IRS Announces New Crypto Tax Regulation Targeting DeFi Brokers, Sparks Community Outrage

The U.S. Internal Revenue Service (IRS) has officially announced a new crypto tax regulation for the front-end service providers who identify as brokers in the Decentralized Finance (DeFi) industry.

The U.S. Internal Revenue Service (IRS) has announced a new crypto tax regulation for front-end service providers in the Decentralized Finance (DeFi) industry, effective January 1, 2027.

The regulation aims to standardize crypto taxes with traditional taxes by mandating DeFi brokers to issue crypto tax forms, collect user trading information, and provide customers' names, addresses, and other details.

According to a press release by the U.S. Department of the Treasury, DeFi brokers will be required to issue Form 1099 to digital asset owners, highlighting the taxability of their crypto transactions.

This measure aims to reduce errors and non-compliance on federal income tax returns, ultimately saving taxpayers time and money during tax filing.

Aviva Aron-Dine, Performing the Duties of Assistant Secretary for Tax Policy, stated, “These regulations will help ensure that all taxpayers play by the same set of rules and have access to the information they need to file their taxes accurately. Aligning tax reporting requirements for digital assets with reporting for other assets will make filing easier and cheaper for compliant taxpayers while also helping close the tax gap.”

The new regulation is expected to affect around 650 to 875 decentralized finance brokers, potentially impacting the operational aspects of decentralized exchange platforms.

The IRS clarified that the regulation does not apply to hardware manufacturers or internet service providers. However, the agency's definition of decentralized finance front-end service providers as “brokers” suggests a stricter regulatory approach.

This government action on crypto tax signals increasing challenges in terms of compliance and heightened scrutiny for crypto users and platforms.

Crypto Community Pushes Back on Crypto Tax RegulationThe crypto leaders and community are slamming the new regulation that subjects decentralized finance to the same rules as traditional brokers.

The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council have filed a lawsuit against the IRS's broker rulemaking. Among them, Uniswap's Chief Legal Officer Katherine Minarik took to Twitter to voice her concerns over the new regulation by the Internal Revenue Service, urging people to speak up against it.

Meanwhile, Hayden Adams, CEO of Uniswap Labs, criticized the IRS rules and expressed optimism that the regulation will be overturned through the Congressional Review Act.