CM is $2. Under paragraph (d)(6) of this section, K’s
adjusted basis in the 10 units of DE is $81, resulting
in a long-term capital gain to K of $18 ($99 - $81).
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 $101.
(C) Example 3: Basis reporting for digital
assets—(1) Facts. On August 26, 2023, Customer P
purchases 10 units of DE for $2 per unit in cash in
an account at CRX. CRX charges P a fixed trans-
action fee of $5 in cash for the exchange. DE is a
digital representation of value, the transfer of which
is recorded on Blockchain DE, a cryptographically
secured distributed ledger. On October 26, 2027, 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. DE is a digital asset under para-
graph (a)(19) of this section because it is a digital
representation of value that is recorded on a cryp-
tographically secured distributed ledger and, there-
fore, a specified security under paragraph (a)(14)(v)
of this section. Because the 10 units of DE that P
exchanged for FG through CRX were acquired in an
account at CRX on August 26, 2023, which is after
January 1, 2023, these units are covered securities
under paragraph (a)(15)(i)(J) of this section. Under
paragraph (d)(5)(iv) of this section, P has digital
asset transaction costs of $20. For the transaction
that took place on October 26, 2027, under para-
graph (d)(2)(i)(B) of this section, CRX must report
the amount of gross proceeds from the sale of DE
in the amount of $990 (the $1,000 fair market value
of FG received on the date and time of transfer, less
one-half of the digital asset transaction costs of $20,
or $10 allocated to the sale). CRX must also report
the $10 digital asset transaction costs allocated to the
sale. Additionally, CRX must also report the adjusted
basis of P’s DE units under paragraph (d)(2)(i)(C)
of this section because they are covered securities.
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, plus one-half of the $20 transaction
fee, or $10, which is allocated under paragraph (d)
(6)(ii)(C)(2) of this section to the acquisition of P’s
FG units.
* * * * *
(e) * * *
(2) * * *
(iii) Coordination rules for exchanges
of digital assets made through barter
exchanges. Exchange transactions involv-
ing 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 sec-
tion 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 paragraphs (e) and (f) of this sec-
tion, 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 pay-
ment also is a reportable payment trans-
action 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 paragraphs (e) and (f) of this sec-
tion 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 sec-
tion and not as an exchange of personal
property through a barter exchange sub-
ject to reporting under paragraphs (e)
and (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) * * *
(1) * * * 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 para-
graph (g)(4) of this section. See paragraph
(a)(1) of this section for when a person
is not treated as a broker under this sec-
tion 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.
* * * * *
(2) Barter exchanges. No return of infor-
mation 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) * * *
(iii) * * *
(A) * * * 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

September 18, 2023 906 Bulletin No. 2023–38
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 com-
pletes the acts necessary to effect the sale
outside the United States. * * *
* * * * *
(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 consid-
ered to be an exempt foreign person under
this paragraph (g)(4).
(i) Definitions. The following defini-
tions apply for purposes of this section.
(A) U.S. digital asset broker. A U.S.
digital asset broker is a U.S. payor or U.S.
middleman as defined in §1.6049-5(c)(5),
other than a controlled foreign corporation
within the meaning of §1.6049-5(c)(5)(i)
(C), that effects sales of digital assets on
behalf of others.
(B) CFC digital asset broker. A CFC
digital asset broker is a controlled for-
eign corporation within the meaning of
§1.6049-5(c)(5)(i)(C) that effects sales of
digital assets on behalf of others.
(C) Non-U.S. digital asset broker. A
non-U.S. digital asset broker is a non-U.S.
payor or non-U.S. middleman as defined
in §1.6049-5(c)(5) that effects sales of
digital assets on behalf of others.
(D) Conducting activities as a money
services business. A CFC digital asset
broker or a non-U.S. digital asset broker
is conducting activities as a money ser-
vices business (conducting activities as a
money services business (MSB)) under
this paragraph (g)(4) with respect to its
sales of digital assets, except as provided
in the next sentence, if it is registered with
the Department of the Treasury under 31
CFR 1022.380 or any successor guid-
ance as an MSB, as defined in 31 CFR
1010.100(ff) or any successor guidance.
Notwithstanding any registration as an
MSB described in the preceding sentence,
solely for purposes of this paragraph (g)
(4), CFC digital asset brokers and non-
U.S. digital asset brokers may not be
treated as conducting activities as an MSB
with respect to any sale of a digital asset
that is effected by that broker on behalf of
a customer at a foreign kiosk to the extent
provided in paragraph (g)(4)(i)(E) of this
section.
(E) Foreign kiosk. A foreign kiosk
means a physical electronic terminal that
is located outside the United States and
is owned or operated by a CFC digital
asset broker or a non-U.S. digital asset
broker that is not required under the Bank
Secrecy Act to implement an anti-money
laundering program (AML program), file
reports, or otherwise comply with require-
ments for MSBs under the Bank Secrecy
Act with respect to sales effected on behalf
of its customers at the foreign kiosk.
(ii) Rules for U.S. digital asset bro-
kers – (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 bro-
ker has a beneficial owner withholding
certificate described in §1.1441-1(e)(2)
(i) that the broker may treat as valid under
§1.1441-1(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) 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 rea-
sonably 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 para-
graphs (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, pre-
sumption rules that apply in the absence
of documentation, and rules for customers
that are joint account holders. See para-
graph (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 sec-
tion for a transition rule for preexisting
accounts.
(iii) Rules for CFC digital asset bro-
kers not conducting activities as MSBs.
This paragraph (g)(4)(iii) applies to CFC
digital asset brokers that are not conduct-
ing activities as MSBs. See paragraph (g)
(4)(v) of this section for rules applicable
to CFC digital asset brokers that are con-
ducting activities as MSBs.
(A) Place of effecting sale. For pur-
poses of this section, a sale of a digital
asset that is effected by a CFC digital
asset broker subject to the rules of this
paragraph (g)(4)(iii) is considered to be
effected at an office outside the United
States. See §31.3406(g)-1(e) of this chap-
ter for an exception to backup withhold-
ing on gross proceeds from a sale of a
digital asset effected at an office outside
the United States by a CFC digital asset
broker unless the broker has actual knowl-
edge that the payee is a U.S. person.
(B) Determination of foreign status.
A CFC digital asset broker subject to the
rules of this paragraph (g)(4)(iii) may treat
a customer as an exempt foreign person
with respect to a sale provided that, prior
to the payment to such customer of the
gross proceeds from the sale, the broker
has either a beneficial owner withholding
certificate described in paragraph (g)(4)
(ii)(B) of this section or the documentary
evidence described in §1.1471-3(c)(5)(i)
to support the customer’s foreign status,
pursuant to the requirements of paragraph
(g)(4)(vi) of this section. Additionally,
a CFC digital asset broker may treat the
customer as an exempt foreign person
with respect to a sale under an applicable
presumption rule as provided in paragraph
(g)(4)(vi)(A)(2) of this section. See para-
graphs (g)(4)(vi)(A) through (D) of this
section for additional rules applicable to
withholding certificates and documen-
tary evidence, when a broker may rely

