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Galaxy Digital Research Director: If the IRS ultimately determines that the DeFi front end is a broker, the industry will face a difficult choice

Galaxy Digital Research Director: If the IRS ultimately determines that the DeFi front end is a broker, the industry will face a difficult choice

CointimeCointime2024/12/29 01:55
By:Cointime

Alex Thorn, research director at Galaxy Digital, stated that if the US Internal Revenue Service (IRS) does not revoke its regulation that DeFi front-ends are classified as brokers, the DeFi industry will face three options: comply with the IRS reporting requirements and accept the broker classification, attempt to block users from the US, or give up on smart contract upgrades and revenue generation. Yesterday, the IRS released final regulations requiring brokers to report digital asset transactions and including DeFi platforms in the existing tax framework. The rule will take effect in 2027 and will require brokers to disclose transaction details, including total revenue and taxpayer information. Brokers must begin collecting and reporting data from 2026. The IRS estimates that 650 to 875 DeFi brokers will be affected, potentially impacting up to 2.6 million taxpayers. These regulations primarily target front-end service providers for transactions, such as DEXs that facilitate digital asset trading. According to the IRS, these platforms act as intermediaries and classifying them as brokers will help ensure tax compliance.

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