Crypto Tax: DeFi To See Reporting Rules By The IRS

The U.S. Internal Revenue Service (IRS) has officially announced a new crypto tax regulation for the front-end service providers who identify as brokers in the Decentralized Finance (DeFi) industry.

The regulation will come into effect from January 1, 2027, intended to create crypto taxes that are comparable to the traditional ones.

The DeFi brokers must issue crypto tax forms, collect trading information of users, and provide customers’ names, addresses, and other information.

The official Press Release shared by the U.S. Department of the Treasury stated that the DeFi brokers will need to provide a Form 1099 to the owner of a digital asset. There will be reminders for the that their crypto transactions will be taxable.

This will reduce the number of errors or non-compliance issues on the federal income tax returns of the taxpayer. Additionally, it will save their time and money while filing the tax.

According to Aviva Aron-Dine, Performing the Duties of Assistant Secretary for Tax Policy,

“These regulations will help ensure that all taxpayers play by the same set of rules and have access to the information they need to file their taxes accurately. Aligning tax reporting requirements for digital assets with reporting for other assets will make filing easier and cheaper for compliant taxpayers while also helping close the tax gap.”

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Regulations to Affect Hundreds of DeFi Brokers

The new regulation will impact approximately 650 to 875 decentralized finance brokers. It may contribute to reshaping the operational aspect of the decentralized exchange platforms.

The U.S. Internal Revenue Service clarified that the regulation is not applicable to hardware manufacturers or internet service providers. However, their statement of defining the decentralized finance front-end service providers as “brokers” indicates the potential strict regulatory environment.

This government action regarding crypto tax signals the potential challenges related to compliance and greater scrutiny for crypto users and platforms.

The crypto leaders and community are criticizing the new regulation for the decentralized finance industry similar to traditional brokers.

The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council have filed a lawsuit against the IRS’s broker rulemaking.

Katherine Minarik, Uniswap’s Chief Legal Officer shared a tweet saying that the new regulation by the Internal Revenue Service should be challenged.

CEO of Uniswap Labs, Hayden Adams criticized the IRS rules and anticipates that the regulation will be dissolved through the Congressional Review Act.