House and Senate Crush IRS Crypto Rule in Major Win for DeFi

Background on the IRS Rule

The IRS rule, finalized in December 2024, sought to broaden the definition of a "broker" to include DeFi platforms. This expansion would have mandated these platforms to collect and report detailed user transaction data, similar to the requirements imposed on traditional financial institutions. The rule was intended to improve tax compliance in the fast-growing cryptocurrency sector.

Arguments for Repeal

Opponents of the rule argued that it was impractical and unfair. Since DeFi platforms operate without central intermediaries, critics pointed out that they lack the capability to collect and report the required information.

Representative Mike Carey (R-OH), who introduced the repeal measure, described the rule as an "invasion of privacy" that would stifle innovation and impose unrealistic compliance burdens. House Financial Services Committee Chairman French Hill also criticized the rule, calling it an example of government overreach that could push American blockchain innovation overseas.

Bipartisan Support and Legislative Process

The repeal saw strong bipartisan backing, with 76 Democrats joining Republicans in the House vote. The Senate's earlier approval demonstrated broad support against the regulation. Congress used the Congressional Review Act (CRA) to overturn the IRS rule. This marked the first time the CRA was used to repeal a tax-related rule, setting a precedent for future regulatory rollbacks.

Opposition and Concerns

Not all lawmakers supported the repeal. Some Democrats warned that eliminating the rule could open the door to tax evasion and illicit financial activities. Representative Lloyd Doggett (D-TX) called it “special interest legislation” that could benefit tax cheats, drug traffickers, and terrorist financiers. He also argued that the repeal could increase the national deficit by $4 billion due to lost tax revenue.

Industry Reaction

The cryptocurrency industry and advocacy groups celebrated the repeal as a victory for financial privacy and innovation. Kristin Smith, CEO of the Blockchain Association, hailed the decision, saying it demonstrates growing recognition of crypto’s potential and the need for a more balanced regulatory approach.

Next Steps

With both chambers of Congress passing the resolution, it now heads to President Donald Trump’s desk for his signature. The administration has signaled support, making it likely that the repeal will soon become law. Once enacted, the IRS will be prohibited from issuing similar rules in the future without congressional approval.

Implications for Crypto

The repeal is expected to have major implications for the DeFi sector, removing reporting obligations that many argued were technically impossible to enforce. This could lead to accelerated growth and innovation in the space. However, it also raises questions about how tax compliance will be ensured in the absence of these regulations. The IRS may have to explore alternative methods for monitoring crypto transactions.

The swift bipartisan rejection of the IRS DeFi broker rule highlights the challenges of regulating emerging technologies like decentralized finance. While lawmakers aim to strike a balance between innovation and compliance, this decision may set the stage for future crypto-related regulatory battles.