How does the IRS define a crypto broker?
The definition of the term “broker” includes individuals or entities that regularly provide services to carry out digital asset transfers. This definition ensures that only those truly “in a position to know” transaction details are subject to Form 1099-DA reporting requirements.
These US Internal Revenue Service rules are built on prior rulemaking (T.D. 10000) from July 2024 and focus on extending broker reporting obligations to decentralized finance (DeFi), which involves digital asset transactions without a traditional intermediary.
T.D. 10021 introduces the term “digital asset middleman,” which the IRS previously delayed due to its complexity and controversy.
The broker reporting mandate originates from the 2021 Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law. It expanded existing broker reporting obligations under Sections 6045 and 6045A to include digital assets. The provision is projected to generate nearly $28 billion in revenue over a decade.
Entities classified as brokers include:
- Digital asset exchanges: Both custodial and non-custodial platforms that execute trades.
- Hosted wallet providers: Those managing wallets and verifying user identities.
- Digital asset kiosks: Bitcoin ATMs and other physical kiosks dealing in cryptocurrencies.
- Crypto payment processors: Platforms that facilitate digital asset transactions while verifying buyers and sellers.
- DeFi brokers: Only front-end service providers, such as token swap interfaces, are considered brokers. Activities like liquidity provision, staking and lending remain exempt from reporting requirements.
Providers of “unhosted” wallets, where users retain full control over their private keys, are generally exempt unless they function similarly to an exchange.
The definition of a digital asset broker has been highly debated after the enactment of the Infrastructure Investment and Jobs Act in November 2021.
How the IRS expands the definition of “broker” in digital asset transactions
The Infrastructure Investment and Jobs Act (Public Law 117-58), specifically Section 80603, broadened the definition of “broker” under Internal Revenue Code Section 6045 to include those facilitating digital asset transfers.
Internal Revenue Service regulations broadly define brokers as entities engaged in digital asset sales or exchanges. Here is a timeline of the regulations:
Custodial brokers (June 2024 — Treasury Decision 10000)
Custodial brokers include operators of custodial digital asset trading platforms, such as centralized exchanges (CEXs) that hold customers’ private keys. It extends to hosted wallet providers, digital asset kiosks (e.g., Bitcoin ATMs) and certain processors of digital asset payments, such as crypto payment processors. These entities must report because they have custody, making it feasible to track transactions.
DeFi brokers (December 2024 — Treasury Decision 10021)
The IRS’s December 2024 regulations focus on trading front-end service providers in the DeFi ecosystem, such as interfaces that connect users to decentralized exchanges (DEXs). The Treasury and IRS use a three-part model (interface, application, settlement layers) to identify DeFi participants, focusing on those with sufficient control or influence, aligning with Financial Action Task Force (FATF) guidance.
However, as DeFi platforms lack centralized control, there were concerns about privacy and compliance.
Efforts to repeal the IRS broker rule
In March 2025, discussions on repealing the DeFi broker rules intensified, with the Senate voting 70–27 on March 4 and the House voting 292–132 on March 11, to repeal the DeFi broker rules under the Congressional Review Act (CRA), as detailed in House Vote on Repeal.
President Donald Trump has signaled support, with his crypto czar, David Sacks, affirming the administration’s backing to the repeal. If signed, this repeal would permanently bar the IRS from implementing similar regulations, significantly impacting DeFi reporting.
With bipartisan support, including 76 Democrats joining Republicans in the House vote, this reflects broader political shifts toward supporting crypto innovation, especially under President Trump’s pro-crypto stance, as seen in his executive order for a national crypto stockpile.
Did you know? Five draft Forms 1099-DA and three draft Final Instruction versions preceded the finalized IRS crypto broker rules. On Jan. 8, 2025, the IRS issued updated 2025 General Instructions for Certain Information Returns, which included instructions for Form 1099-DA.
What is Form 1099-DA? The new crypto tax form for 2025
Form 1099-DA, titled “Digital Asset Proceeds from Broker Transactions,” is a new…
cointelegraph.com