On December 27, 2024, the Treasury and the IRS released final regulations (the “Final Regulations”) on reporting requirements for decentralized finance (“DeFi”) participants, accompanied by a press release, and Notice 2025-3, which provides transitional relief.

The Final Regulations update proposed regulations (the “Proposed Regulations”) published on August 29, 2023, which we discussed here, and come after a separate set of final regulations concerning custodial brokers published on July 9, 2024, which we discussed here. Key aspects of the Final Regulations are discussed below.

• The Proposed Regulations introduced reporting requirements for a new category of broker known as “digital asset middlemen.” Compared to the Proposed Regulations, the Final Regulations narrow the scope of digital asset middlemen to those offering “trading front-end services” or certain other “effectuating services,” thus targeting non-custodial brokers, including DeFi exchanges, such as Uniswap and Instaswap. The preamble to the Final Regulations suggests that internet service providers, internet browsers and computer and smartphone manufacturers do not fall within the broker definition.
• The Final Regulations include exceptions for validation services and certain wallet services.
• The Final Regulations do not exempt DeFi participants from backup withholding obligations.
• Notice 2025-3 provides transitional relief from broker reporting penalties and backup withholding.
• The Final Regulations apply to sales of digital assets occurring on or after January 1, 2027.

The Final Regulations were highly anticipated after being delayed by the Treasury and the IRS, which determined that additional consideration of the issues and the comments received on the Proposed Regulations regarding DeFi was warranted. Among the over 44,000 comments received, which we discussed here, many, such as this one here, criticized the breadth of the Proposed Regulations, arguing that they would capture too much of the DeFi industry. Despite their narrower scope, the Final Regulations are highly contested, evidenced by a complaint filed on December 27, 2024, by three DeFi groups, arguing that the Final Regulations violate the Administrative Procedure Act and are unconstitutional. This complaint underscores the mounting tension between the DeFi industry and the IRS. Rest assured, we will continue to keep you apprised of key developments as they unfold.