Lawmakers Challenge IRS's DeFi Crypto Reporting Rule

US lawmakers have moved to overturn a controversial Internal Revenue Service (IRS) rule that requires decentralized finance (DeFi) brokers to report crypto transactions. The House Ways and Means Committee voted 26-16 in favor of a resolution to scrap the rule, which now moves to the full House for a vote.

The "DeFi broker rule," proposed by the IRS in August 2023 and finalized in January 2024, would require certain DeFi operators to collect and report user transaction data, including gross proceeds from crypto sales. The IRS argues that this would "level the taxpayer playing field" by applying the same standards as traditional finance institutions.

However, industry leaders have criticized the rule, arguing that it is unworkable for DeFi platforms that often operate without centralized control and do not collect user data by design. Miller Whitehouse-Levine, CEO of the DeFi Education Fund, welcomed the decision to repeal the rule, stating that it represents an "unlawful and unconstitutional overreach" that undermines the financial privacy of Americans and stifles innovation in decentralized finance.

DeFi advocates have raised concerns about privacy implications, with some fearing that platforms like Uniswap could be required to collect user identities, contradicting the fundamental ethos of decentralized finance. Consensys attorney Bill Hughes sees the rule as a last-minute attempt by the previous administration to clamp down on crypto before leaving office.

The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council have already sued the IRS, claiming that the rule would force DeFi developers to comply with regulations they simply can't implement. Despite the controversy, the IRS remains firm in its stance, dismissing arguments that DeFi should be exempt from the rule.

If the resolution passes the full House, it will then move to the Senate for a vote. A successful Senate vote would send the measure to the President, who can either sign it into law or veto it. If the rule is not overturned, it will take effect on January 1, 2027.