Bulletin No. 2023–38 907 September 18, 2023
on documentation, presumption rules
that apply in the absence of documenta-
tion, and rules for customers that are joint
account holders. See paragraph (g)(4)(vi)
(E) of this section for the extent to which
a CFC digital asset broker subject to the
rules of this paragraph (g)(4)(iii) 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 para-
graph (g)(4)(vi)(F) of this section for a
transition rule for preexisting accounts.
(iv) Rules for non-U.S. digital asset
brokers not conducting activities as MSBs.
This paragraph (g)(4)(iv) applies to non-
U.S. digital asset brokers that are not con-
ducting activities as MSBs. See paragraph
(g)(4)(v) of this section for rules applica-
ble to non-U.S. digital asset brokers that
are conducting activities as MSBs.
(A) Sale outside the United States. For
purposes of this section and except as pro-
vided in paragraph (g)(4)(iv)(B) of this
section, a digital asset sale that is effected
by a non-U.S. digital asset broker subject
to the rules of this paragraph (g)(4)(iv) is
considered to be effected at an office out-
side the United States.
(B) Sale treated as effected at an office
inside the United States as a result of
U.S. indicia. For purposes of this section,
a sale that is otherwise considered to be
effected at an office outside the United
States under paragraph (g)(4)(iv)(A) of
this section by a non-U.S. digital asset
broker must nevertheless be considered
to be effected by that broker at an office
inside the United States if, before the sale
is effected, the broker collects documen-
tation or has other information that is part
of the broker’s account information for the
customer (including information collected
with respect to the customer pursuant to
the broker’s compliance with applicable
AML program requirements that show
any of the following indicia (referred to in
this paragraph (g)(4) as U.S. indicia)):
(1) A customer’s communication with
the broker using a device (such as a com-
puter, smart phone, router, or server) that
the broker has associated with an Internet
Protocol (IP) address or other electronic
address indicating a location within the
United States;
(2) 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
non-U.S. telephone number for the cus-
tomer, or the broker’s classification of the
customer as a U.S. person in its records;
(3) Cash paid to the customer by a trans-
fer of funds into an account maintained by
the customer in the United States, or 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. For purposes of the preced-
ing sentence, an account maintained by the
customer in the United States includes an
account at a bank or financial institution
maintained within the United States but
does not include an international account
as defined in §1.6049-5(e)(4);
(4) One or more digital asset deposits
into the customer’s account at the broker
were transferred from, or one or more dig-
ital 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 orga-
nized within the United States; or
(5) An unambiguous indication of a
U.S. place of birth for the customer.
(C) Consequences of treatment as sale
effected at an office inside the United
States. If a non-U.S. digital asset broker
subject to the rules of this paragraph (g)(4)
(iv) is required to treat a sale as effected at
an office inside the United States pursuant
to paragraph (g)(4)(iv)(B) of this section,
the broker is required to report the sale to
the extent required by paragraph (c) of
this section unless the broker determines
the customer is an exempt foreign person.
See, however, §31.3406(g)-1(e) of this
chapter for an exception to backup with-
holding on gross proceeds from a sale of a
digital asset effected by a non-U.S. digital
asset broker that is not conducting activi-
ties as an MSB unless the broker has actual
knowledge that the payee is a U.S. person.
The broker can treat the customer as an
exempt foreign person if it obtains docu-
mentation permitted under paragraph (g)
(4)(iv)(D) of this section and applies the
rules of paragraphs (g)(4)(vi)(A) through
(D) of this section with respect to the doc-
umentation, or when the broker may treat
the customer as an exempt foreign person
under an applicable presumption rule as
provided in paragraph (g)(4)(vi)(A)(2) of
this section. In applying paragraph (g)(4)
(vi)(B) (relating to reliance on beneficial
owner withholding certificates) or (C) of
this section (relating to reliance on doc-
umentary evidence), however, the broker
is not required to treat documentation as
incorrect or unreliable solely as a result
of the U.S. indicia that required the bro-
ker to obtain such documentation with
respect to a customer. See paragraph (g)
(4)(vi)(E) of this section for the extent
to which a non-U.S. digital asset broker
subject to the rules of this paragraph (g)
(4)(iv) may treat a customer as an exempt
foreign person with respect to a payment
treated as made to a foreign intermedi-
ary, flow-through entity or certain U.S.
branches. See paragraph (g)(4)(vi)(F) of
this section for a transition rule for preex-
isting accounts.
(D) Type of documentation that may be
obtained where there are U.S. indicia – (1)
Collection of U.S. indicia other than U.S.
place of birth. A non-U.S. digital asset
broker subject to the rules of this para-
graph (g)(4)(iv) that is considered to effect
a sale at an office inside the United States
under paragraph (g)(4)(iv)(B) of this sec-
tion due to the collection of a document or
possession of other information showing
any of the U.S. indicia that is described
in paragraphs (g)(4)(iv)(B)(1) through (4)
of this section may treat the customer as
an exempt foreign person provided that,
prior to the payment to such customer, the
broker has either a valid beneficial owner
withholding certificate described in para-
graph (g)(4)(ii)(B) of this section for the
customer, or both—
(i) The documentary evidence
described in §1.1471-3(c)(5)(i) to support
the customer’s foreign status; and
(ii) A written representation from the
customer stating that: “I, the account
owner represent and warrant that I am not
a U.S. person for purposes of U.S. Federal
income tax and that I am not acting for, or
on behalf of, a U.S. person. I understand
that a false statement or misrepresentation
of tax status by a U.S. person could lead to
penalties under U.S. law. If my tax status
changes and I become a U.S. citizen or a
resident, I agree to notify [insert broker’s
name] within 30 days.”

September 18, 2023 908 Bulletin No. 2023–38
(2) Collection of information showing
U.S. place of birth. A non-U.S. digital
asset broker subject to the rules of this
paragraph (g)(4)(iv) that is considered to
effect a sale at an office inside the United
States due to the collection of a docu-
ment or possession of information show-
ing the U.S. indicia that is described in
paragraph (g)(4)(iv)(B)(5) of this section
with respect to a customer may treat the
customer as an exempt foreign person if it
obtains documentary evidence described
in §1.1471-3(c)(5)(i)(B) evidencing the
customer’s citizenship in a country other
than the United States and either—
(i) A copy of the customer’s Certificate
of Loss of Nationality of the United
States; or
(ii) A valid beneficial owner withhold-
ing certificate described in paragraph (g)
(4)(ii)(B) of this section for the customer
and a reasonable written explanation of
the customer’s renunciation of U.S. citi-
zenship or the reason the customer did not
obtain U.S. citizenship at birth.
(v) Rules for CFC digital asset brokers
and non-U.S. digital asset brokers con-
ducting activities as MSBs. A CFC digi-
tal asset broker or a non-U.S. digital asset
broker that is conducting activities as an
MSB as described in paragraph (g)(4)(i)
(D) of this section with respect to a sale of
a digital asset must apply the rules in para-
graph (g)(4)(ii) of this section to that sale
as if that broker were a U.S. digital asset
broker to determine the location where the
sale is effected and the foreign status of
the customer.
(vi) Rules applicable to brokers that
obtain or are required to obtain documen-
tation for a customer and presumption
rules – (A) In general. Paragraph (g)(4)(vi)
(A)(1) of this section describes rules appli-
cable to documentation permitted to be
used under this paragraph (g)(4) to deter-
mine 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 cus-
tomer’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 with-
holding 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 doc-
umentary 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 inter-
mediary, 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 cus-
tomer 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 that the broker can reliably asso-
ciate (within the meaning of §1.1441-
1(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 documentary
evidence, 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 documen-
tation (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 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 withhold-
ing agent for each obligation unless an
exception applies), the provisions appli-
cable 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. 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 documen-
tation 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 refer-
ences in §1.1441-1(b)(3)(ii)(B) to exempt
recipient categories under section 6049
are replaced by the exempt recipient cat-
egories in paragraph (c)(3)(i) of this sec-
tion. With respect to a customer that the
broker has classified as an individual, a
broker that is a U.S. digital asset broker
or that is a CFC digital asset broker or a
non-U.S. digital asset broker that in each
case is conducting activities as an MSB
must treat the customer as a U.S. person.
A broker that is a CFC digital asset broker
or a non-U.S. digital asset broker that in
each case is not conducting activities as an
MSB is required to treat a customer that
it has classified as an individual as a U.S.
person only when the broker has docu-
mentation or other information that is part
of the broker’s account information for the
customer (including information collected
with respect to the customer pursuant to
the broker’s compliance with applicable
AML program requirements) or a with-
holding certificate that show any of the
U.S. indicia described in paragraphs (g)
(4)(iv)(B)(1) through (5) of this section.

