The Internal Revenue Service Aims Proposed Tax Rules at Decentralized Exchanges and NFTs

U.S.-focused DEXs may be subject to the same regulations as brokers and be required to do know-your-customer checks.

The DeFi community is in an uproar about the United States Treasury Department’s recently released tax advice for cryptocurrency exchanges, managed wallet suppliers, and payment processors.

In response to the 2021 Infrastructure Investment and Jobs Act, the Treasury Department published a roughly 300-page paper on August 25 that defined reporting obligations for different ecosystem actors in regard to crypto tokens.

The guidelines attempt to give clarity by defining the kind of organizations that qualify as crypto brokers and mandating the use of a new tax form, 1099-DA, for such brokers.

It seems that entities offering services connected to the trading of digital assets, such as decentralized exchanges (DEXs), NFT trading platforms, and wallet providers, would be considered brokers and so subject to the proposed legislation.

The proposed laws would force brokers of digital assets such as stablecoins, cryptocurrencies, and NFTs to file reports with the appropriate authorities. Financial middlemen would also be obligated to gather client data for submission to the IRS.

Analyst Miles Deutscher has warned that the new restrictions might wipe out the DeFi sector in the U.S., just one example of the significant backlash the proposed rules have received from industry watchers.

In the event that they are classified as brokers, it is not yet apparent if and how DEXs like Uniswap, NFT exchanges like OpenSea, or wall suppliers like MetaMask would apply KYC steps in order to continue servicing users in the United States.

Antonio Juliano, creator of dYdX, has made the argument that crypto developers shouldn’t work in the U.S. until regulations are made clear.

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