Key Takeaways
- The US House of Representatives voted overwhelmingly to defeat the Biden-era IRS DeFi broker rule.
- The rule aimed to categorize DeFi and crypto platforms as brokers, forcing them to report key details of users’ transactions.
- The passing of the vote that has defeated the IRS DeFi broker rule is yet another victory for the US crypto industry.
The United States House of Representatives has voted to repeal the Biden-era IRS DeFi Broker rule that sought to force crypto and DeFi platforms to collect and submit sensitive user data to the Taxman. The move marks a significant bipartisan decision against last-minute crypto regulations by the Biden administration.
The vote passed overwhelmingly, with 292 supporting and 132 opposing. 76 Democrats also broke ranks to join critics of the rule, stating that the proposed requirements would be technically impossible for DeFi and crypto platforms to meet.
DeFi Platforms Do not and Cannot Collect Data
According to the House Ways and Means Committee Chairman Jason Smith (R-MO), the IRS DeFi broker rule was unfair and unworkable. In a statement delivered to the House of Representatives, he said:
“There are real questions that the rule can ever even be administered […] DeFi platforms do not and cannot even collect the information from users needed to implement this rule. Their software never controls the digital assets.”
The House of Representatives vote follows a similar bipartisan decision in the Senate last week. It follows previous discussions last February that observed the IRS DeFi broker rule contained numerous “burdensome requirements.” The new regulation sought to expand the definition of “broker” to include DeFi platforms, requiring the protocols to file Form 1099-DA tax documents despite most protocols lacking the technical ability to collect user information.
The Rule Placed Impossible Burdens on Platforms
Last week, more than 70 senators voted to repeal the IRS DeFi broker rule, and reports now indicate that President Donald Trump’s senior advisors on financial matters have asked him to sign the provision. Nonetheless, according to budget rules, the bill will go back to the Senate for approval. If the President approves the resolution, the Taxman will be permanently barred from ever bringing a similar rule again.
Commenting on the development, Illinois Democrat Danny Davis opposed the resolution, suggesting that it must have stemmed from the 2021 bipartisan Infrastructure Investment and Jobs Act, which unfairly compared crypto to stocks. Davis said:
“When you sell the stock with a stock broker, the broker reports the proceeds of the sale to both you and the Internal Revenue Service […] probably to no one’s surprise when there is independent reporting on these sales, taxpayers are more likely to report their income to the Internal Revenue Service.”
Also opposing the IRS DeFi broker rule was North Carolina Republican Tim Moore, who observed that the rule “goes far beyond” Congress’s intention with the 2021 law. He stated:
“This rule has placed impossible burdens on software developers threatening American leadership in digital asset innovation.”
Conclusion
The passing of the vote that has defeated the IRS DeFi broker rule is yet another victory for the US crypto industry. It now scraps the Treasury Department rule that would have required crypto trading websites to collect and submit personal information besides tracking every crypto trade. With the closely divided House of Representatives, which was the last obstacle clearing the way for the push to have the rule repealed out of the way, it will only be a matter of time before President Donald Trump signs it into law. The move highlights the government’s commitment to keeping the pledge of relaxing crypto regulations and making the US the crypto capital of the world.
Frequently Asked Questions (FAQs)
Why is the crypto industry opposed to the IRS DeFi broker rule?
The rule aimed to force crypto trading platforms and DeFi protocols to collect and report user transactions to the IRS, which was impossible for platforms using smart contracts and no human intermediary.
What is the effect of the Dismantling of the DeFi Broker rule?
Without the IRS DeFi broker rule, individual users would have to report their income to the IRS and not depend on third parties.
What is the implication of dismantling the rule for the crypto industry?
The IRS Rule, which would have obligated DeFi platforms to collect user information on its behalf, will not be able to propose a similar rule again.
Is there a chance that the President will assent to the new regulation?
The law requires President Donald Trump to sign the resolution before it becomes law. Given the administration’s support for the digital space, it will become law as a strategy to foster innovation in the digital asset sector.
