- IRS exempts decentralised exchanges from new crypto reporting rules after industry feedback.
- Stablecoins and tokenized assets still face stringent IRS reporting requirements.
- Blockchain groups warn IRS rules could lead to $256B in annual compliance costs.
The IRS has issued its definitive guidelines for reporting by crypto brokers, specifying that decentralised exchanges and self-custodial wallets are exempt from the updated regulations. This decision followed significant feedback from industry participants.
Key Exemptions and Inclusions
The IRS has left out decentralised exchanges and self-custodial wallets from its updated reporting rules. This choice was made following thorough discussions with business partners who raised worries about the practicality and consequences of adding these organisations. Reporting rules will still apply to stablecoins and tokenized real-world assets.
IRS Commissioner Danny Werfel emphasised the need to close the tax gap with digital assets, aiming to improve noncompliance detection, especially among high-net-worth individuals. He predicted that third-party reporting will enhance tax compliance for digital assets.
Criminal investigation chief Guy Ficco supported this view, predicting an increase in crypto tax evasion for the 2024 tax season. The IRS’s focus is to ensure that digital assets are not used to evade taxes, with the new rules set to aid in this effort.
Industry Pushback and Concerns
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The Blockchain Association and The Chamber of Digital Commerce have raised concerns over the IRS’s proposed broker rules, arguing they are incompatible with decentralised finance networks and impose excessive regulatory burdens, with potential annual compliance costs of $256 billion.
The Chamber of Digital Commerce emphasised these worries, stating that requiring the submission of billions of 1099-DA tax forms could pose privacy concerns for users. Both groups are still pushing for a review of the rules in order to find a balance between regulatory goals and operational difficulties.
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