US Treasury Unveils DeFi Broker Tax Reporting Rule, Here Are Key Highlights

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As a seasoned analyst with over two decades of experience in the financial sector, I’ve witnessed the evolution of taxation policies across various industries, and I must say, the DeFi broker tax reporting framework is a game-changer.

The U.S. Treasury Department has at last unveiled the eagerly anticipated framework for DeFi broker tax reporting, a move aimed at gathering taxes from the burgeoning sector. As per the disclosed framework, platforms that facilitate trading will be required to report user transactions to the Internal Revenue Service (IRS).

DeFi Broker Tax Framework: Highlights and Criticism

As per ConsenSys attorney Bill Hughes’ summary, the reporting obligations from the trading interface will affect both U.S. residents and non-U.S. residents. The enforcement of the Decentralized Finance (DeFi) broker tax reporting system is set to begin in 2027.

Once compliance begins, the Internal Revenue Service (IRS) will expect DeFi brokers to submit Form 1099 to their platform users for tax reporting needs. Notably, Decentralized Finance (DeFi) platforms, as currently structured, operate in a non-custodial manner. This implies that user biometric data and funds are not stored, ensuring privacy for the users.

Using the updated reporting system, there could be a need for charging fees to adhere to the tax regulations for DeFi brokers. Beyond the user’s name and transaction data, industry specialists anticipate that the new reporting standard may demand disclosure of wallet addresses and other confidential information.

There’s been a lot of outcry from cryptocurrency enthusiasts regarding these terms. Hughes mentioned that this regulatory framework could lead to a lawsuit. It seems there’s demand for a potential rollback. The legal advisor emphasized that the tax regulations will affect various assets, such as NFTs and stablecoins.

The U.S. Department of the Treasury/Internal Revenue Service (IRS) has set the final regulations for tax reporting related to Decentralized Finance (DeFi). Starting from 2027, trading platforms will be required to monitor and report on user activities, regardless of whether they are U.S. citizens or non-U.S. residents. This new rule covers all digital assets, including Non-Fungible Tokens (NFTs) and other types of cryptocurrencies.

— Bill Hughes : wchughes.eth (@BillHughesDC) December 27, 2024

Hughes pointed out that the US Treasury had finalized the tax regulations for Decentralized Finance (DeFi) brokers some time ago, but decided to make this announcement only a few weeks before the end of the current administration.

Will Donald Trump Roll Back the US Treasury Rules?

For some time now, the cryptocurrency sector has been considering how new tax reporting regulations might affect them. As these guidelines have recently become law, there’s now anticipation that the incoming Donald Trump administration may renegotiate the terms.

The future of Donald Trump’s administration could rely on the nomination of Scott Bessent as Treasury Secretary. Unlike Janet Yellen, Scott Bessent supports cryptocurrency and may take into account the concerns of industry proponents. Experts argue that tax rules for DeFi brokers are purely cost-focused and offer no significant boost in revenue generation, beyond potential privacy concerns.

This year, the family of the incoming President established a Decentralized Finance (DeFi) company named World Liberty Financial. Should this venture come into effect, it could potentially necessitate compliance, a situation that could prompt certain adjustments or reversals in the current regulations.

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2024-12-27 21:36