The US Treasury Deaprtment has finally released the long-awaited DeFi broker tax reporting framework in its bid to capture revenue from the growing industry. According to the released framework, platforms offering trading services to report user transactions with the Internal Revenue Service (IRS).
DeFi Broker Tax Framework: Highlights and Criticism
According to the summary from ConsenSys lawyer Bill Hughes, the reporting requirements from the trading frontend will apply to both US persons and non-US persons. Compliance with the DeFi broker tax reporting framework will commence in 2027.
When compliance commences, the IRS will require DeFi brokers to send Form 1099 to platforms users for tax reporting pursposes. Ideally, Decentralized Finance (DeFi) protocols, per current operational model are non custodial. This means that user’s biometric information are not kept, alongside with the user’s funds.
With the new reporting framework, this may have to charge in a bid to comply with the DeFi broker tax provisions. In addition to the name and transaction details, market experts believe the new reporting standard might require protocols to include addresses and other sensitive details.
These conditions have drawn uproar from members of the crypto community. Hughes noted that this framework will be accompanied by a lawsuit. This is possibly in demand for its rollback. The legal expert noted that the tax provisions will impact all asset types including NFTs and stablecoins.
Treasury/IRS has finalized their DeFi broker tax reporting rule. Trading front ends would have to track and report on user activity – both US persons and non-US persons- starting in 2027. And it applies to the sale of every single digital asset – including NFTs and even… pic.twitter.com/CtFox668yn
— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) December 27, 2024
Hughes noted that the US Treasury had completed the DeFi broker tax rules long ago but chose to release it just weeks to the end of the current administration.
Will Donald Trump Roll Back the US Treasury Rules?
The crypto industry started weighing the impact of the tax reporting rules long ago. With the framework now official, the hopes now lie on the incoming Donald Trump administration to change the terms.
The hopes in Donald Trump hinges on the nomination of Scott Bessent as the Treasury Secretary. Unlike Janet Yellen, Scott Bessent is pro-crypto and might consider the plight of industry advocates. Beyond the invasion of privacy, experts say the DeFi broker tax rules is all cost-focused with no positive impact on revenue generation.
The President-elect’s family also pioneered a DeFi outfit, World Liberty Financial, this year. If this framework starts, the outfit might also need to comply, a twist that might encourage some forms of rollbacks or changes to the rules.
Godfrey Benjamin
Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture.
Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
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