Treasury Withdraws Two Crypto Wallet Tracking Rules, But Tax Reporting Keeps Expanding
On October 6, 2026, the Treasury Department's Financial Crimes Enforcement Network, known as FinCEN, formally withdrew two proposed rules that would have added new reporting requirements around self-custody crypto wallets and crypto mixing services. The withdrawal does not change how crypto gains and losses are taxed, and the IRS's own reporting system continues to expand separately from this action.
The two proposals came from different points in time and under different concerns. The first dated to December 23, 2020, and would have required banks and money services businesses to verify the identity of anyone on the other end of a self-custody, or "unhosted," wallet transaction above $3,000. It also would have required a report to FinCEN whenever transfers topped $10,000 within a 24-hour period. The second proposal, from October 23, 2023, focused on crypto "mixers," the services that blend coins together to obscure their origin. That rule would have required covered institutions to report transaction information tied to mixing activity.
FinCEN explained the withdrawal by pointing to a "chilling effect on legitimate activity and large reporting burden on covered financial institutions." The agency also referenced a July 2025 White House report stating that "the Trump Administration supports the ability of lawful users of digital assets to privately transact on a public blockchain."
Importantly, both withdrawn rules stemmed from anti-money-laundering law, which is separate from the tax code. Nothing about this withdrawal changes what crypto holders owe the IRS.
Tax Reporting Keeps Moving Forward
While these anti-money-laundering proposals were pulled back, the IRS's own tracking tool, Form 1099-DA, is still rolling out. Brokers filed this form for the first time for the 2025 tax year, with statements going out by February 17, 2026. Those initial forms generally reported gross proceeds without cost basis information.
Starting with transactions on or after January 1, 2026, brokers will also report basis on covered transactions. But coins purchased earlier, or moved between platforms and wallets, still depend on the taxpayer's own records. Self-custody wallets, the very ones the withdrawn FinCEN rule targeted, are exactly where this record-keeping gap tends to appear.
A composite example illustrates the risk: a 64-year-old married retiree bought one bitcoin on October 6, 2025, at $124,720.09 and moved it to a hardware wallet. She later sent it back to an exchange and sold it at $85,637.05, after holding it for exactly one year, which falls short of the more-than-one-year threshold for long-term treatment. Because the coin arrived from outside the exchange, there was no basis record on file. Her 1099-DA showed proceeds with a blank basis field. The source notes that, assuming the couple files jointly in the 22% bracket, a missing receipt can turn what should have been a loss into a tax bill.
Who this affects
This matters most for anyone holding Bitcoin, Ethereum or other digital assets in self-custody wallets rather than directly on an exchange, as well as anyone who has moved crypto between platforms. It also affects people using decentralized platforms or foreign exchanges, since these may not generate any tax form at all, even though the gains remain taxable. Bitcoin is down 31.16% over the past year and Ethereum is down 42.1%, according to the source, which means loss-harvesting may be relevant for some holders. Realized losses offset gains dollar for dollar, then up to $3,000 of ordinary income, and crypto currently sits outside the wash-sale rule that applies to stocks.
FinCEN noted it will keep watching mixer-related activity for signs of money laundering or other illicit finance activity, and Treasury and the IRS have said separate rules covering decentralized brokers are still coming, which may eventually narrow the self-custody reporting gap.
As a personal finance writer who focuses on making money, insurance and benefits news understandable for everyday households, I'd note that the real risk here isn't the withdrawn surveillance rules. It's the quiet expansion of IRS reporting paired with gaps in cost-basis data that can catch self-custody holders off guard.
Anyone holding crypto, especially in a personal wallet, may want to rebuild basis records now, before year-end, and review their specific situation with a licensed tax professional or CPA familiar with digital assets.
Source: 24/7 Wall St.
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