IRS reveals final rules for crypto broker rules

The United States Internal Revenue Service (IRS) unveiled the final draft of the new crypto broker reporting system on June 28 and explained the scope of industry participants affected by the new rule changes.

According to the IRS's new reporting guidance, decentralized exchanges and self-custody wallets will not be subject to the new reporting rules. In its latest update, the IRS said it reviewed widespread feedback and complaints from industry respondents, ultimately determining that “additional time is needed to consider the diversity” of fully decentralized networks.

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

As a result of the new rule change, IRS Commissioner Danny Werfel commented on the need to close the tax loophole on digital assets and the potential non-compliance from high net worth individuals.

“We need to ensure that digital assets are not used to hide taxable income, and these final rules will improve detection of noncompliance in digital assets where there is high risk. Our research and experience will improve compliance with third-party reporting.”

This initiative was previously predicted by Werfel's IRS colleague Chief of Criminal Investigations Guy Fico for the 2024 tax season to see a significant increase in crypto tax fraud.

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 against the brokering rule proposed by the IRS over the past year.

In the year In 2023, the Blockchain Association sounded the alarm and opposed the IRS' proposed broker reporting requirements, citing a fundamental incompatibility between the proposed rules and decentralized financial networks.

Recently, the Blockchain Association reiterated its concerns about the undue regulatory burdens and compliance costs that the agency's proposed brokerage provisions and regulations would create for market participants, industry organizations, and the IRS itself. The advocacy group argued the rules would violate the Paperwork Reduction Act and introduce $256 billion in annual compliance costs.

After the Blockchain Association expressed concerns about the regulatory burdens of processing billions of 1099-DA tax forms, the Chamber of Commerce echoed its complaints, saying tax compliance forms could create privacy issues.

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