The Internal Revenue Service (IRS) published new tax guidelines for cryptocurrencies today, requiring DeFi brokers to collect and report much more detailed information about customers and transactions.
These new rules apply to front-end services that interact with users, but the protocols themselves are exempt.
The IRS wants tax information from DeFi cryptocurrencies
The IRS published these new tax guidelines on December 27, focusing primarily on DeFi institutions and their customers. Since last year, the agency has intensified its efforts to combat tax evasion in cryptocurrencies, even developing an AI tool to assist with this task.
However, these new rules will not take effect until 2027, giving existing DeFi companies time to adapt:
"The final regulations require [DeFi] brokers to file information returns and provide beneficiary statements reporting gross income on digital asset dispositions made for clients in certain sale or exchange transactions. [It also] requires certain participants in the decentralized finance industry to file and provide information returns as brokers," the announcement wrote.
These new reporting requirements focus on Form 1099, which the IRS expanded this year. The Form 1099-DA for digital assets was created in April, with the aim of increasing tax transparency for the crypto industry. Upon its creation, brokers such as exchanges and payment processors were required to submit them, and these same requirements now extend to DeFi.
Although several elected representatives have attempted to create new taxes for cryptocurrencies this year, the IRS acts as a bureaucratic and apolitical institution. It only raises taxes through methods such as reinterpreting ambiguous statutes, not by creating new ones from scratch. In other words, general cryptocurrency users should not expect a higher tax rate due to these developments.
However, these interpretations may still significantly irritate cryptocurrency enthusiasts. Earlier this year, the IRS had to retract new tax guidelines for cryptocurrencies after widespread public protest. Additionally, private users are no longer required to list their wallet addresses on Form 1099-DA.
Depending on the political climate, these regulations may change before they take effect. Overall, cryptocurrency taxation has seen significant developments throughout 2024. Countries like Czechia and Russia have relaxed certain tax policies related to crypto activities, while governments in Italy and South Korea have hinted at stricter requirements.
IN SUMMARY
The IRS issued new tax guidelines for cryptocurrencies, requiring DeFi brokers to report detailed customer and transaction data.
These rules apply to front-end DeFi services that interact with users, but exempt underlying protocols.
New reporting requirements focus on Form 1099-DA, with implementation planned for 2027, allowing DeFi companies time to adapt.