I’m WendyO with The Street and Roundtable, and today I have my own personal CPA Scott Martin to explain a new rule from the IRS and US Treasury that would essentially ban DeFi.
The US Department of the Treasury and the Internal Revenue Service (IRS) have finalized new regulations targeting DeFi brokers, requiring them to adopt Know Your Customer (KYC) procedures and report on user trading activities. These rules, which came into effect on January 1, 2027, apply to DeFi protocols that interact directly with customers, classifying them as brokers similar to traditional financial entities. This involves collecting and reporting user data, including names, addresses and transaction details, to the IRS on Form 1099-DA.
The regulations aim to treat DeFi brokers the same as custodial platforms for tax reporting purposes, but they have sparked controversy within the crypto community. Some critics have argued that these new rules exceed Treasury’s regulatory authority and could drive the DeFi industry overseas due to compliance concerns and privacy concerns. Industry leaders and advocacy groups such as the Blockchain Association and the DeFi Education Fund have challenged the regulations legally, citing privacy concerns and the decentralized nature of DeFi platforms that traditionally do not handle user identification. users.
The IRS’ latest ruling is seen by some as a significant change in how DeFi platforms operate, potentially requiring them to centralize certain aspects of their service to comply with these new reporting mandates. This could include tracking user identities and transactions across all digital assets, including NFTs and stablecoins. Backlash includes concerns about the feasibility of compliance for truly decentralized entities and fear that the rules could stifle innovation in the US crypto space.
If you are looking for a tax professional, contact Scott today, his website is featured in today’s video! Thanks for watching.
