IRS Finalizes New Regulations:

On December 27, 2024, the U.S. Internal Revenue Service (IRS) finalized regulations classifying decentralized finance (DeFi) front-end platforms as brokers, effective January 1, 2027.

Reporting Requirements:

DeFi platforms will be required to report gross proceeds from digital asset transactions, including user information such as names and addresses, through Form 1099.

Objective of the Regulations:

The aim is to enhance transparency in the crypto market and close tax loopholes identified in the 2021 federal infrastructure law.

Industry Pushback:

The regulations have sparked controversy within the DeFi community, with critics arguing that they overstep the IRS's authority and violate constitutional principles.

Penalty Relief:

The IRS will provide penalty relief for brokers who make a “good-faith effort” to comply with the new reporting requirements.

Impact on DeFi Landscape:

An estimated 650 to 875 DeFi brokers may be affected, potentially reshaping the decentralized finance sector.

Clarification on Scope:

The rules do not apply to internet service providers or hardware manufacturers but highlight a shift toward stricter regulatory oversight of DeFi platforms.

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