What Are the Chances That the Trump Administration Will Revoke the IRS's Final Rule on "DeFi Brokers," Which Has Faced Strong Opposition from the Crypto Industry?
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What Are the Chances That the Trump Administration Will Revoke the IRS's Final Rule on "DeFi Brokers," Which Has Faced Strong Opposition from the Crypto Industry?
The IRS has incorrectly defined DeFi service providers as brokers, mandating the collection of user information, which would trigger significant privacy violations and exceed the statutory authority of the IRS.
Navigating Web3 tides with focused insightsBy Weilin, PANews
On December 27 local time, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) released a final rule on "DeFi brokers," sparking widespread criticism from the crypto industry. The rule requires DeFi brokers to report digital asset sales revenue and collect user KYC information starting in 2025.
The regulation will take effect 60 days after publication. However, the document notes that a transition period will apply between 2025 and 2026, during which some leniency may be granted—though the exact scope and criteria for such leniency remain unclear. After this grace period, the new rules will apply to digital asset sales beginning in 2027, with brokers required to begin collecting and reporting transaction data starting in 2026.
Industry experts argue that in practice, users themselves execute transactions, and by incorrectly classifying DeFi service providers as brokers, the IRS is mandating the collection of personal user data—raising serious privacy concerns and exceeding its statutory authority. Some analysts suggest that Trump could potentially rescind the reporting requirements; however, since the 60-day effective window overlaps with the incoming administration’s start date (January 20), Republicans may be preoccupied with other priorities. These regulations could force DeFi platforms to exclude U.S. users from their services entirely.
Final Rule Requires Reporting of Broker Gross Proceeds and User Information
The joint document issued by the U.S. Department of the Treasury and the IRS is titled “Reporting Gross Proceeds for Brokers That Facilitate Sales of Digital Assets.” A prior version was published in August 2023 and opened for public comment, receiving 44,000 responses. This final 115-page rule mandates that DeFi brokers provide customers with Form 1099, collect user transaction details—including names and addresses—and report gross proceeds received from clients disposing of digital assets through certain sales or exchanges.
According to the document, a DeFi platform may meet the definition of a broker if it participates in facilitating the exchange or sale of digital assets—even via smart contracts—and exerts sufficient control or influence over the transaction process. The Treasury Department clarifies that the final rule applies to “front-end service providers” that interact “directly with customers,” meaning entities operating primary websites used to access decentralized protocols—not the protocols themselves.
The IRS divides the DeFi ecosystem into three distinct layers:
Interface Layer: Includes user-facing components such as screens, buttons, forms, and other visual elements found on websites, mobile apps, and browser extensions. This layer facilitates interaction between users and DeFi participants.
Application Layer: Executes user transaction instructions and is part of the transaction validation process.
Settlement Layer: Records financial transactions on a distributed ledger, including those conducted via DeFi protocols.
The IRS asserts that only the interface layer—specifically “front-end trading services”—will be considered a “broker.” The rationale is that front-end trading services have the closest relationship with customers and thus can obtain KYC (Know Your Customer) information and report relevant data to the IRS. The IRS states that front-end trading services include websites, non-custodial wallets, and browser extensions that allow users to swap digital assets through their interfaces. (Non-custodial wallets used solely for managing private keys—unhosted wallets—are not classified as brokers.)
A significant portion of the document outlines comments received during the consultation period, definitions of key concepts, and the positions held by the Treasury and IRS. Both agencies maintain that “DeFi brokers” should follow the same rules as traditional securities brokers. The document also responds to criticisms, stating: “The Treasury and IRS disagree that the final regulations reflect bias against the DeFi industry, and they also disagree that these regulations would hinder law-abiding customers’ adoption of the technology.”
The IRS estimates that between 650 and 875 DeFi brokers will be affected by these final rules.
“Under Section 6045, information reporting by DeFi brokers will improve taxpayer compliance, as income earned by taxpayers engaging in digital asset transactions without custodial brokers will become more transparent to both the IRS and taxpayers,” said the IRS. It estimates the new rules will impact up to 2.6 million taxpayers.