Bulletin No. 2023–38 909 September 18, 2023
With respect to a customer that the bro-
ker 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. Notwithstanding
the preceding 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 that the customer
is a U.S. person. For presumption rules
to treat a payment as made to an interme-
diary 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.
(3) Grace period to collect valid doc-
umentation in the case of indicia of a for-
eign customer. If a broker has not obtained
valid documentation that it can reliably
associate with a payment of gross pro-
ceeds to a customer to treat the customer
as an exempt foreign person, or if the bro-
ker 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 cir-
cumstances 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 “digi-
tal 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 pro-
ceeds are blocked income as described in
§1.1441-2(e)(3).
(B) Reliance on beneficial ownership
withholding certificates to determine for-
eign status. For purposes of determining
whether a customer may be treated as an
exempt foreign person under this sec-
tion, 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 incor-
rect. Reason to know is limited to when
the broker has in its account opening files
or other files pertaining to the account
(account information), including docu-
mentation collected for purposes of an
AML program or the beneficial owner
withholding certificate, any of the U.S.
indicia set forth in paragraphs (g)(4)(iv)
(B)(1) through (5) of this section. A bro-
ker will not be considered to have reason
to know that a certificate is unreliable or
incorrect based on documentation col-
lected for an AML program until the date
that is 30 days after the account is opened.
A broker may rely, however, on a bene-
ficial owner withholding certificate not-
withstanding the presence of any of the
U.S. indicia set forth in paragraphs (g)
(4)(iv)(B)(1) through (5) of this section
on the withholding certificate or in the
account information for a customer in the
following circumstances:
(1) With respect to any of the U.S. indi-
cia described in paragraphs (g)(4)(iv)(B)
(1) through (4) 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 informa-
tion, the broker may treat the customer
as an exempt foreign person only if it
has in its possession documentary evi-
dence 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 bro-
ker 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. Additionally, regardless
of whether the customer is an individual
or an entity, a broker may rely on a ben-
eficial owner withholding certificate for
purposes of this paragraph (g)(4)(vi)(B)
(1) when—
(i) The broker is a non-U.S. person;
(ii) The broker is required to report
the payment made to the customer annu-
ally on a tax information statement that is
filed with the tax authority of the country
where the customer is resident as part of
that country’s resident reporting require-
ments; and
(iii) That country has a tax information
exchange agreement or income tax treaty
in effect with the United States.
(2) With respect to the U.S. indicia
described in paragraph (g)(4)(iv)(B)(5)
of this section, the broker has in its pos-
session documentary evidence described
in §1.1471-3(c)(5)(i)(B) evidencing citi-
zenship 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. citizen-
ship or the reason the customer did not
obtain U.S. citizenship at birth.
(C) Reliance on documentary evidence
to determine foreign status. For purposes
of treating a customer as an exempt for-
eign person under this section, except as
otherwise provided in this paragraph (g)
(4)(vi)(C), a broker may rely on documen-
tary evidence described in §1.1471-3(c)
(5)(i) (when the broker is otherwise per-
mitted to do so under paragraph (g)(4)
(iii)(B) or (g)(4)(iv)(B) of this section)
unless the broker has actual knowledge or
reason to know that the documentary evi-
dence is unreliable or incorrect. Reason
to know is limited to when the broker has
in its account opening files or other files
pertaining to the account, including doc-
umentation collected for purposes of an
AML program, any of the U.S. indicia
set forth in paragraphs (g)(4)(iv)(B)(1)
through (5) of this section. A broker will
not be considered to have reason to know
that documentary evidence is unreliable
or incorrect based on documentation col-
lected for an AML program until the date
that is 30 days after the account is opened.
A broker may rely, however, on documen-
tary evidence notwithstanding the pres-
ence of any of U.S. indicia set forth in
paragraphs (g)(4)(iv)(B)(1) through (5) of
this section on the documentary evidence
or in the account information for a cus-
tomer in the following circumstances:
(1) With respect to any of the U.S.
indicia described in paragraphs (g)(4)

September 18, 2023 910 Bulletin No. 2023–38
(iv)(B)(1) through (4) of this section, the
broker has in its possession for a cus-
tomer who is an individual additional
documentary evidence establishing for-
eign 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)), in writing,
supporting the claim of foreign status. In
the case of a customer that is an entity,
the broker may treat the customer as an
exempt foreign person if the broker has
in its possession documentation estab-
lishing foreign status that substantiates
that the entity is actually organized or
created under the laws of a foreign coun-
try. In lieu of the documentary evidence
or documentation described in this para-
graph (g)(4)(vi)(C)(1), a broker may treat
a customer (regardless of whether an
individual or entity) as an exempt foreign
person if—
(i) The broker has in its possession a
beneficial owner withholding certificate
described in paragraph (g)(4)(ii)(B) of
this section for the customer that contains
a permanent residence address (as defined
in §1.1441-1(c)(38)) outside the United
States and a mailing address outside the
United States (or if a mailing address is
inside the United States the customer pro-
vides a reasonable explanation in writing
or additional documentary evidence suf-
ficient to establish the customer’s foreign
status); or
(ii) The broker is a non-U.S. person
and the conditions specified in paragraphs
(g)(4)(vi)(B)(1)(ii) and (iii) of this section
are satisfied.
(2) With respect to the U.S. indicia
described in paragraph (g)(4)(iv)(B)(5)
of this section, the broker has in its pos-
session documentary evidence described
in §1.1471-3(c)(5)(i)(B) evidencing citi-
zenship in a country other than the United
States and either—
(i) A copy of the customer’s Certificate
of Loss of Nationality of the United
States; or
(ii) A valid beneficial owner withhold-
ing certificate described in paragraph (g)
(4)(ii)(B) of this section for the customer
and a reasonable written explanation of
the customer’s renunciation of U.S. citi-
zenship or the reason the customer did not
obtain U.S. citizenship at birth.
(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 para-
graph (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. For purposes of this para-
graph (g)(4), a broker may determine the
status of a customer as a foreign interme-
diary (as defined in §1.1441-1(c)(13)) by
reliably associating (under §1.1441-1(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 with-
holding statement and withholding cer-
tificates or other documentation for each
account holder. A broker that is a U.S.
digital asset broker and a non-U.S. digital
asset broker or a CFC digital asset broker
that in each case is conducting activities
as an MSB, that does not have a valid for-
eign 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). A broker
that is a non-U.S. digital asset broker or a
CFC digital asset broker that in each case
is not conducting activities as an MSB
may alternatively determine the status of
a customer as an intermediary by presum-
ing that the entity is an intermediary to the
extent permitted by §1.1441-1(b)(3)(ii)(C)
(providing rules treating certain payees
as not beneficial owners), without regard
to the requirement in §1.1441-1(b)(3)(ii)
(C) that any documentation be furnished
with respect to an offshore obligation, and
applying §1.1441-1(b)(3)(ii)(C) by substi-
tuting the references to exempt recipient
categories under section 6049 with the
exempt recipient categories in paragraph
(c)(3)(i) of this section. See §1.1441-1(b)
(3)(iii) for presumption rules relating to
the U.S. or foreign status of a customer
that is presumed to be an intermediary. 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).
(2) Foreign flow-through entities. For
purposes of this paragraph (g)(4), a bro-
ker may determine the status of a cus-
tomer 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 cer-
tificate described in §1.1441-5(c)(3)(iii)
(relating to nonwithholding foreign part-
nerships) or (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 state-
ment and withholding certificates or other
documentation for each partner. A broker
may alternatively determine the status
of a customer as a foreign flow-through
entity based on the presumption rules in
§§1.1441-1(b)(3)(ii)(B) (relating to entity
classification) and 1.1441-5(d) (relating
to partnership status as U.S. or foreign)
and (e)(6) (relating to the status of trusts
and estates as U.S. or foreign). 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 (substitut-
ing “exempt recipient under §1.6045-1(c)
(3)” for “exempt recipient described in
§1.6049-4(c)”)).
(3) U.S. branches that are not bene-
ficial owners. For purposes of this para-
graph (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

