The final draft of new crypto broker reporting requirements by the United States Internal Revenue Service (IRS) was unveiled on June 28, clarifying which industry participants would be affected by the changes. According to the IRS’ updated guidelines, decentralized exchanges and self-custody wallets are exempt from these new reporting rules. This decision follows extensive feedback from industry stakeholders, prompting the IRS to acknowledge the complexities of fully decentralized networks and the need for further deliberation.
However, stablecoins and tokenized real-world assets are not exempt from the IRS’ new reporting requirements and will be treated similarly to other digital assets.
In response to these developments, IRS Commissioner Danny Werfel emphasized the importance of addressing the tax gap associated with digital assets and potential noncompliance among high-net-worth individuals. This sentiment echoes concerns previously expressed by IRS criminal investigation chief Guy Ficco, who anticipated increased crypto tax evasion during the 2024 tax season.
Various industry advocacy groups, including The Blockchain Association and The Chamber of Digital Commerce, have been vocal critics of the IRS’ proposed broker rules over the past year. The Blockchain Association, for instance, raised alarms in 2023, arguing that the proposed rules conflict with the decentralized finance networks’ foundational principles. Recently, the association reiterated its objections, highlighting the significant regulatory burdens and compliance costs that these rules could impose on market participants, industry firms, and the IRS itself. They also contended that these rules could violate the Paperwork Reduction Act and lead to an estimated $256 billion in annual compliance costs.
The concerns raised by The Blockchain Association were mirrored by The Chamber of Commerce, which also expressed worries about potential privacy issues arising from the extensive tax compliance forms required, notably the billions of 1099-DA forms.