The U.S. Internal Revenue Service’s (IRS) latest ruling requiring decentralized exchanges (DEXs) to adhere to the same reporting standards as traditional brokers has drawn sharp criticism from crypto executives and legal experts.
“No shortage of ways to challenge this, and it absolutely should be challenged,” Uniswap Chief Legal Officer (CLO) Katherine Minarik said in a December 27 post on X.
She questioned the IRS’s rationale, arguing that the ruling incorrectly classifies DeFi platforms as brokers, despite their role being only a part of transaction processes.
Uniswap CEO Expresses Similar Concerns
Uniswap CEO Hayden Adams expressed similar concerns, stating that he hopes the ruling will be overturned through the Congressional Review Act (CRA) or legal challenges.
The IRS’s new regulations, unveiled on December 27, mandate brokers to report gross proceeds from digital asset transactions, including cryptocurrencies, stablecoins, and non-fungible tokens (NFTs).
This expanded scope now includes front-end DeFi platforms and is set to be implemented in 2027.
Critics argue that these requirements are ill-suited for the decentralized nature of such platforms, which often lack the infrastructure for traditional reporting.
Robin Singh, CEO of crypto tax platform Koinly, warned that compliance could impose significant operational and technical burdens on decentralized businesses.
“The decentralized structure of these platforms makes traditional reporting exceptionally challenging,” Singh noted.
5/ If you are a customer of a front-end trading service, expect the following in the future:
– Share your KYC info similar to CeFi exchanges during onboarding.
– Receive tax forms with only proceeds (you will still have to use a crypto tax software tool to keep track of your…— Shehan (@TheCryptoCPA) December 27, 2024
Bill Hughes, a lawyer at blockchain development firm Consensys, described the ruling as “all cost, no benefit” and criticized its global reach, which demands reporting for both U.S. and international users.
He predicted that the regulation would face Congressional review and potential disapproval.
Critics also slammed the IRS for releasing the ruling during the holiday season, suggesting an intentional move to limit public response.
Jake Chervinsky, Chief Legal Officer at venture capital firm Variant, labeled the rule an “unlawful” measure by the outgoing administration’s “anti-crypto army.”
He argued that it could be overturned by the courts or a new administration.
Crypto Veterans Call on New Congress to Repeal the Regulations
Alexander Grieve of Paradigm called for the new Congress to repeal the regulations through the CRA.
“Treasury/IRS just dropped their DeFi broker regs, which impose substantial centralized reporting requirements on DeFi (starting Jan 1, 2027), and hoover up user data to the govt,” he wrote on X.
“The new pro-crypto Congress can, and should, roll these back via the CRA process next year.”
Miles Jennings, General Counsel at a16z Crypto, accused the IRS of overstepping by redefining “effectuate transactions” to encompass DeFi activity.
When you challenge government abuses of power, the response is even more transparent and desperate abuses.
The broker reporting rule is an obvious example — A fantastical expansion of the words “effectuate transactions” to enable the IRS to ban DeFi.
This despite courts…— miles jennings (@milesjennings) December 27, 2024
Advocacy groups like the Blockchain Association echoed these sentiments, calling the rule a final effort to drive the U.S. crypto industry offshore.
“On behalf of the industry, we’re prepared to take aggressive action to fight back. We also look forward to working with the new pro-crypto Congress and Administration to roll back this and other anti-innovation rules.”
Kristin Smith, the group’s CEO, emphasized the urgent need for policymakers to reconsider the broader implications of the ruling.
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