Article reprinted from: PA Recommended Read

Source: Phyrex

The rules for cryptocurrency tax brokers have been finalized and passed, and they are not friendly, totaling 177 pages. They will take effect 60 days after the announcement, but there will be a transition period from 2025 to 2026 with some leniency, though the extent is unknown. Trump has the power to repeal this, but congressional support is still needed. Additionally, if KYC is involved, it could be very troublesome; no KYC tax is one aspect, while the other is the secrecy of assets, which would require disclosure if KYC is in place.

The recent drop in Bitcoin prices may be related to this situation. It is expected that the most affected will be small and medium-sized altcoins, but mainstream coins will also be impacted, especially those focused on-chain.

The document includes the final regulations issued by the U.S. Department of the Treasury and the IRS, mainly concerning the reporting requirements for brokers of cryptocurrency transactions. These regulations outline the obligations for information reporting, define 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 and reduce the tax gap of unreported income through third-party reporting. There is a requirement to report tax information for digital asset transactions. Individuals or organizations that regularly provide services to facilitate the transfer of digital assets, including decentralized finance (DeFi) participants, are considered cryptocurrency brokers. The definition of brokers is expanded to include service providers offering trade matching, market making, order matching, custody, or custodial services.

Main contents of the new regulations:

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

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

A. Total revenue from digital asset transactions.

B. Information of both parties in the transaction (e.g., identity, address).

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

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

If non-custodial wallet providers participate in the transaction process and have transaction information, they may be considered brokers.

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

A. Validators that only verify transactions.

B. Providers that only offer hardware or software for digital asset private key management.

C. Other participants who do not directly engage in transaction facilitation or do not have transaction details.

The regulation takes effect 60 days after publication in the Federal Register. This regulation clarifies the three-layer model of the DeFi tech stack: interface layer, application layer, and settlement layer. Information reporting requirements are proposed for 'frontend services' that provide user interfaces or trading access.

Original document link: https://public-inspection.federalregister.gov/2024-30496.pdf