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Th final regulation treats DeFi front-ends as brokers, demanding the disclosure of gross proceeds from sales of digital assets.
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The United States Internal Revenue Service (IRS) has issued final regulations requiring brokers to report digital asset transactions, expanding existing reporting requirements to include front-end platforms, such as decentralized exchanges.
Set to take effect in 2027, the rules mandate that brokers disclose gross proceeds from sales of cryptocurrencies and other digital assets, including information regarding taxpayers involved in the transactions.
The final regulation says “the only DeFi participants that are treated as brokers […] are trading front-end service providers.”
The document does not directly apply to all DeFi applications and their level of decentralization, focusing on front-ends as a source of information and tax disclosure.
The reporting requirements apply to front-end platforms that facilitate transactions involving digital assets for customers, such as decentralized exchanges.
The IRS has classified DeFi front-ends as brokers for tax reporting. Source: Department of Treasury
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The definition encompasses platforms performing intermediary functions in facilitating transactions, including a group of persons facilitating transactions “whether or not the group operates through a legal entity.”
Under the new rules, if a DeFi platform is involved in facilitating the exchange or sale of digital assets — even through smart contracts — and it exercises sufficient control or influence over the transaction process, it could meet the definition of a broker.
The document states:
“[…] these final regulations will result in trading front-end service providers being able to provide to their customers the same useful information regarding gross proceeds as custodial brokers […]”
According to the IRS, the regulation “merely treats” DeFi like any other industry, claiming the rules have applied to brokers for over 40 years:
“The Treasury Department and the IRS do not agree that these final regulations reflect a bias against the DeFi industry or that these regulations will discourage the adoption of this technology by law-abiding customers.”
The new rules will begin to apply to digital asset sales starting in 2027. Brokers will need to begin collecting and reporting the necessary data for digital asset transactions starting in 2026. According to the IRS, there are between 650 and 875 estimated DeFi brokers that will be affected by these final regulations.
“Information reporting by DeFi brokers under section 6045 will lead to higher levels of taxpayer compliance because the income earned by taxpayers engaging digital assets transactions without a custodial broker will be made more transparent to both the IRS and taxpayers.”
The IRS estimates that the new regulations will affect up to 2.6 million taxpayers.
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This article first appeared at Cointelegraph.com News
