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IRS finalizes crypto broker reporting rules, excluding decentralized exchanges. Stablecoins and tokenized assets are included. Industry groups raise compliance and privacy concerns.
On June 28, the United States Internal Revenue Service (IRS) released its final draft of new crypto broker reporting guidelines, thereby confirming the extent of industry players impacted by the developments.
New Reporting Guidelines and Exemptions
New reporting instructions from the IRS exclude self-custody wallets and distributed exchanges from the regulations.
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Reviewing extensive comments and objections from industry responders, the agency observed it required “more time to consider the nuances” of fully distributed networks. Stablecoins and tokenized real-world assets are not excluded, however; under the new rules thStablecoins and tokenized real-world assets are not excluded, either; under the new rules they will be handled just like other digital assets.
IRS’s Motivation and Industry Pushback
IRS Commissioner Danny Werfel underlined the need of reducing the tax gap caused by digital assets and tackling possible non-compliance among high-net-worth people. “These final rules will help to better identification of noncompliance in the high-risk area of digital assets and ensure that taxable income is not hidden using them. Third-party reporting enhances compliance, our studies and experience show.” Werfel said.
Chief Guy Ficco of IRS criminal investigations also expressed this view, predicting more crypto tax evasion during the 2024 tax season.
Over the last year, industry advocacy organizations such The Blockchain Association and The Chamber of Digital Commerce have vehemently fought the IRS’s proposed broker regulations. The Blockchain Association said that the regulations will cause unnecessary regulatory burdens and compliance costs on market players and are essentially incompatible with distributed financial networks. The organization said the regulations broke the Paperwork Reduction Act and would cause yearly compliance expenses of $256 billion.
The Chamber of Digital Commerce also expressed worries, implying that the tax compliance forms needed by the new regulations would lead to major privacy problems.
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