IRS Reporting Rules for Crypto Brokers: What You Need to Know
Goodbye to IRS Reporting Rules for DeFi Brokers
In a major shift, the IRS has decided to tug back on certain reporting requirements for decentralized finance (DeFi) brokers. These brokers, which mostly operate on blockchain technology without traditional pathways for converting fiat currency to digital assets, will now not must comply with Form 1099-DA reporting. This means they’ll skip the trouble of gathering Know Your Customer (KYC) data and sharing transaction info with the IRS.
Centralized Exchanges Still on the Hook
However, in the event you’re a centralized exchange that is holding onto digital assets in your users and offering them a option to convert from regular money to digital currency, you are still within the IRS’s sights. You’ll need to begin issuing Form 1099-DA to your users in 2026 for any transactions starting in 2025. Many exchanges are already ramping up their KYC processes to prepare for full compliance by 2027, while some are even restricting access for U.S. users. Don’t forget, the identical reporting rules apply to digital asset payment processors and any firms that repeatedly issue or redeem tokens.
Why the Change?
So, why the rollback on DeFi reporting rules? The primary concern was that these regulations could dampen innovation and create impractical compliance demands for those using open, permissionless blockchain systems. But don’t think the IRS is stepping away from its broader goals. You’re still on the hook for reporting gains and losses from digital assets accurately. And the IRS isn’t budging from its stance against “universal wallet” accounting, as outlined in Revenue Procedure 2024-28. RSM US dives into this topic of their article: “The End of Universal Wallet Accounting; Rev. Proc. 2024-28 Safe Harbor Relief.”
What Should Crypto Platforms Be Doing?
Even with these changes, crypto brokers and platforms have so much to contemplate. To help users stay compliant and manage risks, they could need to:
- Reevaluate their internal KYC, Anti-Money Laundering (AML), and data retention strategies, given the lighter federal compliance load.
- Stay alert for any recent state-level laws or IRS updates that might impact operations.
- Keep an eye fixed on global compliance trends, especially as countries start adopting frameworks just like the Crypto-Asset Reporting Framework (CARF).
Thinking Ahead
No matter the way you slice it, keeping accurate records is crucial, even in the event you’re only casually dabbling in digital assets. While the recent changes ease up on IRS reporting, they don’t eliminate the danger of underreporting or audits, especially since a lot activity is visible on public blockchains. It’s a superb idea for taxpayers to maintain detailed records and use tools that ensure accurate basis tracking and transaction reporting.
The world of digital assets is continually evolving, and so are compliance requirements. At RSM US, our digital asset tax experts are staying on top of those changes. If you’ve got questions or need assistance crafting your digital asset reporting strategy, we’re here to assist.
Image Credit: rsmus.com
