DeFi proponents to fight US IRS tax code

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As a seasoned analyst with over two decades of experience in the financial sector and a keen interest in the digital asset space, I find myself standing at the crossroads of traditional finance and the burgeoning DeFi world. The latest move by the Internal Revenue Service (IRS) to enforce long-standing securities rules on DeFi brokers is a fascinating development.

According to the U.S. Internal Revenue Service, brokers dealing with Decentralized Finance (DeFi) should adhere to established securities regulations. This contrasts with opinions within the industry that suggest unique laws are needed specifically for digital assets.

The established guidelines are intended for “front-end” Decentralized Finance (DeFi) intermediaries, which are entities responsible for managing websites that link to web3 platforms such as decentralized exchanges, accessible to both U.S. and international users.

In essence, DeFi intermediaries (often referred to as brokers) would be obligated to disclose details about all digital assets they handle, encompassing NFTs, stablecoins, and more. Aviva Aron-Dine, the acting assistant secretary for tax policy, stated that this updated system aims to establish a fairer playing field among taxpayers and standardize reporting obligations for all involved parties.

In a discussion, representatives from the established crypto sector have argued that digital assets should not be subjected to current securities regulations, stressing the need for unique guidelines. However, the Internal Revenue Service (IRS), in conjunction with the Treasury Department, has taken an opposing stance on this matter.

The Treasury Department and IRS don’t believe DeFi (Decentralized Finance) participants should be exempt from information reporting rules in section 6045, regardless of their experience level in finance or perceived lack of comprehensive regulation. Those with tech expertise who engage in financial trades or businesses should follow the same rules as any other individual conducting financial services.

IRS and Treasury

In August 2023, the Internal Revenue Service (IRS) introduced proposed tax reporting policies for DeFi and cryptocurrencies. Soon after, they updated their compliance guidelines to include cryptocurrency exchanges. Some crypto analysts suggested that decentralized exchanges (DEXes) like Uniswap could be required to disclose user information, such as names and addresses, to regulatory authorities.

Last year, industry leaders resisted the agency’s original tax plan, and Consensys Senior Attorney Bill Hughes anticipates similar resistance this time around. In essence, Hughes stated that the departing administration isn’t backing down; instead, the battle persists. This was communicated through channel X.

Users of cryptocurrency frequently voice a significant worry: many Decentralized Finance (DeFi) protocols may struggle to meet the requirements of securities regulations, and user privacy could become significantly reduced under these new laws.

Advocacy organizations for digital assets, such as The Blockchain Association, have threatened to take strong measures against IRS policies, hinting at possible lobbying efforts towards Congress and even potential lawsuits. If no resistance is encountered, these new rules could become law by January 1, 2027.

For some time now, this regulation has been all set to be implemented. Purposely, they’ve scheduled its release for the last Friday of 2024 during a busy holiday season. It’s clear that they anticipated our reaction and intended to cause quite a stir.

— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) December 27, 2024

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2024-12-27 23:10