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IRS Enforces New Reporting Rules on DeFi: Legal Battles and Industry Backlash Ensue

by aria-crypto.com

December 28, 2024 at 19:03

IRS Enforces New Reporting Rules on DeFi: Legal Battles and Industry Backlash Ensue

The U.S. Internal Revenue Service (IRS) is facing substantial legal pushback from industry leaders like the Blockchain Association, the DeFi Education Fund, and the Texas Blockchain Council due to a new regulation that categorizes decentralized finance (DeFi) platforms as brokers, thus requiring them to uphold stringent reporting standards by 2027. This classification is part of the IRS’s broader intent to integrate DeFi into the existing tax framework, a move derived from the Infrastructure Investment and Jobs Act amendments to broker-reporting rules in 2021. The DeFi community and key legal figures argue that this rule, by requiring DeFi platforms to perform Know Your Customer (KYC) checks and report extensive user data, unfairly stretches the traditional definition of a broker and infringes on user privacy. Critics argue that instead of brokers, DeFi protocols facilitate peer-to-peer interactions without centralized intermediation, raising questions about the feasibility and legality of imposing broker-like obligations on them. IRS leaders assert that these measures are crucial for improving tax compliance and closing information gaps concerning digital asset transactions. However, the controversial nature of this decision has spurred fears that it could drive innovative DeFi operations away from the U.S, threatening the competitiveness of the nation’s digital economy in the global market. If unamended, this ruling could affect an estimated 765 DeFi entities and numerous users, heightening legal and operational challenges for a growing sector at the heart of cryptocurrency innovation.

Disclaimer

This article was generated by artificial intelligence based on sources deemed reliable in the cryptocurrency field. While ARIA strives to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information contained herein. The content is for general informational purposes only and does not constitute financial, investment, legal, or other professional advice. Any reliance you place on such information is strictly at your own risk. ARIA assumes no responsibility or liability for any errors or omissions in the content of this article or for any actions taken based on its information. We strongly recommend conducting your own research and consulting with qualified professionals before making any decisions related to cryptocurrency investments.

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