The White House has initiated a formal review of the U.S. Treasury’s proposed regulations to integrate the Organization for Economic Co-operation and Development’s (OECD) Crypto-Asset Reporting Framework (CARF). CARF, unveiled in 2022, aims to standardize the automatic exchange of financial account information on digital assets across borders, similar to the Common Reporting Standard (CRS) used for traditional finance. The framework is designed to combat offshore tax evasion by requiring crypto service providers, such as exchanges and custodians, to report user data, including transaction volumes, balances, and identities, to tax authorities.
DeFi Shielded from Additional Reporting Under CARF
The Treasury’s report, as detailed in recent Office of Management and Budget (OMB) filings, outlines how U.S. adoption of CARF would enable the Internal Revenue Service (IRS) to access information on American taxpayers’ foreign crypto holdings. This measure is intended not only to close tax loopholes but also to create a more equitable competitive environment.
The White House has stated that U.S. regulations implementing CARF would discourage U.S. taxpayers from moving their digital assets to offshore digital asset exchanges. This is seen as a crucial step to prevent domestic crypto platforms from being disadvantaged in a global market.
What to Expect for Crypto Users and Investors
A significant aspect of the proposal is the explicit exclusion of decentralized finance (DeFi) protocols and users from new reporting obligations under CARF. This provision aims to support innovation within the sector, which is characterized by pseudonymity and self-custody. The unique, borderless nature of DeFi, encompassing automated market makers, lending pools, and yield farms, has historically presented challenges for traditional regulatory oversight.
By exempting these activities, regulators are signaling an intention to encourage growth and adoption of blockchain technologies that promote financial inclusion, without imposing burdensome regulations. This approach is expected to alleviate concerns about overreach and potentially foster greater use of digital assets within the United States.