Bulletin No. 2023–38 911 September 18, 2023
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 certif-
icate described in §1.1441-1(e)(3)(v)
without regard to whether the withhold-
ing 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 pre-
ceding sentence on its U.S. branch with-
holding 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 recipi-
ent 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 bro-
ker 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 doc-
umentation to treat a customer as an
exempt foreign person. Notwithstanding
the rules of this paragraph (g)(4) for deter-
mining the status of a customer as an
exempt foreign person, for a sale of a dig-
ital asset effected before January 1, 2026,
that was held in an account established for
the customer by a broker before January
1, 2025, the broker may treat the customer
as an exempt foreign person provided that
the customer has not previously been clas-
sified as a U.S. person by the broker, and
the information that the broker has in the
account opening files or other files pertain-
ing to the account, including documen-
tation 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 cli-
ent or a member that the barter exchange
may treat as an exempt foreign person
pursuant to the procedures described in
paragraph (g)(4) of this section.
* * * * *
(6) Examples. The application of the
provisions of paragraph (g)(4) of this sec-
tion with respect to sales of digital assets
may be illustrated by the following exam-
ples. All events and transactions in the
following examples occur after the appli-
cability date set forth in paragraph (q) of
this section.
(i) Example 1: Foreign digital asset broker con-
ducting activities as an MSB—(A) Facts. Foreign
corporation (FKS) owns and operates several digi-
tal asset kiosks physically located within the United
States. FKS is not a controlled foreign corporation
within the meaning of §1.6049-5(c)(5)(i)(C). In
addition to the digital asset kiosks located in the
United States, FKS owns and operates an online dig-
ital asset trading platform and provides digital asset
hosted wallet services for online customers who
want to purchase, hold, and exchange various digital
assets for cash or other digital assets. FKS does not
own or operate kiosks located outside of the United
States. FKS is registered as a money service business
(MSB) with the Department of the Treasury.
(1) Customer L: No withholding certificate. L,
an individual who is a non-U.S. resident visiting
the United States, utilizes one of FKS’s digital asset
kiosks located in the United States in order to effect a
sale of digital asset DE for cash. L has not previously
done business with FKS and does not hold digital
assets in an online account with FKS. L represents
to FKS that L is a foreign individual. FKS requests
a beneficial owner withholding certificate from L as
part of FKS’s procedures for effecting transactions
with customers that use FKS’s digital asset kiosks
located in the United States. L does not provide FKS
with a valid beneficial owner withholding certificate
described in paragraph (g)(4)(ii)(B) of this section.
FKS executes the sale of L’s DE on behalf of L and
pays the gross proceeds to L.
(2) Customer L: Withholding certificate. The
facts are the same as in paragraph (g)(6)(i)(A)(1) of
this section, except that prior to the payment of sale
proceeds, L provides FKS with a beneficial owner
withholding certificate described in paragraph (g)
(4)(ii)(B) of this section that FKS may treat as
valid under §1.1441-1(e)(2)(ii) and that satisfies the
requirements of paragraph (g)(4)(vi) of this section.
(3) Customer J. J is an individual that opened
an account with FKS to use FKS’s online digital
asset trading platform. As part of performing FKS’s
account opening procedures FKS collected from
J a copy of a driver’s license issued by country Y
and a valid beneficial owner withholding certificate
described in paragraph (g)(4)(ii)(B) of this section.
Shortly after opening J’s account, FKS obtains infor-
mation showing that J’s communications to FKS
come from an IP address located within the United
States that becomes part of FKS’s account file for J.
After obtaining the information described in the pre-
ceding sentence, FKS effects a sale of digital asset
DE for cash on behalf of J, and credits the gross pro-
ceeds to J’s account with FKS.
(B) Broker’s status and requirements. FKS is a
non-U.S. digital asset broker under paragraph (g)(4)
(i)(C) of this section because it is a non-U.S. payor
under §1.6049-5(c)(5) that effects sales of digi-
tal assets on behalf of customers. Because FKS is
registered as an MSB with the Department of the
Treasury, FKS is conducting activities as an MSB
under paragraph (g)(4)(i)(D) of this section with
respect to its sales of digital assets. As a result, FKS
is subject to the requirements of a U.S. digital asset
broker under paragraph (g)(4)(ii) of this section with
respect to those sales rather than the requirements
of a non-U.S. digital asset broker under paragraph
(g)(4)(iv) of this section (which apply to a non-U.S.
digital asset broker not conducting activities as an
MSB). Moreover, FKS is subject to the requirements
of paragraph (g)(4)(ii) of this section with respect to
all sales of digital assets it effects for its customers
because FKS does not own or operate any digital
asset kiosks physically located outside of the United
States. See paragraphs (g)(4)(i)(D) and (E) of this
section.
(C) Broker’s obligation to report – (1)
Customer L: No withholding certificate. Because
FKS must apply the requirements of paragraph (g)
(4)(ii) of this section with respect to L’s sale, FKS
must make an information return for the sale under
section 6045 unless FKS can treat L as an exempt
recipient under paragraph (c)(3) of this section
(which applies to only certain specified entities) or
as an exempt foreign person. Because FKS has not
collected documentation for L on which FKS may
rely to treat L as an exempt foreign person, FKS
must apply the presumption rules in paragraph (g)
(4)(vi)(A)(2) of this section. FKS presumes that L is
an individual because L appears to be an individual
based on L’s name in the customer file. As an indi-
vidual, L cannot be treated as an exempt recipient
under paragraph (c)(3) of this section. Because FKS
has classified L as an individual and FKS is a non-
U.S. digital asset broker conducting activities as an
MSB that is subject to the rules in paragraph (g)(4)
(ii) of this section with respect to L’s sale, FKS must
treat L as a U.S. person under the presumption rule
applicable to individuals described in paragraph (g)
(4)(vi)(A)(2) of this section. Thus, FKS may not
treat L as an exempt foreign person with respect
to L’s sale of digital asset DE and must make an
information return for the sale under section 6045.
See paragraph (r) of this section for cross references
to requirements for backup withholding under sec-
tion 3406 that may apply to a sale required to be
reported under section 6045. In connection with
applying the requirements for backup withholding,
because sales of DE effected by FKS for L are con-
sidered effected at an office inside the United States
under paragraph (g)(4)(ii)(B) of this section, FKS
may not apply the exception to backup withholding
provided in §31.3406(g)-1(e) of this chapter to the
sale effected on behalf of L.