“These regulations will help ensure all taxpayers are playing by the same rules and have access to the information they need to file accurately,” said Aviva Aron-Dine, Acting Assistant Secretary for Tax Policy, in an official statement. “Aligning tax reporting requirements for digital assets with those for other assets will make filing easier and cheaper for compliant taxpayers, while also helping to close the tax gap.”
Crypto Industry Pushes Back, Warns of Massive Privacy Violations
One likely example directly impacted by the final rule is Uniswap Labs, which operates the decentralized exchange uniswap.org. On December 27, Uniswap’s Chief Legal Officer Katherine Minarik posted on X: “There are many ways to challenge this [final rule], and it absolutely should be challenged.”
In the meantime, crypto industry groups including the Blockchain Association, DeFi Education Fund, and Texas Blockchain Council have already filed lawsuits against the U.S. Department of the Treasury and the IRS. On December 28, the Blockchain Association tweeted that the IRS and Treasury had exceeded their statutory authority by expanding the definition of “broker” to include front-end providers of DeFi trading services—even though these entities do not execute trades. This move, they argued, not only violates the privacy rights of individuals using decentralized technologies but risks driving the entire thriving sector overseas.
Marisa Tashman Coppel, the group’s legal counsel, stated that the final rule violates the Administrative Procedure Act (APA) and is unconstitutional. Even though these service providers do not execute transactions—it is users who do so—the IRS wrongly classifies them as brokers. As a result, software providers would be forced to collect and report transaction data and personal information. These providers are not traditional intermediaries and do not have “clients” in the way brokers do.
She emphasized that mandating the collection of such information raises major privacy concerns and exceeds the IRS’s statutory authority. Furthermore, the agency failed to adequately address the risks this rule poses to users, entrepreneurs, and other participants in the DeFi ecosystem. DeFi enables users to participate in a fairer financial system, she noted, but now the government is forcibly inserting intermediary roles where none exist—introducing greater risk and inequality. “We need to protect DeFi technology, not destroy it,” she said. “This rule violates the APA, the Constitution, and the IRS’s statutory authority. By exposing wallet addresses, it also infringes on the privacy rights of millions of Americans who wish to transact outside the traditional financial system. We hope the courts agree and strike down this rule.”
Michele Korve, regulatory lead at prominent crypto venture fund a16z Crypto, also responded on X: “At a16z Crypto, we believe DeFi will make financial services and the digital economy more accessible, efficient, interoperable, reliable, and consumer-centric. But yesterday’s release of new broker reporting rules by the U.S. Treasury poses a direct threat to that promise and undermines the future of DeFi innovation in America… Builders in DeFi should have confidence that industry lawyers are fighting to protect this technology. We will continue to fight on all fronts—in court, in Congress, and with support from the incoming administration.”
Trump Administration Might Repeal Reporting Rules, But Time Is Tight
Experts analyze that the final DeFi reporting rule could be challenged under the Congressional Review Act (CRA), which allows Congress to overturn recently finalized federal agency rules within a specific timeframe. The first Trump administration used the CRA to repeal 16 Obama-era regulations.
The key question is whether Congress views these rules as consistent with existing legislation. Additionally, the upcoming change in administration coincides with the 60-day review window. However, Republicans have other pressing priorities in 2025, such as crafting a new tax package to extend provisions of the 2017 tax law. Jonathan Cutler, Senior Manager of Global Information Reporting at Deloitte Washington National Tax, said repealing crypto-specific rules might get overlooked: “Congress may not have time—they have too many other things on their plate.”
Some crypto-focused tax professionals are skeptical about the IRS’s ability to enforce these reporting requirements. For instance, the agency may not even be aware of the existence of certain DeFi platforms, making audits difficult.
On December 29, Galaxy Digital research head Alex Thorn stated that if the IRS does not retract its classification of DeFi front-ends as “brokers,” the industry faces three choices: comply with IRS reporting requirements and accept broker status, attempt to block U.S. users, or abandon smart contract upgrades and revenue generation altogether.
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