IRS reveals final regulations for crypto broker rules

The Internal Revenue Service (IRS) has released its final regulations outlining its new crypto brokerage rules for tax compliance.
The Internal Revenue Service (IRS) has released its final regulations outlining its new crypto brokerage rules for tax compliance.

The United States Internal Revenue Service (IRS) revealed its final draft of the new crypto broker reporting requirements on June 28, and clarified the scope of industry participants affected by the new rule changes.

According to the IRS' new reporting guidelines, decentralized exchanges and self-custody wallets will not be subject to the new reporting rules. In the recent update, the IRS explained that it reviewed the widespread comments and complaints from industry respondents, ultimately deciding it needed "more time to consider the nuances" of completely decentralized networks.

Moreover, stablecoins and tokenized real-world assets were not exempt from the government agency's new reporting requirements and will be treated the same as other digital assets.

First page of the Internal Revenue Service's final broker rules. Source: IRS

In the wake of the new rule changes, IRS Commissioner Danny Werfel remarked on the need to close the tax gap posed by digital assets and potential non-compliance from high-net-worth individuals:

"We need to make sure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets. Our research and experience demonstrate that third-party reporting improves compliance."

This motivation was previously shared by Werfel's IRS colleague, criminal investigation chief Guy Ficco, who predicted that there would be an uptick in crypto tax evasion during the 2024 tax season.

Related: Blockchain advocacy group raises privacy concerns over IRS crypto tax form

Industry advocates raise concerns

Industry advocacy groups, such as The Blockchain Association and The Chamber of Digital Commerce, have pushed back significantly against the IRS' proposed broker rules over the past year.

In 2023, The Blockchain Association sounded the alarm and objected to the IRS' proposed broker reporting requirements, citing the fundamental incompatibility between the proposed rules and decentralized finance networks.

More recently, The Blockchain Association reiterated its concerns with the agency's proposed broker provisions and the undue regulatory burdens and compliance costs the rules would create for market participants, industry firms, and the IRS itself. The advocacy group argued that the rules violated the Paperwork Reduction Act and would introduce $256 billion in annual compliance costs.

Shortly after The Blockchain Association posed its concerns regarding the regulatory burdens imposed by filing billions of 1099-DA tax forms, The Chamber of Commerce echoed the complaints, claiming the tax compliance forms could potentially create privacy issues.

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