September 18, 2023 912 Bulletin No. 2023–38
(2) Customer L: Withholding certificate. As
provided in paragraph (g)(4)(ii)(B) of this sec-
tion, FKS may treat L as an exempt foreign person
because FKS has a valid withholding certificate for
L described in paragraph (g)(4)(ii)(B) of this section
that satisfies the requirements of paragraph (g)(4)(vi)
of this section. Accordingly, FKS is not required to
make an information return under section 6045 with
respect to L’s sale.
(3) Customer J. As described in paragraph (g)(6)
(i)(B) of this section, FKS must apply the require-
ments of paragraph (g)(4)(ii) of this section with
respect to J’s sale. Although FKS collected a valid
beneficial owner withholding certificate with respect
to J in accordance with paragraph (g)(4)(ii)(B) of
this section, FKS has reason to know that the with-
holding certificate is incorrect or unreliable because
FKS has U.S. indicia described in paragraph (g)(4)
(iv)(B)(1) of this section in J’s account file. FKS may
continue to rely on the withholding certificate if FKS
obtains from J documentary evidence establishing
foreign status (as described in §1.1471-3(c)(5)(i))
that does not contain a U.S. address and a reason-
able explanation (as defined in §1.1441-7(b)(12))
from J, in writing, supporting the claim of foreign
status. Alternatively, FKS may rely on the withhold-
ing certificate if FKS reports J to country Y and the
conditions specified in paragraphs (g)(4)(vi)(B)(1)
(ii) and (iii) of this section are satisfied. FKS has a
driver’s license for J issued by country Y but does
not have the reasonable explanation. FKS does not
report J to country Y or satisfy the other conditions
in paragraphs (g)(4)(vi)(B)(1)(ii) and (iii) of this sec-
tion. Therefore, FKS may not rely on the beneficial
owner withholding certificate to treat J as an exempt
foreign person. However, FKS may rely on the grace
period described in paragraph (g)(4)(vi)(A)(3) of this
section (which in turn references the requirements
of §1.6049-5(d)(2)(ii)) to treat J as an exempt for-
eign person for a 90-day period because FKS has a
withholding certificate for J that is no longer reliable
(other than because the validity period has expired),
provided that the remaining balance of J’s account
with FKS is equal to or greater than the statutory
backup withholding rate applied to the amount of
gross proceeds credited to the account. See §1.6049-
5(d)(2)(ii). The 90-day grace period begins on the
date that the withholding certificate may no longer
be relied upon because of the communications from
a U.S. IP address. If the sale is effected after the end
of the grace period, FKS must apply the presumption
rules in paragraph (g)(4)(vi)(A)(2) of this section.
FKS must presume that J is an individual because
FKS has a driver’s license for J. As an individual, J
cannot be treated as an exempt recipient under para-
graph (c)(3) of this section. FKS must treat J as a
U.S. person under the presumption rules applicable
to individuals in paragraph (g)(4)(vi)(A)(2) of this
section. Thus, FKS may not treat J as an exempt for-
eign person with respect to J’s sale of digital asset
DE and must make an information return for the sale
under section 6045. See paragraph (r) of this section
for cross references to requirements for backup with-
holding under section 3406 that may apply to a sale
required to be reported under section 6045. In con-
nection with applying the requirements for backup
withholding, because sales of DE effected by FKS
for J are considered effected at an office inside the
United States under paragraph (g)(4)(ii)(B) of this
section, FKS may not apply the exception to backup
withholding provided in §31.3406(g)-1(e) of this
chapter to the sale effected on behalf of J.
(ii) Example 2: Foreign digital asset broker reg-
istered as MSB effecting sales at digital asset kiosks
located outside the United States—(A) Facts. The
facts are the same as in paragraph (g)(6)(i)(A) of this
section (the facts in Example 1), except that FKS also
effects sales of digital assets for customers through
digital asset kiosks physically located in country Y
that FKS owns and operates. FKS is not required to
implement an AML program, file reports, or other-
wise comply with requirements for MSBs under the
Bank Secrecy Act with respect to sales effected at
digital asset kiosks physically located in country Y
that FKS owns and operates.
(1) Customer C. C, an individual, utilizes a dig-
ital asset kiosk operated by FKS in country Y to sell
C’s digital asset DE for cash. C does not have any
interaction with other parts of FKS’s business (such
as FKS’s online digital asset trading platform or
hosted wallet service). As part of FKS’s documenta-
tion procedures, including the performance of local
country AML program requirements, FKS collects
from C a copy of C’s driver’s license issued by coun-
try Y and a copy of C’s passport issued by country Y.
FKS does not have in its account file for C any docu-
ment or other information with respect to C showing
any of the U.S. indicia described in paragraphs (g)(4)
(iv)(B)(1) through (5) of this section.
(2) Customer K. K, an individual, utilizes a dig-
ital asset kiosk operated by FKS in country Y to sell
K’s digital asset DE for cash. As part of FKS’s doc-
umentation procedures, including the performance
of local country AML program requirements, FKS
collects from K an address in country Y, a copy of
K’s driver’s license issued by country Y, and a copy
of K’s U.S. passport that indicates a place of birth for
K in the United States.
(B) Broker’s status and requirements. As indi-
cated in paragraph (g)(6)(i)(B) of this section
(Example 1), FKS is a non-U.S. digital asset broker
under paragraph (g)(4)(i)(C) of this section that is
conducting activities as an MSB under paragraph (g)
(4)(i)(D) of this section. As a result, FKS is subject to
the requirements of paragraph (g)(4)(ii) of this sec-
tion except with respect to sales it effects through
foreign kiosks that are described in paragraph (g)(4)
(i)(E) of this section since FKS is not required under
the Bank Secrecy Act to implement an AML pro-
gram, file reports, or otherwise comply with require-
ments for MSBs under the Bank Secrecy Act with
respect to sales effected at the kiosks. Accordingly,
FKS is subject to the requirements of a non-U.S.
digital asset broker under paragraph (g)(4)(iv) of this
section with respect to sales that it effects through its
foreign kiosks.
(C) Broker’s obligation to report – (1) Customer
C. Because FKS is subject to the requirements of
paragraph (g)(4)(iv) of this section with respect to
C’s sale at FKS’s foreign kiosk and because none of
the documents or other information in FKS’s account
file for C include any of the U.S. indicia described in
paragraphs (g)(4)(iv)(B)(1) through (5) of this sec-
tion, FKS may treat the sale of digital asset DE on
behalf of C as effected at an office outside the United
States under paragraph (g)(4)(iv)(A) of this section.
Accordingly, FKS is not considered a broker under
paragraph (a)(1) of this section with respect to the
sale, and FKS is therefore not required to make an
information return under section 6045 with respect
to C’s sale. The result would be the same regardless
of whether FKS collected documentation for C, pro-
vided that information in the account file does not
show U.S. indicia.
(2) Customer K. FKS is subject to the require-
ments of paragraph (g)(4)(iv) of this section with
respect to K’s sale at FKS’s foreign kiosk. FKS col-
lected an unambiguous indication of a U.S. place of
birth for K (that is, K’s U.S. passport showing a U.S.
place of birth) in performing its documentation pro-
cedures. Accordingly, FKS has U.S. indicia described
in paragraph (g)(4)(iv)(B)(5) of this section as part
of its account information for K and must treat K’s
sale of DE as effected inside the United States under
paragraph (g)(4)(iv)(B) of this section. As a result,
FKS is treated as a broker under paragraph (a)(1) of
this section with respect to K’s sale and must apply
the requirements of paragraph (g)(4)(iv)(C) of this
section to determine whether it must report K’s sale
under section 6045. Under paragraph (g)(4)(iv)(D)
(2) of this section, FKS may treat K as an exempt
foreign person if FKS collects, prior to making the
payment to K, documentary evidence described in
§1.1471-3(c)(5)(i)(B) evidencing K’s citizenship
in a country other than the United States and either
a copy of K’s Certificate of Loss of Nationality of
the United States, or both a valid beneficial owner
withholding certificate described in paragraph (g)(4)
(ii)(B) of this section for K and a reasonable written
explanation of K’s renunciation of U.S. citizenship
or the reason K did not obtain U.S. citizenship at
birth. FKS does not have the documentary evidence
described in the preceding sentence for K. FKS
must therefore apply the presumption rules in para-
graph (g)(4)(vi)(A)(2) of this section to determine
whether it may treat K as an exempt foreign person.
FKS must presume that K is an individual because
FKS has a driver’s license for K. As an individual,
K cannot be treated as an exempt recipient under
paragraph (c)(3) of this section. FKS must treat K
as a U.S. person under the presumption rules appli-
cable to individuals in paragraph (g)(4)(vi)(A)(2) of
this section because FKS has U.S. indicia associated
with K’s account information. Therefore, FKS must
make an information return under section 6045 with
respect to K’s sale. However, FKS has no obligation
to backup withhold on the proceeds from the sale
based on the exemption under §31.3406(g)-1(e) of
this chapter, unless FKS has actual knowledge that K
is a U.S. person that is not an exempt recipient under
paragraph (c)(3) of this section.
(iii) Example 3: CFC digital asset broker that
is not conducting activities as an MSB—(A) Facts.
Corporation G (GFC) is a controlled foreign corpo-
ration under §1.6049-5(c)(5)(i)(C) that operates a
business as an online digital asset broker. Several
of GFC’s customers have online accounts with GFC
through which they effect sales of digital assets. GFC
does not register as an MSB with the Department of
the Treasury.
(B) Broker’s status and requirements. Because
GFC is a controlled foreign corporation under
§1.6049-5(c)(5)(i)(C) that effects sales of digital
assets on behalf of customers, GFC is a CFC digital

