Senate Votes 70-28 to Repeal IRS DeFi Rule

The U.S. Senate has voted 70-28 to repeal a contentious Internal Revenue Service (IRS) rule that was finalized in the waning days of the previous administration. This rule, which was introduced in late December, mandated that certain participants in the decentralized finance (DeFi) industry operate similarly to traditional securities brokers. The rule required these participants to collect and report user trading data and issue Form 1099 tax returns to customers, detailing non-employment income such as gambling winnings, rents, and royalties. The U.S. Treasury Department clarified that the rule targeted "front-end service providers" that interact directly with customers, rather than the decentralized protocols themselves.

The measure has now been sent to President Donald Trump, who is anticipated to sign it into law. White House advisors have indicated that they plan to recommend this course of action. The repeal effort was spearheaded by Sen. Ted Cruz of Texas and Rep. Mike Carey of Ohio, who introduced a joint resolution to overturn the IRS rule. The Senate's vote follows an earlier vote in the House, with the final Senate vote required due to the measure being tied to a budget provision. The bill has garnered bipartisan support, including from Senate Minority Leader Chuck Schumer, although most support has come from Republicans.

The rule sparked strong opposition from crypto industry leaders, who argued that the requirements would push the technology offshore. The DeFi Education Fund, along with other groups, sued the IRS shortly after its finalization, warning of the potential consequences. The fund's executive director, Amanda Tuminelli, hailed the Senate's vote as a "crucial step towards protecting U.S. innovation and ensuring that developers can continue to build cutting-edge technologies without the burden of unclear, overreaching regulations."

Some Democrats have opposed the repeal, arguing that Republicans are attempting to weaken the IRS. Rep. Richard Neal of Massachusetts, for instance, criticized the move, stating that Republicans have consistently underfunded the IRS. Despite this opposition, the repeal of the rule is seen as a victory for those who argue that the original regulation was overly burdensome and could stifle innovation in the DeFi sector. The expected signing of the repeal by President Trump will mark a significant milestone in the regulatory landscape for DeFi, highlighting the ongoing debate over the appropriate level of regulation for emerging financial technologies. This decision underscores the importance of ongoing dialogue between regulators and the financial technology community to ensure that regulations are effective, fair, and supportive of innovation.