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ARTICLE · 06 JANUARY 2025

IRS Targets Front-End Services In DeFi Reporting Final Regulations

Gray Reed
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Final regulations on informational reporting obligations for custodial brokers were published in the Federal Register on July 9, 2024 with an ominous note that the information reporting requirements for non-custodial brokers...

United StatesTax
Joshua D. Smeltzer
Joshua D. Smeltzer
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Final regulations on informational reporting obligations for custodial brokers were published in the Federal Register on July 9, 2024 with an ominous note that the information reporting requirements for non-custodial brokers (i.e. Decentralized Finance or DeFi) would be forthcoming. The first effective date for those final regulations would be January 1, 2025. On December 27, 2024 the Treasury Department published the final regulations applicable to DeFi specifically targeting participants in trading front-end services that help retail investors interact with DeFi protocols.

The final regulations outline the three traditional steps in the sale of a security involving a customer giving a trade order to a broker, the broker routing the order to a trading center, and then finding a counterparty and settling and recording the transaction. The IRS then outlines the DeFi model as also involving three "layers" it calls the interface layer, application layer, and settlement

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