Bulletin No. 2023–38 913 September 18, 2023
asset broker as defined in paragraph (g)(4)(i)(B) of
this section. Because GFC does not register as an
MSB with the Department of the Treasury, GFC
is not conducting activities as an MSB under para-
graph (g)(4)(i)(D) of this section. As a result, GFC
is subject to the requirements of a CFC digital asset
broker under paragraph (g)(4)(iii) of this section
with respect to sales of digital assets it effects for
its customers.
(C) Broker’s obligation to report. Because
GFC is subject to the requirements of a CFC digi-
tal asset broker under paragraph (g)(4)(iii) of this
section, GFC must make an information return for
the sales it effects for its customers under section
6045 unless GFC can treat a customer as an exempt
recipient under paragraph (c)(3) of this section or
an exempt foreign person. Under paragraph (g)(4)
(iii)(B) of this section, GFC may treat a customer
(other than a foreign intermediary, foreign flow-
through entity, or certain U.S. branches) as an
exempt foreign person by obtaining with respect
to the customer either a valid beneficial owner
withholding certificate described in paragraph (g)
(4)(ii)(B) of this section or the documentary evi-
dence described in §1.1471-3(c)(5)(i) supporting
the customer’s foreign status and upon which GFC
may rely, pursuant to the requirements of para-
graph (g)(4)(vi) of this section. If GFC does not
obtain the withholding certificate or documentary
evidence described in the preceding sentence prior
to a customer’s sale, GFC may be permitted under
a presumption rule as provided in paragraph (g)
(4)(vi)(A)(2) of this section to treat a customer as
an exempt foreign person (unless GFC has actual
knowledge that the customer is a U.S. person).
GFC may, instead of applying the earlier-described
provisions of this paragraph (g)(6)(iii)(C), treat a
customer as a foreign intermediary, foreign flow-
through entity, or certain U.S. branches and an
exempt foreign person when it is permitted to do
under paragraph (g)(4)(vi)(E) of this section. As
GFC’s sales are considered effected at an office
outside of the United States under paragraph (g)
(4)(iii)(A) of this section, GFC has no obliga-
tion to backup withhold on the proceeds from
a reportable sale based on the exemption under
§31.3406(g)-1(e) of this chapter, unless GFC has
actual knowledge that customer is a U.S. person
that is not an exempt recipient under paragraph (c)
(3) of this section.
* * * * *
(j) Time and place for filing; cross-ref-
erences 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 report-
ing period elected by the broker or bar-
ter 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 dig-
ital 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
if available the form prescribed by the
Secretary pursuant to paragraph (d)(2)
(i)(B) of this section, must be filed on or
before February 28 of the calendar year
following the year of that sale. See para-
graph (l) of this section for the require-
ment to file certain returns on magnetic
media. For provisions relating to the pen-
alty 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 deriva-
tives with a digital asset as an underlying
property, paragraph (m) of this section
applies to the option if it is granted or
acquired on or after January 1, 2023.
* * * * *
(q) Applicability date. Except as oth-
erwise provided in this paragraph (q) or
paragraphs (m)(2)(ii) and (n)(12)(ii) of
this section, this section applies on or after
January 6, 2017. (For rules that apply
after June 30, 2014, and before January
6, 2017, see §1.6045-1 in effect and con-
tained in 26 CFR part 1, as revised April
1, 2016.) For sales of digital assets, this
section applies on or after January 1,
2025. For assets that are commodities pur-
suant 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 report-
able transactions under this section, see
§31.3406(b)(3)-2 of this chapter for rules
treating gross proceeds as reportable pay-
ments, §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 semico-
lon in its place;
3. Removing the word “or” at 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 language “or digital asset” after
the language “cash”, wherever it appears;
8. Revising paragraphs (h)(1)(v)(A)
and (B);
9. Redesignating paragraphs (h)(1)(vii)
and (viii) as paragraphs (h)(1)(viii) and
(ix), respectively, and adding new para-
graph (h)(1)(vii);
10. Adding paragraph (h)(2)(iii);
11. Revising paragraphs (i)(1) and (2),
(i)(3)(ii), and (o);
12. In paragraph (r), redesignating
Examples 1 through 9 as paragraphs (r)(1)
through (9), respectively;
13. In newly designated paragraph (r)
(3), removing “section (b)(1)” and adding
“paragraph (b)(1)” in its place;
14. Removing and reserving newly
designated paragraph (r)(5);
15. Revising newly designated para-
graph (r)(7);
16. In newly designated paragraph (r)
(8), removing “example (6)” and adding
“paragraph (r)(6) of this section (the facts
in Example 6)” in its place;
17. In newly designated paragraph (r)
(9), removing “example (8)” and adding
“paragraph (r)(8) of this section (the facts
in Example 8)” in its place;
18. Adding paragraph (r)(10); and
19. In paragraph (s), adding a sentence
to the end of the paragraph.
The revisions and additions read as
follows:

