Quick Look at Crypto Tax Broker Rules: Required to Submit Reports Containing Transaction Income and More

Source: Phyrex

The Crypto Tax Broker Rules were finalized and passed, and the rules are not friendly, with a total of 177 pages. It will be implemented 60 days after the announcement date, but 2025 to 2026 is a transition period, and there will be some accommodations, but the scale is unknown. Trump has the ability to repeal it, but of course he still needs the support of Congress. In addition, if there is KYC, it will be very troublesome. There is no KYC tax. On the other hand, there is the secrecy of assets, and KYC needs to be submitted.

The current decline in Bitcoin prices may be related to this matter. It is expected that the biggest impact will be on small and medium-sized altcoins, but mainstream coins will also be affected to some extent, especially those that focus on the chain.

The document contains final regulations issued by the U.S. Department of the Treasury and the Internal Revenue Service (IRS) that primarily address requirements for brokers to report crypto asset transactions. The regulations outline information reporting obligations, clarify the definition of the scope of cryptocurrency brokers, and how information on the sale and trading of digital assets is processed.

The goal is to improve tax compliance and reduce tax gaps on unreported income through third-party reporting. Added requirements for tax information reporting for digital asset transactions. Among them, individuals or organizations that regularly provide services to realize the transfer of digital assets, including decentralized finance (DeFi) participants, are considered cryptocurrency brokers. The definition of broker extends to service providers that provide trade matching, market creation, order matching, custody or custody-style services.

The main contents of the new regulations:

1. Brokers are required to submit information reports, including total trading revenue and other details.

Brokers are required to submit information reports (such as Form 1099-B) to the IRS, including:

A. Total revenue from digital asset transactions.

B. Information of both parties to the transaction (such as identity, address).

C. For each transaction, the transfer price and basis cost of the asset need to be recorded.

2. For DeFi protocols, the definition of "digital asset intermediary" is clarified and the specific service types that need to be reported are listed.

A non-custodial wallet provider may be considered a broker if it is involved in the transaction process and has information about the transaction.

3. Exceptions for failure to meet the requirements of “broker”

A. Validators who only verify transactions.

B. Suppliers that only provide hardware or software for digital asset private key management.

C. Other participants who are not directly involved in transaction facilitation or do not master the details of the transaction.

The regulations' effective date is 60 days after publication in the Federal Register. This regulation clarifies the three-layer model of the DeFi technology stack: interface layer, application layer, and settlement layer. Information reporting requirements are proposed for “front-end services” that provide user interfaces or transaction portals.

Original document address: https:// public-inspection.federalregister.gov/2024-30496.pdf