The U.S. Treasury Department has issued proposed regulations requiring decentralized finance platforms to report user transactions to the IRS, similar to existing requirements for centralized exchanges. The rules have sparked intense debate across the crypto industry.
Under the proposal, DeFi front-end operators and wallet providers that facilitate transactions would be classified as brokers and required to issue 1099 forms. The rules would apply to swaps, liquidity provision, and lending activities exceeding $600 annually.
Industry groups argue that the requirements are technically impractical for truly decentralized protocols. "You can't impose broker requirements on smart contracts," argues Coin Center executive director Jerry Brito. "The rules conflate front-end interfaces with the underlying protocol."
The Treasury maintains that tax compliance in the crypto space has been insufficient and estimates the tax gap from unreported crypto transactions at $28 billion annually. The proposed rules include a two-year implementation timeline.
Legal challenges are expected, with several crypto advocacy organizations preparing court filings. The comment period runs through July 2026, and significant modifications to the proposal are anticipated before final rules are issued.
