IRS Removes Controversial DeFi Rule Effective July 10 2025

The Internal Revenue Service (IRS) has officially removed a controversial rule targeting decentralized finance (DeFi) platforms from the U.S. tax code, effective July 10, 2025. This decision follows bipartisan Congressional support and the signing of a resolution by President Trump. The rule, which originated from the 2021 Infrastructure Investment and Jobs Act, required customer transaction reports for decentralized protocols, imposing significant compliance burdens on DeFi entities. The repeal of this rule ends the tax burden on DeFi projects, providing critical compliance relief and potentially boosting confidence in the decentralized finance space.

The removal of the rule was enabled by bipartisan Congressional action and President Trump's signature. This change clears compliance obligations for DeFi projects, allowing them to focus more on innovation. Centralized exchanges, however, remain under existing reporting requirements. The decision to remove the rule relieves DeFi protocols from significant compliance costs, potentially reviving institutional interest. Market participants view this as a positive regulatory shift, anticipating increased activity in decentralized finance spaces like Ethereum and related DeFi tokens.

The U.S. Department of the Treasury and the IRS have stated that "Under the joint resolution and by operation of the CRA [Congressional Review Act], this final rule has no legal force or effect ... The Department of the Treasury and the IRS hereby remove this final rule from the Code of Federal Regulations (CFR) and revert the relevant text of the CFR back to ... prior to the effective date of this final rule." This decision is expected to enhance market confidence, reflecting historical trends where regulatory reliefs in crypto led to growth. DeFi activity may witness increased engagement, driven by this reduction in regulatory pressures on decentralized protocols.

The repeal of the rule comes after a prolonged debate and significant pushback from the crypto community, who argued that the rule was both unenforceable and invasive of user privacy. The rule required non-custodial service providers, including decentralized exchanges and other crypto protocols, to report customer transaction information for tax purposes. This requirement was seen as a significant barrier to the growth of the DeFi sector, as it would have imposed substantial reporting burdens on decentralized platforms that operate without centralized control. The repeal of this rule addresses these concerns, providing a more favorable regulatory environment for the DeFi sector and the broader crypto industry.

The decision to remove the rule was welcomed by industry advocates, who had long argued that the regulation was impractical and would stifle innovation. The repeal is expected to encourage more investment and innovation in the crypto industry, as it provides greater clarity and certainty for decentralized exchanges and other crypto protocols. This move by the Treasury Department and the IRS is a positive step towards creating a more supportive regulatory framework for the crypto industry in the U.S. The removal of the rule also marks a significant victory for the crypto community, which had been vocal in its opposition to the regulation. The repeal is expected to foster a more favorable environment for the growth of the DeFi sector, which has been one of the fastest-growing segments of the crypto industry. The decision to remove the rule is likely to be seen as a win for industry advocates, who have long argued for a more balanced approach to crypto regulation that supports innovation while addressing legitimate concerns about tax compliance and user privacy.