Key Notes
- The regulations specifically target trading front-end service providers while excluding basic DeFi infrastructure like internet services and device manufacturers.
- Brokers must track and report transactions for both US and non-US citizens, with enforcement focusing on providers having direct customer relationships.
- Implementation deadline set for January 1, 2027, giving platforms time to modify operations for compliance with new reporting standards.
On Friday, the US Treasury Department and the Internal Revenue Service (IRS) concluded the delayed reporting requirements for digital asset brokers providing trading front-end services.
The new regulations apply to all digital asset intermediaries and exchange platforms, including those handling NFTs, except when acting as direct customer agents, dealers, or principals.
Front-End Service Providers Face Strict Rules
The Treasury demands that crypto brokers who provide trading front-end services will need to ensure that all user activity is tracked and reported starting from January 1, 2027.
Notably, the regulations require that all transactions involving US and non-US citizens be tracked and included in the report.
The regulations do not include DeFi participants who only provide internet services, internet browsers, or computer or smartphone manufacturers. The new rules are specifically directed at DeFi participants who meet the definition of a digital asset middleman.
To ensure strict compliance with these rules, the Treasury Department and the IRS have their eyes fixed on front-end service providers. They noted that they would only treat DeFi participants trading front-end service providers as brokers, since they have the closest customer relationship. As such, they are in the best position to obtain customer identification information.
Moreover, taxpayers and the IRS can quickly identify these persons since they are responsible for broker diligence and reporting. Meanwhile, they also can modify their operations to comply with these regulations.
While these regulations have faced criticism for being burdensome and overly broad, the Treasury Department and IRS have finalized the rules to take effect from the stipulated date.
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Caroline is a zealous writer who recently picked interest in Bitcoin and the cryptocurrency community. She’s always learning about the industry and aims to provide timely and accurate information about the latest developments in the crypto space
