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The U.S. Senate moved to overturn an IRS rule from the Biden administration, with 70 senators voting in favor and 28 opposing it on Wednesday. The rule would have required decentralized finance platforms to collect and report taxpayer information.
Critics said the rule was “fundamentally unworkable” because DeFi platforms use automated code on blockchains that don’t allow them to identify users or view their identities.
In January, there were attempts to overturn and change the IRS ruling, and by February, the U.S. House of Representatives said they would consider it. As a result, these developments raised concerns across the crypto industry.
Broader Industry Implications Sparked by IRS Rule
Building on these concerns, crypto innovators and advocacy groups were worried about the IRS rule because they said it could hurt the U.S.’s reputation as a world center for decentralized technologies. They argued that the rule could have pushed innovation overseas and slowed blockchain growth in the U.S. by requiring DeFi platforms to report gross proceeds and collect user data. Specifically, the Blockchain Association and the Texas Blockchain Council were among those who said the IRS had “gone beyond its statutory authority” by broadening the definition of brokers in a way that goes against the idea of DeFi technology being decentralized.
House Approval Clears Path for Trump’s Signature
A week later, the Trump administration backed those efforts, which led to a move on March 4 by the Senate to overturn it.
However, a “blue slip” issue forced the Senate to resume Congressional readings, delaying the repeal process. This delay occurred as the House used constitutional concerns about how budget issues are handled to say that the repeal should have begun with the House.
Subsequently, a similar version of the resolution was passed by the House earlier this month with a bipartisan turnout, 292-132. It is now on its way to the White House, where President Trump is expected to sign it without delay.
Major Difficulties
While the legislative battle was ongoing, earlier this month, the U.S. Treasury Secretary, Scott Bessent, said that his office wants to work together with the IRS and the Office of the Comptroller of the Currency (OCC). Their goal is to ‘rescind and amend’ crypto tax rules affecting digital asset companies in the U.S.
The worrying part of the IRS broker rule is its definition of ‘DeFi brokers’ as ‘front-end service providers’ for digital asset transactions.
It is important to note that last February, Commissioner Hester Pierce said that the unnecessary expansion of these definitions would be somewhat ‘harmful,’ especially for market participants who have been turned into ‘dealers.’
Following this concern, in April of the same year, crypto lobbyists filed a case against the SEC, led by Gensler, because they used vague and broad language to define the meaning of “dealer.” ” A few months later, the DeFi Education Fund warned that the criteria would ‘push this whole, burgeoning technology offshore, highlighting concerns about the impact on innovation.”
