IRS Introduces New Crypto Broker Reporting Rules

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On June 28, the Internal Revenue Service (IRS) of the United States revealed the final draft of new reporting rules for cryptocurrency brokers. The IRS sought to strengthen laws and address growing concerns about tax compliance in the digital asset market.

IRS Issues New Rules for Crypto Brokers

According to the new guidelines, decentralized exchanges (DEXs) and self-custody wallets would be excluded from the new reporting requirements. This decision comes after considerable comments from industry participants, causing the IRS to accept the need for more time to properly comprehend the complexities of decentralized networks.

Despite this leniency for DEXs and self-custody wallets, the IRS has clarified that stablecoins and tokenized real-world assets would not be exempt. These assets will be treated similarly to other digital assets under the new legislation.

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Close the Tax Gap.

IRS Commissioner Danny Werfel underscored the agency’s commitment to eliminating the tax gap for digital assets. “We must ensure that digital assets are not exploited to conceal taxable income, and these final regulations will strengthen identification of noncompliance in the high-risk area of digital assets. “Our research and experience show that third-party reporting improves compliance,” Werfel said. This opinion matches the fears expressed by Guy Ficco, IRS criminal investigation chief, who previously expected a surge in cryptocurrency tax avoidance during the 2024 tax season.

IRS Receives New Reporting Rules

Not everyone has been pleased with the new reporting regulations. Industry advocacy organizations like The Blockchain Association and The Chamber of Digital Commerce have been outspoken in their opposition. These groups claim that the IRS’s proposed guidelines are fundamentally incompatible with decentralized finance (DeFi) networks and would place unnecessary regulatory constraints on the industry.

In 2023, The Blockchain Association vehemently opposed the IRS’s proposed broker reporting regulations, highlighting the difficulties these rules would present to DeFi networks. The group recently reinforced its worries, citing the new standards’ high compliance costs and regulatory hurdles. They claimed that these standards violated the Paperwork Reduction Act and would result in $256 billion in yearly compliance expenses. This astonishing sum demonstrates the potential financial strain on industry participants and the IRS itself.

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The Chamber of Digital Commerce added to the criticism by expressing concerns about potential privacy issues resulting from the submission of billions of 1099-DA tax forms. These forms, mandated by the new reporting standards, may expose sensitive financial information, posing considerable privacy hazards to market participants.

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