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

The IRS has made a significant change for trading platforms and their users by publishing its long-awaited regulations for decentralized finance (DeFi).

While these rules are largely aimed at DeFi trading platforms rather than individual taxpayers, they will impact how DeFi platforms operate and their customers’ experience.

Under Section 6045 of the U.S. tax code, brokers are required to collect customers’ Know Your Customer (KYC) information, calculate gains and losses, and report that data to the IRS through forms such as 1099-B. Last year, the IRS implemented these rules for oversight purposes such as centralized exchanges (CeFi). crypto para expanded to include intermediaries. Now the IRS has clarified how these rules will apply to the DeFi ecosystem.

• Interface Layer: This layer allows users to interact with DeFi platforms, including screens, buttons, forms, and other visual elements on websites, mobile apps, and browser extensions.
• Application Layer: This layer facilitates the execution of trades, including verification and recording of transactions on the blockchain.
• Consensus layer: Responsible for recording financial transactions on the distributed ledger, including transactions made by users trading digital assets using DeFi protocols.

The IRS will only treat the Interface Layer (front-end trading services) as an “intermediary” under the new regulations. These platforms, which have the most direct relationship with users, will now face stricter reporting requirements.

Starting January 1, 2027, DeFi platforms operating as front-end trading services must:

• Similar to centralized exchanges, collecting KYC information from customers during onboarding.
• Tracking client transactions and reporting revenues to both the IRS and clients via Form 1099-DAs.

If you are a customer of a front-end DeFi platform, here’s what you should expect:

• KYC Requirements: Similar to the onboarding process for centralized platforms, you will need to provide personal information for identification purposes.
• Tax Reporting: While the platforms will report transaction revenues, you will still need to use crypto tax software to track your cost basis and calculate your gains or losses.

*This is not investment advice.