On Friday, Treasury and the IRS issued "part 2" of the crypto broker reporting regs. Part 1 primarily addressed CEXes and other custodial actors and is summarized in a previous post: https://paragraph.xyz/@cryptotaxguy.eth/crypto-broker-reporting-regs-finalized

TLDR. The regs require "front-end service providers" (FEs) to:

• Obtain and retain identifying info from users;

• Report US users' crypto or NFT dispositions to them and to the IRS on Form 1099-DA; and

• "Backup withhold" on users that do not provide their info.

TIMELINE. FE 1099-DA reporting applies to dispositions after 2026.

FE backup withholding applies to sales after 2027. However, in practice, backup withholding should never occur because FEs will "block" anyone who doesn't KYC.

FE DEFINITION. A FE includes:

• Websites with a "connect wallet" button that facilitate dispositions of crypto and NFTs (e.g., AMM sites and NFT platforms); and

• Wallets with embedded swap features.

While less clear, a FE might also include websites that lack "connect wallet" functionality (e.g., ChatGPT). That doesn't seem intended, but also isn't explicitly excepted from the definition.

EXCLUDED TXNS. The substantive treatment of many crypto txns remains unclear. Notice 2024-57, issued with part 1 of the regs, exempts some txns from reporting pending further study, including wrapping/unwrapping; liquidity provision; and consensus layer and liquid staking.

STABLECOINS & NFTs. Part 1 of the regs provided lighter reporting requirements for dispositions of stablecoins and NFTs. Those lighter reporting requirements still apply.

CONCLUSION. The govt did its homework, and the preamble to the regs responds comprehensively to comments submitted by DeFi Education Fund (defieducationfund.org/_files/ugd/e53…) and other market participants.

The govt understands that FEs merely provide data objects to users, which the users might or might not submit. But the govt also believes Congress has authorized an expansion of the definition of "broker" to include FEs, even if FEs don't "pull the trigger" on a transaction.

It's unclear what comes next. One possibility is that the Trump admin revokes the regs.

Barring that, it's possible many non-US web hosts will explore geoblocking US persons. The regs apply only to "US digital asset brokers." That's a broad term but it has its limits.

It's also possible that we see a proliferation of noncompliant FEs hosted from abroad. The preamble acknowledges that possibility and the associated risks (e.g., phishing sites).

Along with the regs, the IRS published Notice 2025-3, which provides some minor transitional relief.