The US Internal Revenue Service said DeFi brokers must adhere to long-standing securities regulations, disagreeing with industry sentiment calling for different laws for digital assets.
Updated tax authorities rules published on December 27, it would mandate a number of “DeFi brokers” to operate like traditional financial institutions by collecting certain data on user activities and reporting on cryptocurrency returns.
The final rules apply to “front-end” DeFi operators, referring to service providers that directly operate websites used to access Web3 platforms, such as decentralized exchanges for both US and non-US participants.
So-called DeFi brokers would also be required to report on all digital assets, including NFTs and stablecoins. Aviva Aron-Dine, acting assistant secretary for tax policy, said the revised framework would level the playing field for taxpayers and standardize reporting requirements for all participants.
Incumbents in the crypto industry have debated whether digital assets fall under the purview of existing securities laws, emphasizing that the sector requires different regulations. The IRS, in a joint statement with the Treasury Department, strongly disagreed with this claim.
The Treasury Department and the IRS disagree that DeFi participants should be excluded from the information reporting rules under Section 6045 due to a lack of financial services experience or a perceived lack of comprehensive regulatory oversight. Persons with technological expertise who carry on transactions or businesses related to financial services must comply with the same rules as any other person operating financial services.
Tax Authorities and Finance
The IRS released the proposed DeFi/crypto tax reporting policy in August 2023, and shortly thereafter revised documents were unveiled to include exchanges in the compliance guidance. Crypto commentators believed that DEXes like Uniswap might be forced to share KYC information, such as names and addresses, with authorities.
Industry leaders fought the agency’s original tax proposal last year, and Consensys senior attorney Bill Hughes predicts the same thing will happen again. “The outgoing government will not leave quietly. The fight continues,” Hugh said via X.
A major concern among crypto users has been that most DeFi protocols cannot comply with securities laws, and privacy would be virtually non-existent under the new laws.
Digital asset advocacy groups such as The Blockchain Association promised “aggressive action” against the IRS policy, suggesting lobbying of Congress and perhaps lawsuits could follow. Without pushback, the latest rules would come into effect on January 1, 2027.
