The IRS has announced new tax reporting requirements for brokers operating in the cryptocurrency industry. Beginning in 2027, DeFi operators will need to report all income from crypto transactions.
New Reporting Requirements
Under section 6045 of the Internal Revenue Code, brokers are now required to submit detailed reports on customer transactions. This not only affects centralized exchanges but also targets non-custodial platforms, including smart contracts and automated platforms where users control their private keys.
Implications for DeFi Platforms
The new regulations require brokers to report 'gross proceeds' from crypto sales, necessitating DeFi operators to develop systems to track and report each transaction. The IRS will enforce these rules using the same authority applied to traditional brokers, as granted under tax code section 7805.
Public and Industry Response
The proposed rules sparked a flood of feedback in August, with over 44,000 comments from industry leaders and users. One major issue was the expanded definition of 'broker'. Many argue that applying these rules to non-custodial platforms is impractical, compromising the fundamental principles of DeFi.
Despite considerable criticism, the IRS has finalized the new regulations. Although some concerns were addressed, many remain unresolved. In January 2024, a new president known for crypto advocacy is set to take office.
