The IRS just dropped a bombshell with new regulations that will reshape the crypto landscape. With the publication of Revenue Procedure 2025-31, the IRS opens up a "safe harbor" for crypto exchange-traded products (ETPs) and investment trusts to stake without losing their tax advantages. With this guidance, entities can stake valuable digital assets like Ethereum and Solana while maintaining their tax status.
In the past, staking was a risky proposition that could transform a passive investment trust into something tax undesirable, but this latest development sets a clear path for trusts to stake without triggering tax problems. It could foster greater institutional adoption of digital currencies.
What compliance challenges will crypto startups face?
The new IRS rules are shaking up the compliance game for crypto startups. Detailed recordkeeping and reporting are now a must, meaning startups will have to step up their compliance game. Starting in 2025, tracking each transaction per wallet will be necessary—this may spell trouble for smaller firms that lack the resources for solid compliance systems.
Also, a new Form 1099-DA requires brokers to disclose all kinds of transaction data. As if that wasn't enough, added IRS scrutiny may lead to soaring compliance costs that could hit smaller players hardest.
What are some practical strategies for startups to consider?
To tackle the new IRS rules, crypto startups need practical strategies.
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Detailed Recordkeeping: Startups must keep thorough transaction records for each wallet, noting transaction dates, USD values, and purposes.
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Automated Compliance Tools: Making use of tax software can lift some of the weight off. These tools can track transactions, determine gains and losses, and prepare reports including Form 1099-DA.
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Tax Professionals: Having tax pros specializing in crypto on speed dial is a smart move.
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Stay Current: Keep up with changing regulations, especially pricey payments scheduled for delayed reporting.
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Internal Compliance Programs: A strong internal compliance framework is crucial.
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Understand Tax Implications: Knowing the tax obligations of activities like mining, staking, and DeFi is now a must.
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Use Safe Harbor Provisions: Using safe harbor provisions will lower tax risk.
Is there a risk of hampering innovation?
These IRS regulations might unintentionally push the dial toward larger institutions and away from smaller crypto startups, which could dampen innovation. The safe harbor primarily benefits investment and grantor trusts, entities larger firms can easily form. Smaller companies may really struggle to meet compliance demands, leading to a market split—where only the well-resourced can survive.
This raises questions about whether traditional financial compliance models can truly accommodate decentralized protocols. For many smaller projects that depend on decentralization and anonymity, this regulatory environment may present a tough road ahead.
Small crypto companies could be left in a bind, forced to either invest a lot in compliance or work in the shadows of regulatory uncertainty. This dilemma may result in less competition and stunted innovation in areas where smaller players could lead.
How can tech help startups keep up with compliance?
Tech can be a big help in managing compliance with the IRS's new rules. Automated compliance tools can handle recordkeeping and reporting, lowering the compliance load on startups. They'll help track transactions in real-time, compute gains and losses, and generate reports, keeping startups in the compliance lane.
In addition, a crypto treasury management system can better manage digital assets. Integrating a crypto payroll platform can facilitate smooth payments to employees and contractors, aligning with tax regulations while improving efficiency.
Using a crypto payment platform can make borders disappear, permitting easy global business engagement without the hassles of traditional banking systems. With these tech solutions, crypto startups can not just comply, but also unleash some innovation in a world of regulatory change.
