US Lawmakers Push to Repeal IRS DeFi Broker Rule Amid Industry Backlash
In a major development, U.S. lawmakers are moving to overturn the controversial IRS DeFi broker rule. This rule, introduced by the Internal Revenue Service (IRS), mandates that decentralized finance (DeFi) brokers report transaction data from their users, mirroring the tax obligations that traditional financial institutions face. If passed, this rule will apply to a broad range of DeFi operators, including those working with decentralized exchanges.
The IRS DeFi broker rule, which was originally suggested in August 2023 and finalised in January 2024, has received strong resistance from both business actors and lawmakers. Critics claim that the law is cumbersome and may inhibit innovation in the fast expanding decentralised finance sector. Supporters of the rule, on the other hand, claim that it is critical to ensuring that cryptocurrency exchanges are not used for illegal purposes and that users pay their due amount of taxes.
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The repeal effort gathered traction on February 26, 2025, when the House Ways and Means Committee voted 26-16 to advance a measure repealing the rule. This action is part of a larger attempt by US lawmakers to examine and potentially repeal some of the more restrictive regulations governing the bitcoin and DeFi sectors. If the resolution passes the House, it will be sent to the Senate for further review, with the prospect of reaching President Donald Trump for ultimate approval.
Critics of the law claim that it unfairly burdens DeFi brokers and operators by requiring them to collect and report comprehensive user data, which contradicts the decentralised nature of these platforms. The law would require certain front-end service providers for decentralised exchanges, such as those who provide trading services or liquidity pools, to report gross proceeds from cryptocurrency sales as well as comprehensive user transaction data.
Proponents of the rule, including the IRS, argue that it will help level the playing field between DeFi brokers and traditional financial institutions by ensuring that both sectors face similar tax reporting requirements. The IRS claimed that the regulation is part of an ongoing effort to address tax compliance challenges in the bitcoin market and ensure that taxpayers fulfil their duties.
However, many in the cryptocurrency and DeFi communities are concerned that this rule would result in excessive regulation, making it more difficult for smaller companies in the field to compete with larger institutions. Furthermore, the rule’s potential to violate user privacy has sparked concerns about the future of decentralised banking and the widespread adoption of blockchain technology.
Despite the ongoing debate, the IRS DeFi broker rule’s future is unknown. As the resolution moves to the Senate, all eyes will be on lawmakers to see if they can effectively prevent or change the contentious rule. If the rule is overturned, it may indicate a movement in US regulatory policy towards a more flexible and innovative approach to cryptocurrencies and DeFi regulation.
