IRS to Impose Taxes on DeFi Platforms

The United States Internal Revenue Service (IRS) has introduced regulations requiring “brokers from the DeFi segment” to report gross income from crypto asset transactions.

“This document outlines the final rules regarding the obligation of brokers to provide information on the sale and exchange of digital assets they regularly conduct,” stated representatives of the agency.

Under the new requirements, these market participants will perform tasks similar to brokers in traditional markets: collecting information on their users’ transactions and submitting Form 1099. This form is used for reporting income not related to wages and other employer payments.

“These measures will help ensure taxpayers comply with uniform rules, providing them with access to the necessary information for accurately filing tax returns,” said Acting Assistant Secretary for Tax Policy Aviva Aron-Dine.

According to her, unifying tax reporting requirements “will make the filing process simpler and cheaper for honest taxpayers.”

Some “participants in the decentralized finance industry” will be required to file tax returns disclosing “the name and address of each client.” The finalized rules apply to “frontend service providers” who “interact directly with clients.”

These requirements will take effect on January 1, 2027, and, according to the agency, will affect 875 “DeFi brokers.”

Crypto Community Reaction

The new regulations have sparked a wave of criticism on social media. Some lawyers emphasized that the IRS’s actions exceed its authority.

The Blockchain Association from Washington announced its readiness to take “decisive action” against the updated rules. According to advocates, they represent “a desperate attempt” to drive the American crypto industry offshore.

“This unlawful rule is the dying gasp of an anti-crypto regime losing power. It must be overturned, either through the courts or by a new administration,” noted Variant’s Chief Legal Officer Jake Chervinsky.

Alexander Grieve, Vice President of Government Relations at venture firm Paradigm, stated that “a new, crypto-friendly Congress can and should overturn these measures through the process provided by the CRA next year.”

The Chief Legal Officer of a16z Crypto remarked that the new regulation represents “a fantastic expansion of the phrase ‘conduct transactions,’ allowing the IRS to ban DeFi.”

Back in April, the IRS announced that it was preparing for a significant increase in crypto-related tax crimes.