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The United States Internal Revenue Service (IRS) announced new tax guidance for the cryptocurrency sector today, requiring DeFi brokers to collect and report more detailed information about customers and transactions.
These new regulations apply to user interface services, but the protocols themselves are exempt.
IRS Requests Crypto Tax Information from DeFi
On December 27, IRS announced new tax guide, focusing primarily on DeFi institutions and their customers. Since last year, the agency has stepped up efforts to crack down on cryptocurrency-related tax evasion, even developing an AI tool to assist with the task.
However, these new regulations will not take effect until 2027, so existing DeFi companies have time to adapt.
“The final regulations require brokers [DeFi] file an information report and provide a return declaration to the recipient, reporting gross receipts from the transfer of digital assets through certain sales or exchanges. It also requires certain actors in the DeFi sector to file and provide information reports as brokers,” the announcement reads.
This new reporting requirement centers around Form 1099, which the IRS expanded this year. Form 1099-DA for digital assets was created in April, aiming to create more tax transparency for the cryptocurrency industry. When created, brokers like exchanges and payment processors were required to file these forms, and the same requirement now applies to DeFi.
Although many elected representatives have attempted to create new cryptocurrency taxes this year, the IRS operates as a non-political administrative organization. It only raises taxes through reinterpreting vague provisions, not creating new provisions from scratch.
This means that cryptocurrency users in general should not expect higher taxes from these developments. However, these interpretations can still cause significant discomfort for cryptocurrency enthusiasts. Earlier this year, the IRS had to withdraw new cryptocurrency tax guidelines after widespread public outcry.
Additionally, individual users are no longer required to list their wallet address on Form 1099-DA. Depending on the political context, these regulations may change before taking effect.
Overall, cryptocurrency taxation has seen significant developments in 2024. Countries such as the Czech Republic and Russia have relaxed some tax policies related to cryptocurrency activities, while the governments of Italy and Korea implies more stringent requirements.
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