DeFi
Treasury, IRS Finalize Brokerage Rule, Delay DeFi Decision
The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have issued new tax guidance for cryptocurrency brokerswhich implements transaction reporting starting in 2025. This new regime, however, has postponed decisions on DeFi activities and unhosted wallet providers, as the IRS is still reviewing 44,000 comments from the public.
New IRS reporting requirements for brokers
New IRS rules require cryptocurrency brokers such as trading platforms, hosted wallet services and digital asset kiosks to disclose details of customer asset movements and gains.
These rules, which will take effect from January 1, 2025, aim to integrate cryptocurrency brokers with conventional investment firms for filing 1099 forms and cost master data starting in 2026.
Additionally, the IRS clarified that the new requirements will also include stablecoin transactions and all high-value non-fungible tokens (NFTs), but ordinary sales of stable coins less than $10,000 and NFT earnings less than $600 per year do not need to be reported. This regulation aims to improve compliance and reduce tax evasion in the high-risk area of digital assets.
Delayed decisions on DeFi and unhosted wallets
While the new rule provides clear guidelines for large centralized exchanges like Coinbase and Kraken, it leaves decisions regarding DeFi activities and unhosted wallet providers until later.
The IRS added that non-depository industry participants would not be excluded from treatment as broker-dealers, but further analysis is needed. Final rules for these entities are expected to be published later this year.
IRS Highlights Control Difficulties non-guardian companies, noting that these companies may lack the necessary customer data and transparency frameworks. The move provides some respite for the DeFi sector and unhosted wallet providers as more time is given to formulate better rules.
IRS Requirements for Stablecoins and NFTs
The IRS explained that most ordinary stablecoin transactions will not need to be reported, with the exception of certain large transactions and those generating more than $10,000 in annual revenue.
Stablecoin transactions will be recorded in bulk rather than by specific transactions to provide relief to common cryptocurrency users while helping the IRS track whale activities.
For non-fungible tokens (NFT) only taxpayers who earned $600 or more per year from NFT sales need to file and report their total income. The IRS will require taxpayer identification information, the number of NFTs sold, and the amount of profit made in these reports. The agency will monitor NFT reports to ensure they adequately contribute to tax enforcement.
Industry Concerns and Compliance Burden
The introduction of these tax regulations has been controversial and has sparked strong opposition from the cryptocurrency industry. Concerns have been raised about the potential overreach of the US government and the burdensome requirements imposed on entities that do not traditionally operate as brokers, such as miners and software developers.
THE Blockchain Association and the Digital Chamber had pointed out the excessive scope of the information requested and the significant compliance burden. They argue that the proposed rule could require the submission of billions of forms, imposing significant costs and time constraints on brokers. The IRS has estimated that the new rule will affect approximately 15 million individuals and 5,000 businesses.
In response, the IRS said it aimed to balance the need for comprehensive reporting with the industry’s ability to comply. The agency also noted that any future changes to stablecoin legislation could result in adjustments to tax rules.
Read also: Digital Chamber Reports Privacy Concerns in IRS’s Proposed Digital Asset Tax