DeFi proponents to fight US IRS tax code

The U.S. Internal Revenue Service said DeFi brokers would have to comply with longstanding securities rules, disagreeing with industry sentiment that advocates for different laws for digital assets.

Updated IRS Rules published On December 27, it would order certain “DeFi brokers” to operate like traditional financial institutions by collecting certain data on user activity and reporting revenue from cryptocurrencies.

The finalized rules apply to the “front end” Challenge operators, referring to service providers that directly manage websites used to access Web3 platforms such as decentralized exchanges for US and non-US participants.

So-called DeFi brokers should also report on all digital assets, including NFT And stable coins. Aviva Aron-Dine, acting assistant secretary for tax policy, said the revised framework would level the playing field for taxpayers and standardize reporting requirements for all participants.

Incumbents in the crypto industry have debated whether digital assets fall under existing securities laws, emphasizing that the industry requires different rules. The IRS, in a joint statement with the Treasury Department, strongly disagreed with this assertion.

The Treasury Department and the IRS disagree that DeFi participants should be excluded from the information reporting rules under Section 6045 due to a lack of experience in financial services or a alleged lack of comprehensive regulatory oversight. Persons with technological expertise who operate trades or businesses related to financial services must comply with the same rules as any other person operating financial services businesses.

IRS and Treasury

The IRS released proposed DeFi/crypto tax reporting policies in August 2023, with documents revised to include exchanges in its compliance guidelines. revealed shortly after. Crypto commentators have opined that DEXs like Uniswap could be forced to share KYC information, such as names and addresses, with authorities.

Industry executives fought against the agency’s initial tax proposal last year, and Consensys lead attorney Bill Hughes predicts the same thing will happen again. “The outgoing administration is not going quietly. The fight continues,” Hugh said via X.

A major concern expressed by cryptocurrency users is that most DeFi protocols cannot comply with securities laws and that privacy would be almost non-existent under the new laws.

Digital asset advocacy groups like the Blockchain Association have promised “aggressive action” against the IRS policies, suggesting that lobbying of Congress and perhaps litigation could ensue. Without hindsight, the final rules would be promulgated by January 1, 2027.