Crypto Tax Reporting Requirements to Change, Says IRS

The Internal Revenue Service (IRS) published new crypto tax guidelines today, demanding that DeFi brokers collect and report much more detailed information about customers and transactions.

These new rules apply to front-end services interacting with users, but the protocols themselves are exempt.

IRS Wants Crypto Tax Info from DeFi

The IRS published these new tax guidelines on December 27, primarily focusing on DeFi institutions and their customers. Since last year, the agency has ramped up its efforts to crack down on crypto tax evasion, even developing an AI tool to assist with this task.

However, these new rules will not take effect until 2027, so existing DeFi firms have time to adapt.

“The final regulations require [DeFi] brokers to file information returns and furnish payee statements reporting gross proceeds on dispositions of digital assets effected for customers in certain sale or exchange transactions. [It also] requires certain decentralized finance industry participants to file and furnish information returns as brokers,” the annoucement wrote.

These new reporting requirements center around Form 1099, which the IRS expanded this year. The Form 1099-DA for digital assets was created this April, aimed at creating greater tax transparency for the crypto industry. Upon creation, brokers like exchanges and payment processors had to file these, and these same requirements are now extending to DeFi.

Although various elected representatives have tried to create new crypto taxes this year, the IRS conducts business as an apolitical, bureaucratic institution. It only increases taxes through methods like reinterpreting ambiguous statutes, not creating new ones from scratch.

In other words, general crypto users should not expect a higher tax rate from these developments. Nonetheless, these interpretations can still significantly chafe crypto enthusiasts. Earlier this year, the IRS had to backtrack new crypto tax guidelines after a wide public outcry.

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, crypto taxation has seen significant developments throughout 2024. Countries like Czech and Russia have relaxed certain taxation policies related to crypto activities, whereas governments in Italy and South Korea have hinted at stricter requirements.