On the 28th, the Internal Revenue Service (IRS) of the United States announced the final draft of the cryptocurrency tax system, which explicitly requires reporting criteria for cryptocurrency brokers and emphasizes that decentralized exchange platforms (DEX) and self-custody wallets, among other decentralized network operators, are currently not covered by the law and will still be subject to future tax implementation under other specialized laws.
(DeFi to Implement KYC? IRS Targets Cryptocurrency Tax Reform: AMM and Cryptocurrency Wallets Considered Brokers)
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IRS Announces Final Draft of Cryptocurrency Tax Regulations
Cryptocurrency Businesses Temporarily Exempt from New Rules
IRS: Narrowing the Tax Gap and Strengthening Compliance
The latest US cryptocurrency tax system released on Friday stated that the IRS will require cryptocurrency brokers to submit a “1099-DA form” similar to traditional investment companies, which details the cost of users’ tokens, purchase and sale dates, sales revenue, and total income. The new rules will take effect on January 1, 2025.
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Final Draft of IRS Cryptocurrency Tax Rules
It is reported that the term “broker” refers to centralized exchanges (CEX), custody wallet services, and cryptocurrency payment providers, while the tax scope covers cryptocurrencies and NFTs. The following tax thresholds have been established:
Ordinary investors and users whose annual stablecoin income does not exceed $10,000 are exempt from reporting, and the same applies to NFT annual income below $600.
In addition, “more details are expected to be released on July 9 on the official website.”
Furthermore, starting January 1, 2026, the rules will also expand to real estate transactions conducted using cryptocurrencies, and real estate brokers will need to submit the value and data of properties transacted through digital assets.
Facing the difficulty of regulating decentralized cryptocurrency businesses, the IRS also stated that decentralized exchange platforms (DEX) and self-custody wallet providers are currently not bound by the new tax system.
At the same time, cryptocurrency brokers are not required to report the following transactions:
Wrapping and unwrapping transactions
Liquidity provider transactions
Staking transactions
Lending and short-selling transactions by digital asset market participants
Notional principal contract transactions
The IRS emphasized:
The US Department of Justice (DOJ) and the IRS are expected to provide rules for these brokers in another separate regulation later this year.
IRS Commissioner Danny Werfel wrote in a statement:
This move will help narrow the tax gap for digital assets and effectively monitor the occurrence of high-risk non-compliant behavior in this field.
He added, “IRS research and experience have shown that third-party reporting improves compliance.”
However, the cryptocurrency community and related industry organizations strongly oppose this, stating that the implementation of the “1099-DA form” may raise privacy concerns.
In a letter to the IRS a few weeks ago, the US blockchain advocacy organization, the Blockchain Association, also mentioned that the rules will impose unnecessary burdens on investors, cryptocurrency companies, and the IRS itself:
Under the Paperwork Reduction Act, authorities should not impose unnecessary paperwork requirements that add burdens to individuals and entities participating in the financial system. The estimated 8 billion tax compliance forms produced each year will waste approximately 4 billion hours of labor and $254 billion in compliance costs annually.
He further added, “However, this cost will only cover about $10 billion of the annual tax gap, which is completely unreasonable.”
Previously, the “10,000 US Dollar Cryptocurrency Tax Law” in the US Infrastructure Investment and Jobs Act (IIJA), which came into effect earlier this year, also received criticism for being unclear and difficult to comply with. The authorities later stated that there is no need to provide details and personal information regarding cryptocurrency transactions until the new regulations are introduced.
(Infrastructure Bill | US Tax Agency: Temporary Exemption for Businesses to Report Cryptocurrency Transactions Exceeding $10,000)
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