A House Committee Blocks the IRS’ DeFi Broker Rule: A Victory for Cryptocurrency Innovation
In a significant move that could reshape the regulatory landscape for cryptocurrency in the United States, the House Ways and Means Committee voted to repeal the IRS’ controversial “DeFi Broker Rule.” This rule, introduced by the Biden Administration, would have required decentralized finance (DeFi) platforms to collect and report sensitive taxpayer information. Critics argue that the rule would have stifled innovation, imposed an unreasonable bureaucratic burden, and placed American cryptocurrency users at a disadvantage compared to their foreign counterparts. The committee’s decision to block the rule under the Congressional Review Act marks a turning point in the ongoing debate over how to regulate digital assets in the U.S.
Understanding the DeFi Broker Rule and Its Implications
The DeFi Broker Rule was a last-minute regulation introduced by the IRS, stemming from provisions in the 2021 infrastructure law. The rule would have mandated DeFi platforms to collect and report taxpayer information, effectively treating them like traditional financial brokers. However, DeFi platforms operate on a decentralized model, which means they lack the infrastructure to collect the necessary information. This made the rule not only impractical but also nearly impossible to enforce. Critics, including a former IRS commissioner, warned that the rule would have generated over 8 billion new filings annually, overwhelming the agency and providing little value to tax administration. Additionally, the rule would have unfairly penalized American crypto users while foreign companies remained exempt, creating an uneven playing field in the global cryptocurrency market.
The Committee’s Argument Against the Rule
House Ways and Means Committee Chairman Jason Smith was vocal in his opposition to the DeFi Broker Rule, accusing the IRS of overstepping its authority. He pointed out that the agency had stretched the intent of the 2021 infrastructure law to push a broader cryptocurrency agenda. Smith argue
