Final Version of Broker Rules for Digital Assets Released by US Treasury and IRS
The US Department of the Treasury and the Internal Revenue Service (IRS) have recently unveiled the final version of the broker rules for digital asset service providers. This includes a significant provision that mandates DeFi protocols to conduct Know-Your-Customer (KYC) procedures, which has already sparked controversy among industry experts.
Key Highlights of the New Broker Rules:
- Brokers must report sales, exchanges, and track user activity for digital assets.
- DeFi front-ends are classified as brokers and required to perform KYC processes.
- Compliance deadline for digital asset brokers is by Jan. 1, 2025, while DeFi brokers have until Jan. 1, 2027.
- Reporting rules for entities will be further addressed in future IRS regulations.
Transition Period and Exclusions
The new rules provide relief for brokers making good faith efforts to comply, with limited penalties for transactions in 2025 and 2026. Reporting of gross proceeds and cost-based reporting obligations will also be phased in accordingly.
Additional Reporting Requirements:
- Real estate professionals using digital assets for closings on or after Jan. 1, 2026, must adhere to reporting obligations.
- Specific transactions like wrapping, unwrapping, liquidity provider, staking, and lending-related activities are excluded from immediate reporting requirements.
- Future guidance will address complex aspects of the DeFi ecosystem.
Community Backlash and Legal Implications
The new broker rule has faced criticism from various industry figures, with concerns raised about its legality and regulatory overreach. Many believe that legal challenges and potential Congressional review may be on the horizon, as stakeholders push back against what they perceive as burdensome regulations.
