XRP advocate Attorney John Deaton criticized the new cryptocurrency tax reporting rule released by the Biden administration. The regulation titled “Gross Income Reporting by Brokers Facilitating Digital Asset Sales,” presented by the IRS, is viewed negatively by Deaton in relation to decentralized finance (DeFi).
Scope of the New Tax Rules
The IRS’s recent announcement mandates that brokers facilitate digital asset transactions, report gross income, and provide Form 1099 to clients. This regulation also includes the collection of user information such as names and addresses.
Deaton pointed out that these rules unfairly target DeFi platforms. The autonomous and permissionless smart contracts of DeFi cannot comply with these requirements without central control or intermediaries capable of collecting user data.
“Applying such requirements to DeFi will stifle innovation and drive developers and projects abroad.”
Criticism of Attitudes Toward Cryptocurrencies
The attorney also criticized Senator Elizabeth Warren’s anti-crypto stance and her relationships within the banking industry. He stated that Warren’s financial policies and strict crypto regulations hinder industry growth.
The new regulations impose broker-like responsibilities on front-end service providers engaging with users and offering decentralized protocol access, while exempting DeFi protocols from reporting obligations. Deaton noted that this situation creates operational challenges for businesses within the DeFi ecosystem.
Deaton compared the new regulations to Senator Warren’s previous legislative efforts to ban self-custody for Bitcoin 
$77,420. He indicated that the rules undermine decentralization and user privacy, which are fundamental principles of DeFi.
These finalized regulations will come into effect on January 1, 2027, giving the industry time to comply. The IRS stated that the aim is to subject DeFi brokers to the same tax reporting obligations as traditional securities brokers. The crypto advocate urged the new Congress to prioritize reversing these rules.
