Senate Sends IRS DeFi Rule Packing — All Eyes on Trump

The resolution passed the Senate on March 26 with strong bipartisan support in a 70-28 vote. It follows a similarly lopsided 292-131 vote in the House earlier this month. The measure now heads to the president's desk, where Trump—who has previously signaled a more hands-off approach to crypto regulation—is expected to sign it into law.

The rule in question was finalized by the Internal Revenue Service in December 2024. It aimed to expand the definition of a "broker" to include decentralized protocols and platforms that facilitate digital asset transactions. Under the rule, DeFi platforms would have been required to collect and report detailed tax information about users, similar to traditional stock brokers or crypto exchanges like Coinbase.

The IRS argued that the rule was intended to close a loophole and ensure better tax compliance in the rapidly growing DeFi space. However, critics across the tech, crypto, and legal communities said the agency fundamentally misunderstood how DeFi works.

Most DeFi protocols operate without a central authority or user accounts, relying instead on smart contracts to facilitate peer-to-peer transactions. That lack of a centralized structure makes it nearly impossible for platforms to collect Know Your Customer (KYC) data or file 1099 forms with the IRS.

“This rule was totally disconnected from technical reality,” said Eli Cohen, general counsel of Centrifuge, a platform for real-world asset tokenization. “The idea that decentralized protocols could comply with broker-level reporting requirements was not just unworkable—it was nonsensical.”

The Senate initially passed its own version of the repeal on March 4. But due to the constitutional requirement that revenue-related measures originate in the House, lawmakers there introduced a parallel resolution, which easily passed. The Senate’s vote this week to approve the House version completes the legislative process.

Kristin Smith, CEO of the Blockchain Association, praised the vote: “This is a clear signal from lawmakers that innovation matters—and that poorly conceived regulation won’t be allowed to stifle America’s leadership in Web3 technology.”

Still, the move has drawn criticism, particularly from some Democrats who argue the repeal opens the door to tax avoidance and financial crime.

Rep. Lloyd Doggett (D-TX), a vocal opponent of the repeal, described the resolution as a “special interest exemption” that could benefit wealthy tax evaders and bad actors. “This resolution weakens our tools to combat money laundering, tax fraud, and illicit finance. It’s a step backward,” he said during debate.

Doggett and others warn that removing oversight before alternative regulatory frameworks are in place leaves a dangerous gap in enforcement.

With the president’s signature all but guaranteed, the repeal of the IRS broker rule is poised to become law. The move will effectively halt the agency’s efforts to impose traditional financial reporting standards on decentralized protocols—for now.

Analysts say the repeal underscores a larger tension in Washington: how to regulate crypto in a way that fosters innovation without creating loopholes for fraud and abuse. As DeFi continues to evolve and grow, lawmakers are expected to revisit the issue with fresh proposals and potentially new legislation tailored to the unique nature of blockchain systems. For now, however, the crypto industry is celebrating a rare policy win, one that could shape the trajectory of DeFi development in the U.S. for years to come.