U.S. Senate Strikes Down Controversial IRS DeFi Rule

The U.S. Senate voted to oppose a rule of the Internal Revenue Service (IRS) that is about to impose strict reporting requirements on decentralized finance operations. In a 70-27 vote on March 4, both sides of lawmakers stood against the Senate rule proposed by Senator Ted Cruz under the Congressional Review Act. 

The IRS rule, first proposed in December, would have expanded the definition of “brokers” to include DeFi platforms, thus requiring them to report user data for tax reporting purposes. Critics, however, argued that the rule was unworkable because DeFi platforms do not custody funds or custody customer records like traditional financial institutions.

Concerns Over the IRS Rule

The majority of industry professionals and businesspeople questioned the feasibility of the IRS rule. Coin Centre, the cryptocurrency think tank, described the rule as “technologically unfeasible.” DeFi platforms are decentralized networks, and therefore, they lack the centralized control necessary to monitor and report customer data as the IRS would have preferred. It was contended that enforcing such a rule would discourage financial innovation in the US, with prospective blockchain firms intending to move to more crypto-friendly locations.

Senate Majority Leader John Thune (R-S.D.) supported the repeal, stating that the Biden administration had attempted to impose excessive restrictions on financial innovation. 

“The Senate is working to undo these burdensome regulations one at a time to restore financial freedom for the American people,” he said. 

The Blockchain Association, whose members include major cryptocurrency firms like Coinbase, Kraken, and Uniswap Labs, also appreciated the Senate action, saying DeFi innovation must be allowed to thrive without too much restraint.

Next Steps for the Resolution

The bill passed the Senate but has to be approved by the House of Representatives before proceeding to President Donald Trump for the signature to become legislation. If it becomes a law, the IRS will not be permitted to implement the rule and will not be allowed to bring similar policies forward in the future. It is an important milestone in the regulation of digital assets in the U.S.

The Senate move comes after earlier efforts to reverse Securities and Exchange Commission (SEC) accounting regulations for digital assets. Policymakers have been increasingly engaged in crafting the regulatory environment for cryptocurrencies, with future legislation set to tackle stablecoin regulation and the broader market structure of digital assets.

The House Financial Services Committee has already accepted the bill; only the final floor vote is pending. The White House has indicated that President Trump is expected to sign the bill into law as soon as it reaches his desk. This legislative move is considered a historic moment for digital asset regulation and could pave the way for broader reforms in the cryptocurrency industry.