Pursuant to the new legislation signed by President Trump on April 10, 2025, digital asset reporting requirements are eliminated for brokers participating in decentralized finance (DeFi) systems. The legislation rolled into Public Law No. 119-5. In particular, it aims some tough love at Section 80603 of the Infrastructure Investment and Jobs Act (IIJA). This move gives much-needed regulatory relief to DeFi platforms. As far as IIJA Section 80603 goes, centralized exchanges that custodied digital assets on behalf of their customers are still subject to information reporting requirements.
Legislative Details
Under the new law, this would essentially nullify any responsibility for DeFi platforms to report digital asset transactions to the IRS. If so, this decision is a huge win that dramatically shifts the regulatory landscape for digital assets. It especially helps DeFi protocols and their users drain liquidity from the NFT market. Most in the crypto world considered the original reporting requirements included in the IIJA to be unreasonably sweeping. They found them to be technically difficult to implement, particularly for decentralized actors.
The nullification is aimed at addressing industry stakeholders’ criticisms head on. They express concern about the feasibility and unintended consequences of attempting to bring traditional broker reporting rules to DeFi. Supporters of the repeal claimed that the new reporting requirements would hinder innovation and push DeFi activity overseas. Public Law No. 119-5 attempts to do just that. It spurs innovation and smart experimentation, while maintaining effective regulatory guardrails in the places they are needed most.
RSM US professionals specializing in digital asset tax are closely tracking these developments. In doing so, they help their clients steer through the changing and often confusing regulatory landscape. Their deep-rooted knowledge of the field provides necessary instruction to keep businesses educated and on the right side of compliance as regulations surrounding digital assets constantly evolve.
Impact on Centralized Exchanges
While DeFi platforms can breathe a sigh of relief, centralized exchanges will continue to be subject to information reporting requirements. These responsibilities are explicitly spelled out in IIJA Section 80603. Beginning in 2026, these exchanges will be required to issue Form 1099-DA to users. This form will only apply to transactions occurring on or after January 1, 2025. This new form will allow the IRS to paint a more accurate picture of taxpayers’ digital asset transactions. Just like traditional financial institutions report investment income.
As it is, most centralized exchanges are in the process of increasing or introducing new Know Your Customer (KYC) measures. They’re getting ready for the full enforcement of these restrictive regulations by 2027. These new KYC measures enable exchanges to be more proactive in collecting important information. They assist in validating that the data is sufficient to fulfill required reporting criteria.
In response, some exchanges have made extreme moves. To better comply with United States regulations, they are geofencing U.S. users. This strategy cuts off users in the U.S. from being able to access their platforms. Consequently, U.S. residents find themselves unable to access many digital assets and related services.
Industry Reactions and Future Outlook
Although the nullification of reporting requirements for DeFi platforms has generally provoked praise throughout the crypto industry, this reaction is misguided. Crypto advocates cheer the decreased and confused regulatory burden DeFi has faced. Many in the community fear this could result in more regulation and focus on centralized actors. The contrasting treatment of DeFi and centralized platforms affects market activity. This shift would lead to tremendous new development in decentralized technology.
The IRS plans to provide additional guidance on how to implement Form 1099-DA reporting, especially for centralized exchanges. Look for this exciting news in the next few months! This guidance will address the key questions and concerns that exchanges have voiced. It addresses issues ranging from data collection and reporting thresholds to other compliance-related issues. We know the digital asset landscape is still changing every day. Continued communication between regulators and active industry participants will be critical in order to develop a logical and sensible regulatory paradigm.
