The US Treasury has issued new rules requiring crypto custodial brokers to report user transactions to the IRS, aiming to boost tax compliance. Starting in 2026, these brokers must report gross proceeds from digital asset sales in 2025 and provide tax information on specific digital assets in 2027 for the previous year.
The regulations focus on custodial digital asset trading platforms, hosted wallet providers, digital asset kiosks, and certain digital asset payment processors (PDAPs). These brokers handle most digital asset transactions, covering a significant number of taxpayers. They must report customer asset movements and gains, including stablecoins like USDT and high-value NFTs, as well as the fair market value of tokenized real estate assets. Investors will receive a simplified 1099 form, similar to those from banks and brokers.
IRS Commissioner Danny Werfel stressed the importance of these regulations for improving tax compliance, especially among high-income individuals. “We need to ensure digital assets aren’t used to hide taxable income. These rules will enhance detection of noncompliance in this high-risk area," Werfel stated. He added that third-party reporting improves compliance and simplifies the tax reporting process for taxpayers.
Decentralized exchanges and self-custody wallets are currently exempt from these reporting rules. The IRS is still reviewing feedback and needs more time to understand decentralized networks. The final regulations exclude brokers that do not hold digital assets, known as decentralized or non-custodial brokers. The Treasury and IRS plan to issue separate rules for these brokers later.
Industry groups like The Blockchain Association have welcomed the IRS’s decision to further study DeFi. Marisa Tashman Coppell, the association’s Head of Legal, said this shows the industry's influence on policymaking. Jake Chervinsky, a prominent crypto lawyer, called this a “huge policy win for DeFi.” He noted that the initial proposal required non-custodial DeFi front-ends to perform KYC checks, but the finalized rule applies only to custodians, leaving DeFi untouched for now.
These new IRS regulations are a major step in crypto taxation, aiming to close tax compliance gaps by tightening rules for custodial brokers. While decentralized platforms are still under review, the current rules enhance transparency and compliance in digital asset transactions. The industry response is cautiously optimistic, valuing regulatory clarity while advocating for careful consideration of DeFi.