Crypto executives and legal professionals are doubtful that the United States Internal Revenue Service’s (IRS) new ruling, which holds decentralized exchanges to the same reporting requirements as traditional brokers, will stick around for long.
“No shortage of ways to challenge this, and it absolutely should be challenged,” decentralized crypto exchange Uniswap chief legal officer Katherine Minarik said in a Dec. 27 X post.
Execs hope the ruling will be rejected
“So once again, the industry — and all kinds of tech beyond the industry — is going to be in search of a limiting principle,” Minarik said.
“It sure does seem like the IRS says they’re regulating “any service effectuating transactions” as brokers… then goes on to classify DeFi tech as brokers… because it is involved in just a *part* of a transaction… as the IRS’s own descriptions explain.”
Uniswap CEO Hayden Adams said he hopes that the ruling will be rejected under the Congressional Review Act, and if not, is optimistic it won’t withstand “legal challenges.”
On Dec. 27, the IRS issued final regulations requiring brokers to report digital asset transactions, expanding existing reporting requirements to include front-end platforms, such as decentralized exchanges.
Source: Shehan
Set to be implemented in 2027, the rules mandate that brokers disclose gross proceeds from sales of cryptocurrencies and other digital assets, including information regarding taxpayers involved in the transactions. The final regulation says, “The only DeFi participants that are treated as brokers [...] are trading front-end service providers.”
Crypto tax platform Koinly CEO Robin Singh told Cointelegraph that the cost of implementing the necessary reporting systems could be significant.
“For businesses operating in the DeFi space, compliance with these regulations will require both operational and technical innovation,” Singh said.
“Decentralized platforms, by their nature, lack the centralized structures needed for traditional reporting, which creates a significant hurdle for many companies,” Singh added.
‘All cost, no benefit,’ says Consensys lawyer
Blockchain development firm Consensys lawyer Bill Hughes said the ruling is “all cost, no benefit” from a revenue perspective.
“The outgoing administration is not leaving quietly. The fight continues,” Hughes said in a Dec. 27 X post.
Hughes said the ruling will require front-end platforms to track and report on both US and global users, applying to the sale of all digital assets, including non-fungible tokens (NFTs) and stablecoins.
Related: IRS doubles down on crypto staking taxes — Report
Echoing a similar sentiment to Uniswap’s Adams, Hughes said the rule will likely come under Congressional review “where it can be disapproved of.”
“This rule has been ready to go for a while now. They dump it on the last Friday of 2024 in the middle of a holiday stretch on purpose, obviously.”
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