House Takes First Step to Erase IRS Rule Targeting Decentralized Finance (DeFi) Platforms

The U.S. House of Representatives has taken the first significant move to erase the work of the Internal Revenue Service to impose a tax regime on decentralized financial (DeFi) platforms

The U.S. House of Representatives is taking the first significant step to remove a regulation that would impose a tax reporting regime on decentralized finance (DeFi) platforms, concentrating the final days of former President Joe Biden's administration on a attempt to overhaul the Internal Revenue Service.

The House Ways and Means Committee, which handles Treasury and IRS matters, advanced a measure on Thursday to unwind the transaction-reporting measure via the Congressional Review Act. Such an effort needs majority approval in both the House and Senate ahead of a presidential signature to scuttle the rule, and the matter now moves to the overall House.

In December, the IRS approved a system that the crypto trade group says throws DeFi protocols into a reporting regime designed for brokers, threatening the way that such protocols operate and also potentially including a wide range of entities that aren't brokers at all. Nearly every major name in the crypto sector signed onto a Blockchain Association letter last week calling for the elimination of this rule.

Senator Ted Cruz, R-Texas, has fielded a Senate version of the CRA resolution to slice the IRS measure.

"We must pass this resolution to avoid this nightmare for American taxpayers and for the IRS," said Rep. Mike Carey, R-Ohio, who has pressed for Congress to intervene and cut to rule, which he argued would overwhelm the tax agency.

"The bill before us today would repeal sensible and important Treasury regulations ensuring that taxpayers meet their tax filing obligations and do not skirt the law by selling crypto currency without reporting the gains," said Rep. Richard Neal, D-Mass.

"It's really that simple. If you're a taxpayer, you have to pay your taxes. And if you're a broker, you have to file information returns. This administration is simply trying to enforce the law."

Eliminating the specific tax measure to decentralized crypto platforms would slice U.S. revenue by an estimated $3.9 billion over a decade, according to an assessment by the Joint Committee for Taxation.

"The administration went way behind 'the letter of the law' when it approved this rule during the final days of the Biden administration," said Rep. Jason Smith, R-Mo., the panel's chairman.

"Not only is it unfair, but it's unworkable. It would put the burden of reporting on nearly every participant in the digital asset ecosystem, including liquidity providers, miners and node operators."

The vote was 26-16 to advance the resolution. All Republicans present voted in favor, while all Democrats voted against it.