September 18, 2023 914 Bulletin No. 2023–38
§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 pur-
poses, 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 sec-
tion 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 corpo-
ration) provided the reporting person
obtain from the transferor a written certi-
fication 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 res-
idence 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 certifi-
cation. The certification must be retained
by the reporting person for four years after
the year of the sale or exchange of the res-
idence to which the certification applies.
A reporting person who relies on a cer-
tification 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 fail-
ure 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 fore-
going, or any wholly owned agency or
instrumentality of any one or more of the
foregoing; or
* * * * *
(h) * * *
(1) * * *
(v) * * *
(A) Received (or will, or may, receive)
property (other than cash, consideration
treated as cash, and digital assets in com-
puting 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 sat-
isfaction of an obligation having a stated
principal amount; or
* * * * *
(vii) In the case of a payment made
to the transferor using digital assets, the
name and number of units of the digital
asset, the date and time the payment was
made, the transaction identification as
defined in §1.6045-1(a)(26) and the digi-
tal asset address (or addresses) as defined
in §1.6045-1(a)(20) into which the digital
assets are transferred;
* * * * *
(2) * * *
(iii) Digital assets. For purposes of this
section, a digital asset has the meaning set
forth in §1.6045-1(a)(19).
(i) * * *
(1) In general. Except as otherwise pro-
vided in this paragraph (i), the term gross
proceeds means the total cash received,
including cash received from a digital
asset payment processor as described in
§1.6045-1(a)(22)(i), 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), consid-
eration treated as cash received by or on
behalf of the transferor in connection with
the real estate transaction includes the fol-
lowing 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 princi-
pal 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 trans-
fer 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 deter-
minable proceeds, as defined in paragraph
(i)(3)(iii) of this section.
(ii) Digital assets received. For pur-
poses 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 transac-
tion. See paragraph (h)(1)(v) of this section
for the information that must be included
on the Form 1099 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 pro-
ceeds, 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 trans-
feror (such as sales commissions, amounts

Bulletin No. 2023–38 915 September 18, 2023
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 con-
tingent payment transaction means a real
estate transaction with respect to which
the receipt, by or on behalf of the trans-
feror, 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 per-
son 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 (contingen-
cies). 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)
(the results in Example 6).
* * * * *
(10) Example 10: Gross proceeds (exchange
involving digital assets)—(i) Facts. K, an individual,
agrees to pay 140 units of digital asset DE with a fair
market value of $280,000 to J, an unmarried indi-
vidual 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 transac-
tion. P is the reporting person with respect to both
sides of the transaction.
(ii) Analysis. 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). 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, 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 para-
graphs (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, 2025.
Par. 8. Section 1.6045A-1 is amended
by:
1. In paragraph (a)(1)(i), removing the
language “paragraphs (a)(1)(ii) through
(v) of this section,” and adding the lan-
guage “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 speci-
fied securities that are digital assets. No
transfer statement is required under para-
graph (a)(1)(i) of this section with respect
to a specified security that is also a digital
asset as defined in §1.6045-1(a)(19). A
transferor that chooses to provide a trans-
fer statement reporting 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 revising paragraph (a)(1) introductory
text and adding paragraph (a)(6) to read
as follows:
§1.6045B-1 Returns relating to actions
affecting basis of securities.
(a) * * *
(1) * * * Except as provided in para-
graphs (a)(3) through (6) 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 fol-
lowing information and any other infor-
mation specified in the return form and
instructions:
* * * * *
(6) Exception for specified securities
that are digital assets. No reporting is
required under this paragraph (a) with
respect to a specified security that is also
a digital asset as defined in §1.6045-1(a)
(19). An issuer that chooses to provide the
reporting and furnish statements described
in this section is not subject to penalties
under section 6721 or 6722 of the Code for
failure to report this information correctly.
* * * * *
Par. 10. Section 1.6050W-1 is amended
by:
1. Adding a sentence to the end of para-
graph (a)(2);
2. Adding paragraph (c)(5); and
3. Revising paragraph (j).
The additions and revision 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 con-
tractual obligation to make payments to
participating payees, a payment in settle-
ment 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 pay-
ment transaction.
* * * * *
(c) * * *
(5) Coordination with information
returns required under section 6045 of the
Code – (i) Reporting on exchanges involv-
ing digital assets. Notwithstanding the
provisions of paragraph (c) of this section,
the reporting of a payment made in settle-
ment 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
§1.6045-1(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 §1.6045-1) and not
this section.

September 18, 2023 916 Bulletin No. 2023–38
(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 and the exchange is a
sale of digital assets by the payee under
§1.6045-1(a)(9)(ii), 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 §1.6045-1) and not
this section.
(ii) Examples. The following examples
illustrate the rules of this paragraph (c)(5)
of this section.
(A) Example 1—(1) Facts. CRX is a “shared-ser-
vice” 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 pay-
ment 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 purchas-
ers to transfer funds to providers. Pursuant to this
seller agreement, CRX accepts cash from purchas-
ers as payment as well as digital assets, which it
exchanges into cash for payment to sellers. 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 oth-
erwise 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 net-
work 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 involv-
ing 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. Additionally,
CRX is a digital asset payment processor as defined
in §1.6045-1(a)(22) and, therefore, a broker under
§1.6045-1(a)(1).
(3) Analysis with respect to the reporting on P.
Because CRX is a digital asset payment processor
under §1.6045-1(a)(22), P’s payment of 100 units
of DE to CRX in exchange for CRX’s payment of
$1,000 to S is a sale of the DE units as defined in
§1.6045-1(a)(9)(ii)(D). 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. CRX is not
required to file an information return under para-
graph (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 report-
able 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. The facts are the same
as in paragraph (c)(5)(ii)(A)(1) of this section (the
facts in Example 1) except that S’s agreement with
CRX provides that S will also accept digital assets,
including digital asset DE, as payment for S’s ser-
vices. To process P’s payment for the purchase of
one month of services from S, CRX instructs P to
transfer 100 units of DE directly to S’s account.
(2) Analysis. CRX’s instruction to P to transfer
the 100 units of DE directly to S’s account consti-
tutes the making of a payment in settlement of the
reportable payment transaction under paragraph (c)
(2) of this section. The payment is also a sale of the
DE units under §1.6045-1(a)(9)(ii)(D). Accordingly,
the reporting set forth in paragraph (c)(5)(ii)(A)(2)
of this section (the analysis in Example 1) remains
applicable under these facts.
(C) Example 3—(1) Facts. CRX is an entity
that owns and operates a digital asset trading plat-
form and provides digital asset broker services
under §1.6045-1(a)(1). CRX takes custody of and
exchanges, on behalf of customers, digital assets
under §1.6045-1(a)(19), including non-fungible
tokens, referred to as NFTs, representing own-
ership 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 other-
wise exempt from reporting, sells NFTs represent-
ing 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 pur-
chase 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 consti-
tutes 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, 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. 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 informa-
tion 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 §1.6045-1(a)(19). Accordingly, under para-
graph (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(b)(3)-2 is
amended by revising the section heading
to read as follows:

