Key Points:
- The Trump administration backs a congressional effort to overturn the IRS DeFi broker rule that classifies DeFi software providers as brokers.
- Critics argue that the rule misinterprets DeFi, imposes unrealistic compliance burdens, and could drive innovation out of the U.S.
The White House has thrown its support behind congressional efforts to overturn a controversial Internal Revenue Service (IRS) rule that would redefine the term “broker” to include software providers facilitating decentralized finance (DeFi) transactions.
The DeFi broker rule, set to take effect in 2027, has been widely criticized by the crypto industry for its potential impact on innovation and privacy.
White House Backs Effort to Overturn IRS DeFi Broker Rule
David Sacks, the Trump administration’s AI and crypto czar, announced on March 4 via X that the administration backed legislative efforts led by Senator Ted Cruz of Texas and Representative Mike Carey of Ohio to repeal the DeFi broker rule under the Congressional Review Act (CRA).
Sacks stated that senior advisers to Donald Trump would recommend signing the resolution, designated S.J. Res. 3, should it reach the president’s desk.
Introduced on January 21, S.J. Res. 3 seeks to overturn the IRS’s “Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales.”
The regulation, issued in December, broadens the definition of “broker” to include software providers involved in DeFi transactions, requiring them to report gross proceeds and collect taxpayer data, including user identities and transaction histories.
The House Financial Services Committee submitted an identical IRS resolution to the House for a vote, and the Senate action would move that attempt forward. Before it may become law, it must be approved by both chambers and signed by the president.
Crypto Industry Warns of Innovation Risks Under New Regulations
The proposal has faced fierce opposition from the crypto industry, with groups such as the Blockchain Association arguing that it misinterprets DeFi’s decentralized nature and stifles technological progress. Senator Ted Cruz introduced the Senate version of the CRA resolution aimed at cutting IRS regulations.
Cruz is supported by major industry players with the letter initiated by the Blockchain Association and joined by Coinbase, a16z, Paradigm, Kraken, Uniswap, Anchorage Digital and dozens of others, sent to the leadership in both chambers of Congress.
“The DeFi broker rule, finalized in the waning days of the Biden administration, represents regulatory overreach that fundamentally misunderstands the technology it attempts to regulate and ignores Congress’s intent,” the letter said.
Critics say the DeFi broker rule imposes unrealistic compliance burdens on DeFi platforms, which typically operate through smart contracts without central control over user funds or identity verification.
Supporters of the CRA resolution contend that the IRS rule is too expansive, encompassing software developers and platform operators who do not directly manage user funds. They argue that enforcing such tax reporting requirements on DeFi developers could push innovation overseas.
Beyond the IRS DeFi broker rule, lawmakers are also targeting another digital asset regulation. The Senate is set to vote this week on overturning a Consumer Financial Protection Bureau (CFPB) rule that would impose stricter regulatory oversight on large technology companies handling consumer payments through digital wallets and payment apps.
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