US Senate Votes to Repeal IRS DeFi Reporting Rule
In a significant move for the crypto community, the U.S. Senate has voted to reject a proposed rule by the Internal Revenue Service concerning “Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales.” This rule, slated to come into effect for the tax year 2027, would have mandated decentralized finance (DeFi) platforms to report detailed customer information to the IRS, aligning DeFi regulations more closely with those imposed on centralized exchanges and traditional stock brokerages.
The bipartisan vote, led by Senator Ted Cruz, resulted in a 70 to 27 decision to repeal the IRS mandate. Cruz, along with his supporters, argued that DeFi platforms do not operate as traditional brokers and would face prohibitive compliance costs under the proposed rule. Notably, all the votes to retain the rule came from Democratic senators, emphasizing the ongoing partisan divides regarding cryptocurrency regulation.
Paul Grewal, the chief legal officer of Coinbase, expressed optimism about the bipartisan support for the repeal, stating, “The Democrats and Republicans can still do things together when they just try.” His tweet highlighted how cooperation across party lines can yield substantial policy outcomes, particularly in the evolving landscape of digital assets.
The importance of this legislative action was underlined by Senator Cruz, who noted, “It’s a powerful statement of the importance of crypto. I think crypto was one of the major issues in the last election.” This sentiment reflects a growing recognition of cryptocurrency’s impact on politics and economics in the U.S.
While proponents of the repeal celebrate the decision, concerns remain regarding its implications. Mike Kaercher, deputy director of the Tax Law Center at New York University, warned that the repeal could drive the digital asset sector further into the shadows, complicating efforts to combat significant issues such as tax evasion and illicit financing activities.
As the DeFi sector navigates these regulatory waters, its total value locked recently experienced fluctuations, currently standing at $102 billion—a notable drop from its peak of $212 billion in December 2021. The resilience of DeFi is still evident, especially considering its foundation on Ethereum, which has faced a challenging year.
In terms of market reaction, cryptocurrency markets have shown signs of recovery, with total capitalization increasing by 2% to reach approximately $2.97 trillion. Bitcoin recently crossed the $88,000 mark, bolstered by positive market sentiment, while Ethereum remains relatively stagnant at just above $2,150. Other cryptocurrencies, such as XRP, Cardano (ADA), and Bitcoin Cash (BCH), have shown more substantial gains in this recent upswing.
The retraction of the IRS rule reflects an ongoing dialogue in the U.S. regarding how to balance regulatory oversight with the promotion of innovation within the crypto space. As policymakers continue to address these issues, the actions taken in the Senate may well shape the future landscape of cryptocurrency regulation and adoption.
