On Dec. 27, the Internal Revenue Service released regulations requiring brokers to report certain transactions involving cryptocurrencies, such as Bitcoin, Eth, and SOL. The regulations, which were not well received by the cryptocurrency community, clarify which parties in that community are considered brokers subject to the new reporting requirements. At least three organizations have sued the U.S. government to overturn the new regulations. This column addresses briefly three different sets of problems that arise when a DEX (decentralized exchange) or DeFi (decentralized finance) participant is classified as a broker.

Much of the concern in the cryptocurrency community centers on DeFi transactions and DEXs; the stated concern focuses primarily on the fact that DEXs and intermediaries in DeFi transactions may not know the identity of the parties to the transactions and thus are unable to file Form 1099-DA as required. This same concern was raised in connection with the EU (European Union) Market in Crypto Assets regulations and the OECD (Organization for Economic Cooperation and Development) Crypto Asset Reporting Framework proposals and guidance. In both cases, the EU and OECD did not exempt DEXs from MICA/CARF.