A controversial tax rule proposed by the U.S. Internal Revenue Service (IRS), which requires decentralized finance (DeFi) brokers to report crypto transactions, may be overturned as lawmakers push for its repeal.
House Moves to Repeal the Rule
On February 26, the U.S. House of Representatives advanced a resolution to nullify the rule, with the House Ways and Means Committee voting 26-16 in favor of its repeal. The resolution now moves to the full House for a vote. If approved, it will then proceed to the Senate. A successful Senate vote would send the measure to President Donald Trump, who will decide whether to sign it into law or veto it. If left unchallenged, the rule will take effect on January 1, 2027.
Details of the IRS DeFi Broker Rule
The “DeFi broker rule,” initially proposed in August 2023 and finalized in January 2024, mandates that certain DeFi operators—including front-end service providers for decentralized exchanges—collect and report user transaction data, such as gross proceeds from crypto sales. According to the IRS, this requirement is designed to establish a level playing field between decentralized and traditional financial institutions.
However, industry leaders and lawmakers opposing the rule argue that it is impractical and incompatible with DeFi, where platforms typically operate without centralized control or user data collection mechanisms. Ways and Means Committee Chairman Jason Smith has stated that the rule is unworkable and fundamentally misaligned with the decentralized nature of DeFi.
Industry Pushback and Privacy Concerns
The rule has faced strong opposition from DeFi advocates, who argue that it infringes on financial privacy and stifles innovation. Miller Whitehouse-Levine, CEO of the DeFi Education Fund, described the regulation as an “unlawful and unconstitutional overreach” that threatens to push crypto innovation offshore.
There are also concerns that compliance could force DeFi platforms like Uniswap to collect user identities, contradicting the fundamental principles of decentralization. Bill Hughes, an attorney at Consensys, has criticized the rule as a last-minute attempt by the previous administration to tighten control over the crypto industry.
Legal Challenges Against the IRS
The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council have filed lawsuits against the IRS, claiming that the regulation imposes requirements that DeFi developers cannot practically meet. Texas Blockchain Council President Lee Bratcher has argued that compliance with the rule is “practically impossible” for many DeFi participants.
IRS Defends the Regulation
Despite mounting opposition, the IRS remains steadfast in its stance. In a joint statement with the U.S. Treasury, the agency rejected claims that DeFi should be exempt, asserting that “persons with technology expertise that operate trades or businesses relating to financial services should comply with the same rules as any other person operating financial services businesses.”
As the resolution progresses through Congress, the outcome will have significant implications for the future of decentralized finance regulation in the U.S.
