US IRS Announces New Cryptocurrency Rules: Here’s What to Know

IRS Issues Long-Awaited DeFi Regulations

The Internal Revenue Service (IRS) has published its regulations for decentralized finance (DeFi), marking a substantial shift for trading platforms and their clientele.

Target Audience and Impact

While these regulations primarily target DeFi trading platforms, they will also affect the operations of these platforms and the user experience.

KYC and Reporting Requirements

Section 6045 of the US tax code requires brokers to gather know-your-customer (KYC) data, compute gains and losses, and report them to the IRS. Last year, this mandate was extended to custodial cryptocurrency brokers (CeFi). The IRS has now clarified its application to the DeFi ecosystem.

Classification of DeFi Layers

• Interface Layer: Allows user interaction with DeFi platforms through visuals and controls.
• Application Layer: Facilitates trade execution, verifying and recording blockchain transactions.
• Consensus Layer: Records financial transactions on the distributed ledger, including DeFi-executed asset trades.

New Reporting Obligations

The IRS classifies Interface Layer platforms as "intermediaries" under these regulations. These platforms will face stricter reporting requirements from January 1, 2027:

• Collecting KYC information at onboarding.
• Tracking transactions and reporting income via Form 1099-DAs.

Impact on DeFi Platform Customers

Customers of front-end DeFi platforms can anticipate:

• KYC Verification: Personal identification information will be required during onboarding.
• Tax Reporting: While platforms report income, users are still responsible for calculating gains and losses using crypto tax software.

This announcement does not constitute investment advice.