Senate Votes to Kill IRS Crypto Rule, Paving Way for House Showdown

Background: The IRS Crypto Reporting Rule

The regulation sought to classify DeFi platforms and other digital asset facilitators as "brokers," similar to traditional financial institutions. This would have mandated detailed transaction reporting to the IRS, with the goal of raising $28 billion in tax revenue over a decade. While proponents believed it would close tax loopholes, the crypto industry strongly opposed it, warning that DeFi platforms lack the infrastructure to comply with such regulations.

Senate Repeal and Bipartisan Support

Leading the repeal effort were Senator Ted Cruz (R-TX) and Representative Mike Carey (R-OH), who introduced resolutions under the Congressional Review Act (CRA) to overturn the IRS rule. The CRA allows Congress to nullify federal regulations with a simple majority vote. The Senate passed the repeal with broad bipartisan support, signaling a major victory for the crypto industry.

Senator Cruz hailed the vote as a win for innovation, stating, "We just saw a really strong bipartisan repudiation of that regulation." Industry advocates echoed his sentiments, arguing that excessive regulation could push crypto innovation overseas.

Concerns About Tax Compliance

Opponents of the repeal argue that scrapping the rule could enable tax evasion and reduce federal revenue. The IRS estimated the repeal would cost the government nearly $3.9 billion in lost tax revenue over the next decade. Critics worry that without proper oversight, illicit financial activities within the crypto space will become harder to detect.

Mike Kaercher, deputy director of the Tax Law Center at New York University, expressed concern that repealing the rule "would encourage more of the digital asset industry to move into the shadows, making it more difficult to counter crimes ranging from tax evasion to money laundering."

Next Steps: House Vote and Presidential Approval

The resolution now moves to the House of Representatives, where it is expected to pass given strong Republican support. The House Ways and Means Committee has already backed the repeal, and with the White House signaling its approval, President Donald Trump is likely to sign it into law.

If signed, this would mark the first time Congress has overturned a tax-related rule using the CRA. It also aligns with broader Republican efforts to roll back Biden-era regulations, including measures on consumer products, environmental policies, and industrial manufacturing.

Crypto Industry's Political Influence

The crypto industry played a significant role in lobbying for the repeal. Major blockchain companies and advocacy groups sent letters to lawmakers, arguing that the rule misrepresented how decentralized networks function. Their growing influence is reflected in increased campaign contributions and deeper engagement with policymakers.

The Senate’s vote highlights the ongoing debate over regulating emerging financial technologies. While proponents of the repeal see it as a step toward fostering crypto innovation, opponents worry it weakens tax compliance measures. As the resolution heads to the House and then the White House, the decision will have lasting implications for the future of U.S. crypto regulations.