IRS Finalizes Rules for Digital Asset Reporting By Brokers in 2027

IRS Finalizes Rules for Digital Asset Transaction Reporting

The United States Internal Revenue Service (IRS) has issued final regulations requiring brokers to report digital asset transactions, expanding existing reporting requirements to include front-end platforms such as decentralized exchanges.

New Reporting Requirements for Digital Asset Transactions

The rules, set to take effect in 2027, mandate that brokers disclose gross proceeds from sales of cryptocurrencies and other digital assets, including information regarding taxpayers involved in the transactions. According to the IRS, the regulations will apply to front-end platforms that facilitate transactions involving digital assets for customers, such as decentralized exchanges.

Definition of Brokers in DeFi

The final regulation defines brokers in the DeFi space as trading front-end service providers, including platforms that perform intermediary functions in facilitating transactions. This definition encompasses platforms that exercise sufficient control or influence over the transaction process, even if they operate through smart contracts.

Impact on DeFi Industry

The IRS estimates that between 650 and 875 DeFi brokers will be affected by these final regulations. The agency claims that the rules will lead to higher levels of taxpayer compliance, making income earned by taxpayers engaging in digital asset transactions more transparent to both the IRS and taxpayers.

Implementation Timeline

Brokers will need to begin collecting and reporting the necessary data for digital asset transactions starting in 2026. The new rules will begin to apply to digital asset sales starting in 2027, affecting an estimated 2.6 million taxpayers.

IRS Response to Industry Concerns

The Treasury Department and the IRS have stated that the regulations do not reflect a bias against the DeFi industry and will not discourage the adoption of this technology by law-abiding customers. According to the IRS, the rules have applied to brokers for over 40 years and merely treat DeFi like any other industry.

Source: Cointelegraph.com