In an important development for the cryptocurrency landscape, the US Internal Revenue Service (IRS) has finalized regulations Which will require Decentralized finance (DeFi) brokers report gross proceeds from digital asset transactions.
The IRS classifies DeFi platforms as intermediaries
under New regulationswhich will go into effect in 2027, DeFi platforms that act as front-end service providers will be classified as intermediaries. This designation forces them to meet stringent reporting requirements similar to those faced by traditional financial intermediaries.
It is worth noting that these platforms will be required to provide customers with Form 1099, which details user transaction information, including names and addresses.
The IRS confirms that front-end service providers facilitate this Digital asset transactions Therefore gross proceeds from cryptocurrency sales must be reported. The move is said to be aimed at enhancing transparency in the cryptocurrency market and ensuring that taxes due on unreported transactions are collected effectively.
The regulations specifically target the front-ends of DeFi trading, which enables users to access them Decentralized exchanges. By treating these platforms as intermediaries, the IRS intends to create a framework that aligns digital asset trading with traditional financial practices.
The IRS stated, “Providing a suite of software that enables a customer to interact with a distributed ledger network and execute transactions using DeFi trading applications is an example of providing a service that executes transfers.”
The future of taxes on cryptocurrencies is in question
While the regulations are designed to close tax loopholes highlighted in the federal infrastructure bill of 2021, they have raised concerns within the DeFi community.
Jake Chervinsky, a well-known lawyer who supports cryptocurrencies, expressed great importance Disagreement With the new regulations. “This illegal rule is the last gasp of the anti-crypto army on its way out of power,” he said. It must be struck down, whether by the courts or the next administration.
Chervinsky also stressed that the regulations exceed the IRS’ legal authority and violate constitutional principles, arguing that Congress did not intend for “intermediary” to include DeFi platforms.
The IRS acknowledged the concerns raised by stakeholders and announced that brokers who make “good faith efforts” to comply with reporting requirements in 2027 will be granted relief from penalties for non-reporting. Digital asset sales.
This requirement extends to backing up withholding tax liabilities for transactions in 2027 and certain sales in 2028, providing some leeway as the industry adapts to the new regulatory landscape.
With an estimated 650 to 875 DeFi brokers potentially affected by the regulations, this move could reshape the operational landscape of decentralized exchanges.
While the IRS has clarified that the rules do not apply to ISPs or hardware manufacturers, classifying DeFi front-ends as… Brokers It signals a shift towards stricter regulatory oversight.
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