Bulletin No. 2023–38 917 September 18, 2023
§31.3406(b)(3)-2 Reportable barter
exchanges and gross proceeds of sales
of securities, commodities, or digital
assets by brokers.
* * * * *
Par. 13. 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 per-
sons, foreign offices of United States
banks and brokers, and others. For report-
able 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). For a reportable pay-
ment made on or after January 1, 2025,
from a sale of a digital asset, a payor or
broker is not required to backup withhold
under section 3406 on a sale of a digital
asset that is either effected by a CFC dig-
ital asset broker (as defined in §1.6045-
1(g)(4)(i)(B) of this chapter) that is not
conducting activities as a money services
business (as described in §1.6045-1(g)
(4)(i)(D) of this chapter) with respect
to the sale or by a non-U.S. digital asset
broker (as defined in §1.6045-1(g)(4)(i)
(C) of this chapter) that is not conducting
activities as a money services business
with respect to the sale. The exceptions
to backup withholding described in the
preceding two sentences of this para-
graph (e) do 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 chap-
ter) or another payor in accordance with
the withholding provisions under chap-
ter 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 par-
ticipating FFI is not required to backup
withhold on a reportable payment allo-
cable 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 con-
tracts, see §1.6041-1(d)(5) of this chap-
ter. 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.
(f) Applicability date. Except with
respect to sales of digital assets, this
section applies on or after January 6,
2017. (For payments made after June 30,
2014, and before January 6, 2017, see
§31.3406(g)-1 in effect and contained in
26 CFR part 1 revised April 1, 2016.) For
sales of digital assets, this section applies
on or after January 1, 2025.
Par. 14. 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 previ-
ous sentence, a real estate reporting per-
son must withhold under section 3406 of
the Code and pursuant to the rules under
§31.3406(b)(3)-2 on a reportable pay-
ment 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, 2025.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 15. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805.
* * * * *
Par. 16. Section 301.6721-1 is amended
by revising paragraph (g)(3)(iii) and add-
ing a sentence to the end of paragraph (h)
to read as follows:
§301.6721-1 Failure to file correct
information returns.
* * * * *
(g) * * *
(3) * * *
(iii) 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 dig-
ital assets; the form prescribed by the
Secretary pursuant to §1.6045-1(d)(2)
(i)(B) of this chapter for broker trans-
actions 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);
* * * * *
(h) * * * Paragraph (g)(3)(iii) of this
section applies to returns required to be
filed on or after January 1, 2026.
Par. 17. Section 301.6722-1 is amended
by revising paragraphs (d)(2)(viii) and (e)
to read as follows:
§301.6722-1 Failure to furnish correct
payee statements.
* * * * *
(d) * * *
(2) * * *
(viii) Section 6045(a) or (d) (relating
to returns of brokers, generally reported

September 18, 2023 918 Bulletin No. 2023–38
on Form 1099-B, “Proceeds From Broker
and Barter Exchange Transactions,” for
broker transactions not involving dig-
ital assets; the form prescribed by the
Secretary pursuant to §1.6045-1(d)(2)
(i)(B) of this chapter for broker trans-
actions 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);
* * * * *
(e) Applicability date. The reference
in paragraph (d)(3) of this section to
Form 8805 shall apply to partnership
taxable years beginning after April 29,
2008. Paragraph (d)(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 for Services and
Enforcement.
(Filed by the Office of the Federal Register August
25, 2023, 8:45 a.m., and published in the issue of the
Federal Register for August 29, 2023, 88 FR 59576)

Bulletin No. 2023–38 i September 18, 2023
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

September 18, 2023 ii Bulletin No. 2023–38
Numerical Finding List
1
Bulletin 2023–38
Announcements:
2023-18, 2023-30 I.R.B. 366
2023-19, 2023-30 I.R.B. 367
2023-20, 2023-30 I.R.B. 368
2023-17, 2023-31 I.R.B. 412
2023-21, 2023-31 I.R.B. 413
2023-22, 2023-32 I.R.B. 429
2023-23, 2023-34 I.R.B. 569
2023-24, 2023-35 I.R.B. 661
2023-25, 2023-37 I.R.B. 821
2023-26, 2023-37 I.R.B. 822
2023-28, 2023-37 I.R.B. 823
Notices:
2023-29, 2023-29 I.R.B. 1
2023-45, 2023-29 I.R.B. 317
2023-47, 2023-29 I.R.B. 318
2023-37, 2023-30 I.R.B. 359
2023-50, 2023-30 I.R.B. 361
2023-51, 2023-30 I.R.B. 362
2023-54, 2023-31 I.R.B. 382
2023-53, 2023-32 I.R.B. 424
2023-55, 2023-32 I.R.B. 427
2023-57, 2023-34 I.R.B. 560
2023-58, 2023-34 I.R.B. 563
2023-59, 2023-34 I.R.B. 564
2023-52, 2023-35 I.R.B. 650
2023-61, 2023-35 I.R.B. 651
2023-62, 2023-37 I.R.B. 817
2023-56, 2023-38 I.R.B. 824
Proposed Regulations:
REG-124123-22, 2023-30 I.R.B. 369
REG-124930-21, 2023-31 I.R.B. 431
REG-120730-21, 2023-33 I.R.B. 491
REG-134420-10, 2023-34 I.R.B. 571
REG-109348-22, 2023-35 I.R.B. 662
REG-120727-21, 2023-36 I.R.B. 670
REG-122793-19, 2023-38 I.R.B. 829
Revenue Procedures:
2023-31, 2023-25 I.R.B. 386
2023-26, 2023-33 I.R.B. 486
2023-27, 2023-35 I.R.B. 655
2023-17, 2023-37 I.R.B. 819
Revenue Rulings:
2023-13, 2023-32 I.R.B. 413
2023-14, 2023-33 I.R.B. 484
2023-15, 2023-34 I.R.B. 559
2023-15, 2023-34 I.R.B. 559
Revenue Rulings:—Continued
2023-16, 2023-37 I.R.B. 796
2023-17, 2023-37 I.R.B. 798
Treasury Decisions:
9976, 2023-30 I.R.B. 354
9977, 2023-31 I.R.B. 375
9978, 2023-32 I.R.B. 415
9979, 2023-35 I.R.B. 602
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin
2023–52, dated December 27, 2023.

Bulletin No. 2023–38 iii September 18, 2023
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2023–38
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin
2023–52, dated December 27, 2023.

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