The US Internal Revenue Service (IRS) has officially released a new crypto tax regulation for front-end service providers that identify as brokers in the decentralized finance (DeFi) industry.
The regulation will come into effect on January 1, 2027 with the intention of creating crypto taxes that are comparable to traditional ones.
DeFi brokers must issue crypto tax forms, collect user trading data, and provide names, addresses, and other customer information.
An official press release shared by the US Treasury Department states that DeFi brokers will be required to provide a Form 1099 to the owner of the digital asset. There will be reminders that their crypto transactions will be taxable.
This will reduce the number of errors or mismatch problems on taxpayers’ federal income tax returns. In addition, it will save them time and money when filing taxes.
According to Aviva Aron-Dina, who serves as Assistant Secretary of State for Tax Policy,
“These regulations will help ensure that all taxpayers follow the same rules and have access to the information they need to file their taxes accurately. Aligning the tax reporting requirements for digital assets with those for other assets will make filing easier and cheaper for compliant taxpayers, while helping to close the tax gap.”
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Regulations affecting hundreds of DeFi brokers
The new regulation will affect approximately 650 to 875 decentralized financial brokers. It can contribute to reshaping the operational aspect of decentralized exchange platforms.
The US IRS clarified that the regulation does not apply to hardware manufacturers or Internet service providers. However, their statement about defining decentralized finance service providers as “intermediaries” points to a potentially strict regulatory environment.
This government move on a crypto tax signals potential compliance challenges and increased oversight for crypto users and platforms.
Crypto leaders and the community are criticizing new regulation for a decentralized financial industry similar to traditional brokers.
The Blockchain Association, the DeFi Education Fund, and the Texas Blockchain Council filed a lawsuit challenging the IRS’ broker rulemaking.
Katherine Minarik, Uniswap’s chief legal officer, shared a tweet saying she should challenge the new IRS regulation.
Uniswap Labs CEO Hayden Adams has criticized the IRS rules and predicts the regulation will be repealed through the Congressional Review Act.
