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The US House of Representatives Takes a Step to Reverse IRS’s DeFi Broker Rule
The US House of Representatives has taken the first significant step to erase the work of the Internal Revenue Service (IRS) to impose a tax regime on decentralized financial (DeFi) platforms in the final days of former President Joe Biden’s administration.
The House Ways and Means Committee, the panel responsible for overseeing the Treasury Department’s IRS, advanced a resolution in a 26-16 vote to reverse the IRS transaction-reporting policy under the Congressional Review Act. Such an effort requires majority approval in both the House and Senate before a presidential signature would make the move final, and the matter now moves to the overall House.
Background
In December, the IRS had approved a system that the crypto industry says forces DeFi protocols into a reporting regime designed for brokers, threatening the way that such protocols work and 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.
Legislative Effort
Senator Ted Cruz, a Texas Republican, has fielded a Senate version of the CRA resolution to cut the IRS rule.
“We must pass this resolution to avoid this nightmare for American taxpayers and for the IRS,” said Rep. Mike Carey, an Ohio Republican who has pressed for Congress to cut the rule, which he argued would overwhelm the tax agency.
Democrat Rep. Richard Neal from Massachusetts countered the Republican push.
“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,” he said. “It’s really that simple.”
Consequences
Eliminating the specific tax approach to decentralized crypto platforms would cut US revenue by an estimated $3.9 billion over a decade.
Challenges and Controversies
Rep. Jason Smith, the Republican chairman of the committee from Missouri, accused the IRS of going behind “the letter of the law” when it approved the rule during Biden’s final days in office.
“Not only is it unfair, but it’s unworkable,” he said.
Conclusion
The move by the US House of Representatives to reverse the IRS’s DeFi broker rule is a significant step towards providing clarity and certainty to the crypto industry. The rule, which was approved in the final days of the previous administration, has been met with widespread criticism from the industry and has been deemed unnecessary and overly broad. The reversal of this rule would be a major win for the crypto community and would help to promote innovation and growth in the sector.
FAQs
What is the DeFi broker rule?
The DeFi broker rule is a proposed regulation that would require decentralized financial (DeFi) platforms to report their transactions to the Internal Revenue Service (IRS) in a specific way, similar to how traditional brokerages report their transactions.
Why is the crypto industry opposed to the DeFi broker rule?
The crypto industry is opposed to the DeFi broker rule because it believes that it is unnecessary and overly broad. The rule would require DeFi platforms to report their transactions in a way that is not suitable for their business model, and would potentially lead to confusion and uncertainty for both the platforms and their users.
What is the Congressional Review Act?
The Congressional Review Act is a legislative process that allows Congress to review and repeal certain regulations issued by executive branch agencies, including the IRS. The House Ways and Means Committee is currently considering a resolution to repeal the DeFi broker rule under the Congressional Review Act.
What would be the consequences of repealing the DeFi broker rule?
Repealing the DeFi broker rule would likely have significant consequences for the US government, including a loss of revenue of an estimated $3.9 billion over a decade. It would also promote innovation and growth in the crypto sector, as it would provide clarity and certainty for DeFi platforms and their users.
