Source: Phyrex

The rules for cryptocurrency tax brokers have been finalized and passed, and the rules are not friendly, totaling 177 pages. They will take effect 60 days after publication, but there will be a transition period from 2025 to 2026, during which there may be some leniency, though the extent is unknown. Trump has the ability to repeal it, but congressional support is still needed. Additionally, if KYC is involved, it could be very troublesome; no KYC taxes are one aspect. On the other hand, there is the confidentiality of assets, and with KYC, they also need to be reported.

The recent drop in Bitcoin prices may be related to this matter. The most affected are expected to be small and medium-sized altcoins, but mainstream coins will also be somewhat affected, especially those focused on-chain.

The document includes the final regulations issued by the U.S. Department of the Treasury and the IRS, primarily related to the requirements for brokers to report cryptocurrency transactions. These regulations outline the obligations for information reporting, clarify the definition of the scope of cryptocurrency brokers, and detail how to handle information on the sale and trading of digital assets.

The goal is to improve tax compliance by reducing the tax gap of unreported income through third-party reporting. Requirements for tax information reporting on digital asset transactions have been added. This includes individuals or organizations providing services for the transfer of digital assets, including participants in decentralized finance (DeFi), all of whom are considered cryptocurrency brokers. The definition of brokers extends to service providers offering trade matching, market creation, order matching, custodial, or custodial services.

Main contents of the new regulations:

1. Brokers need to submit information reports, including total transaction revenue and other details.

Brokers are required to submit information reports to the IRS (e.g., Form 1099-B), including:

A. Total revenue from digital asset transactions.

B. Information of the trading parties (such as identity, address).

C. For each transaction, the transfer price and basis of the asset must be recorded.

2. For DeFi protocols, the definition of 'digital asset intermediaries' has been clarified, and specific types of services that need to be reported have been listed.

If a non-custodial wallet provider participates in the transaction process and possesses transaction information, it may be considered a broker.

3. Exceptions for those who do not meet 'broker' requirements

A. Only validators that verify transactions.

B. Vendors that only provide hardware or software for managing digital asset private keys.

C. Other participants who do not directly facilitate transactions or do not have details of the transactions.

The effective date of the regulations is 60 days after publication in the Federal Register. This time, the regulations clarify the three-layer model of the DeFi technology stack: interface layer, application layer, and settlement layer. Information reporting requirements have been proposed for 'front-end services' that provide user interfaces or transaction access.

Document original address: https://public-inspection.federalregister.gov/2024-30496.pdf