The IRS and the U.S. Treasury Department have completed a comprehensive set of regulations targeting brokers involved in virtual asset transactions.
The new rules, set to appear in the Federal Register on December 30, impose significant reporting obligations on brokers, including some decentralized finance (DeFi) platforms. Brokers are required by the legislation to keep an eye on and report user activity, including transactions involving assets such as stablecoins and non-fungible tokens (NFTs).
The alterations were brought to light on X by Bill Hughes, a senior counsel and an influential voice in the cryptocurrency industry. He remarked, “The IRS and Treasury have completed their tax reporting requirements for DeFi brokers. Both domestic and foreign users’ activities must be tracked and reported by trading interfaces beginning in 2027.”
In addition, Hughes foresaw legal challenges to the rule, saying that a lawsuit could challenge the Treasury’s authority, alleging violations of the Administrative Procedure Act. This regulation may also be reviewed by Congress and perhaps overturned. He further criticized the timing of the announcement, saying, “It’s clear this rule was intentionally released on the last Friday of 2024 during a holiday period to minimize attention. But the crypto community won’t stay quiet about it.”
The regulation expands the definition of “broker” to encompass custodial wallet service providers, trading platforms, and decentralized exchanges that facilitate virtual asset transactions. Even companies using smart contracts to link users with protocols must adhere to the rules, which require identity verification and reporting of gross proceeds. These entities must file Form 1099-DA for virtual asset transactions and retain records for up to seven years.
According to the Treasury, these measures aim to bring virtual asset tax reporting in line with requirements for traditional securities. Officials argue that the new rules will help close the tax gap and enhance transparency in crypto markets.
However, the changes have drawn sharp criticism from experts and legal professionals. Attorney Jake Chervinsky described the regulation as an overreach. Custodia Bank founder Caitlin Long expressed strong criticism as well, claiming that the rule was overly vague.
With Donald Trump set to assume the presidency on January 20, 2025, a shift in policy is anticipated. Trump has vowed to adopt a pro-crypto stance, promising to end what he calls the Biden administration’s “anti-crypto agenda.”
His plans include establishing the U.S. as a global hub for crypto, creating a bitcoin reserve, providing banking access for cryptocurrency companies, and forming a dedicated advisory council for the industry.
Industry actors like MicroStrategy Inc. (NASDAQ: MSTR) may wait for the new rules to be published and then provide feedback on how best the industry can be regulated without stifling its growth.
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