IRS announces new cryptocurrency tax regulations: Effective in 2025, DEX and wallet providers exempt for now

On the 28th, the Internal Revenue Service (IRS) of the United States released the final draft of the cryptocurrency tax system, which clearly specifies reporting guidelines for cryptocurrency brokers. The regulations emphasize that decentralized exchange operators such as DEX and self-custody wallet providers are currently not covered by the law and will require future legislation for tax implementation. DeFi Implementing KYC Soon? IRS Targets Crypto Tax Reform: AMM, Cryptocurrency Wallets Regarded as Brokers

IRS Releases Final Draft of Cryptocurrency Tax Regulations

The latest U.S. cryptocurrency tax regulations released on Friday indicate that the IRS will require cryptocurrency brokers to submit a "1099-DA form" similar to traditional investment companies, detailing users' token costs, buy and sell dates, sales revenue, and total profits, starting from January 1, 2025.

It is reported that the term "broker" refers to centralized exchanges (CEX), custodial wallet services, and cryptocurrency payment processors, while the tax scope covers cryptocurrencies and NFTs, with the following tax thresholds:

Ordinary investors and users with annual stablecoin earnings under $10,000 are exempt from reporting, and the same applies to those with NFT annual earnings below $600.

Additionally, "more details are expected to be released on the official website on July 9."

Starting from January 1, 2026, the rules will also extend to real estate transactions paid with cryptocurrencies, requiring real estate brokers to submit property values and data transacted through digital assets.

Cryptocurrency Businesses Temporarily Exempt from New Regulations

Facing the challenge of regulating decentralized cryptocurrency businesses, the IRS has stated that decentralized exchanges (DEX) and self-custodial wallet providers are currently not bound by the new tax regulations.

At the same time, cryptocurrency brokers are not required to report the following transactions:

• Wrapping & unwrapping transactions
• Liquidity provider transactions
• Staking transactions
• Lending and shorting transactions of digital asset market participants
• Notional principal contract transactions

The IRS emphasizes:

The U.S. Department of Justice (DOJ) and IRS are expected to provide rules for these brokers later this year in another separate regulation.

IRS: Narrowing the Tax Gap and Enhancing Compliance

IRS Commissioner Danny Werfel wrote in a statement:

This move will help narrow the tax gap for digital assets and effectively monitor the extent of high-risk non-compliant activities in this area.

He added, "IRS research and experience show that third-party reporting can improve compliance."

Crypto Community Reiterates Privacy Concerns and Compliance Costs

However, the crypto community and related industry organizations have strongly opposed this, stating that implementing the "1099-DA form" may raise privacy concerns.

The U.S. Blockchain Advocacy Organization, Blockchain Association, mentioned in a letter submitted to the IRS weeks ago that the rule will bring unnecessary burdens to 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. Producing an estimated 8 billion tax compliance forms annually will waste around 40 billion labor hours and cost $254 billion in compliance costs each year.

They added, "However, this cost will only cover about $10 billion of the annual tax gap, which is completely unreasonable."

Prior to this, the "10K Crypto Tax Law" enacted in the U.S. earlier this year under the Infrastructure Investment and Jobs Act IIJA was criticized for being unclear and difficult to comply with. Authorities subsequently stated that there is no need to report details of cryptocurrency transactions and personal information until the new regulations are in place.

Infrastructure Case | IRS: Temporarily Waiving the Requirement for Businesses to Report Cryptocurrency Transactions over $10,000