House Moves to Overturn IRS Tax Rules on DeFi Platforms
The U.S. House of Representatives has made a significant step towards dismantling the Internal Revenue Service’s (IRS) recent tax regulations aimed at decentralized financial (DeFi) platforms. This action comes during the closing days of former President Joe Biden’s administration and highlights ongoing tensions between regulatory bodies and the emerging crypto industry.
The House Ways and Means Committee, which oversees the Treasury Department’s IRS, advanced a resolution with a 26-16 vote to reverse the controversial transaction-reporting policy under the Congressional Review Act (CRA). This legislative maneuver necessitates majority approval from both the House and Senate, and it will ultimately require a presidential signature to become effective. The matter is now set to be debated in the full House.
In December, the IRS approved a new reporting framework that the cryptocurrency industry argues unfairly categorizes DeFi protocols as brokers. This classification threatens the operational integrity of these platforms and potentially imposes reporting requirements on numerous entities that do not fit the broker definition. In a united front, nearly all major players in the crypto sector signed a letter from the Blockchain Association last week, calling for the elimination of this burdensome rule.
Senator Ted Cruz, a Republican from Texas, has introduced a Senate version of the CRA resolution to eliminate the IRS’s controversial regulation. “We must pass this resolution to avoid a nightmare scenario for American taxpayers and the IRS,” stated Rep. Mike Carey, a Republican from Ohio, who has been vocal about the need for Congress to intervene and revoke the rule. He argued that the regulation would overwhelm the already strained tax agency.
However, the Republican push has faced opposition from Democrats. Rep. Richard Neal, a Democrat from Massachusetts, countered the claims, asserting, “The bill before us today would repeal sensible and important Treasury regulations that ensure taxpayers fulfill their tax filing obligations and do not evade the law by selling cryptocurrency without reporting their gains. It’s really that simple.”
The proposed elimination of this specific tax framework for decentralized crypto platforms is projected to reduce U.S. revenue by an estimated $3.9 billion over the next decade. Rep. Jason Smith, the Republican chairman of the committee from Missouri, criticized the IRS for allegedly bypassing “the letter of the law” when it approved the regulation in the waning days of the Biden administration. “Not only is it unfair, but it’s also unworkable,” he concluded.
