The Internal Revenue Service (IRS) has officially eliminated controversial reporting requirements for decentralized finance (DeFi) platforms following bipartisan legislation signed by President Trump. This move nullifies regulations that would have forced DeFi brokers to collect user information and file transaction reports, marking a significant shift in crypto tax policy.
On April 10, 2025, President Trump enacted legislation repealing Section 80603 of the Infrastructure Investment and Jobs Act (IIJA), which had imposed digital asset reporting obligations on DeFi platforms. The bipartisan bill passed both chambers of Congress amid widespread industry criticism that the rules were technologically unworkable and threatened innovation in decentralized finance.
The repealed regulations would have required DeFi platforms—which operate without central intermediaries—to implement Know Your Customer (KYC) protocols and submit Form 1099-DA to the IRS. Industry advocates argued these requirements fundamentally conflicted with DeFi’s non-custodial nature, where platforms never control user assets.
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Legislative Reversal Details
The congressional reversal specifically targets reporting obligations for entities classified as “digital asset middlemen” under the original 2021 legislation. Lawmakers acknowledged the impossibility of enforcing traditional broker requirements on decentralized protocols, which lack centralized control over user transactions.
Notably, the repeal maintains distinct treatment between DeFi and centralized platforms. Major exchanges like Coinbase and Kraken remain subject to Form 1099-DA reporting requirements starting in 2026 for 2025 transactions. These platforms continue collecting taxpayer identification information to comply with ongoing regulations.
DeFi Industry Impact
DeFi protocols now operate without mandatory KYC or transaction reporting burdens, preserving the pseudonymous nature of decentralized trading. This regulatory relief addresses core concerns from projects like Uniswap and Curve Finance, which argued the rules would force impossible data collection on blockchain-native applications.
The IRS had previously estimated only 650-875 digital asset providers would qualify as reportable “trading front-end services” under the original rules. The narrowed scope excluded blockchain protocols, application layers, and internet service providers from broker classification.
Transitional Relief Provisions
Complementing the repeal, IRS Notice 2025-3 provides transitional relief from backup withholding penalties for DeFi brokers through 2028. The relief applies when platforms submit customer tax identification numbers to the IRS TIN Matching Program and receive verification.
This phased approach grants DeFi projects operational breathing room while the Treasury develops clearer guidance. The relief specifically covers:
- All 2027 calendar year transactions
- 2028 transactions with verified TIN matches
- Exemptions for foreign persons pending further guidance
The regulatory shift reflects growing legislative recognition of DeFi’s structural differences from traditional finance. Congressional staffers noted the impossibility of applying custodial frameworks to non-custodial systems during committee hearings.
Industry groups like the DeFi Education Fund applauded the repeal as “essential for preserving financial innovation.” Conversely, some tax enforcement advocates expressed concern about reduced visibility into crypto transactions.
Centralized exchanges face unchanged reporting requirements, continuing their KYC onboarding processes. These platforms must still issue Form 1099-DA for 2025 transactions by early 2026, creating a regulatory divergence between centralized and decentralized models.
Future rulemaking may revisit DeFi reporting, but any new proposals would require separate congressional authorization. Treasury officials indicate they’ll monitor transaction patterns before considering alternative reporting frameworks.
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The regulatory clarity may accelerate capital deployment into DeFi protocols, particularly decentralized exchanges and lending platforms that faced existential compliance questions. Market analysts anticipate reduced operational friction could boost Total Value Locked (TVL) across major DeFi ecosystems.
- DeFi (Decentralized Finance)
- Financial applications built on blockchain networks that operate without central intermediaries, enabling peer-to-peer lending, trading, and borrowing.
- Form 1099-DA
- IRS tax form for reporting digital asset transactions, requiring brokers to disclose user gains and losses.
- Know Your Customer (KYC)
- Verification process where businesses identify clients to prevent illegal activities, traditionally applied to banks and centralized exchanges.
- Broker
- Entity facilitating customer transactions; in crypto, typically refers to exchanges or platforms executing trades.
- TIN Matching Program
- IRS system verifying taxpayer identification numbers to ensure accurate information reporting.
