IRS Crypto Reporting Rule Under Congressional Review
The Congressional push to repeal the IRS DeFi broker rule highlights the conflict between innovation and regulation. With White House backing, this action has the ability to redefine decentralized finance (DeFi) regulation in the United States.
US lawmakers, led by Republican Senator Ted Cruz, are moving to eliminate the Internal Revenue Service’s (IRS) newest broker rule mandating DeFi platforms collect and report users’ data. The initiative is being pursued under the Congressional Review Act (CRA), which allows Congress to overturn recent federal regulations.
Fox Business reporter Eleanor Terrett reported on March 4 that Cruz sponsored the CRA resolution, which was initially slated for a vote on March 5. But logistical considerations, including the scheduled State of the Union address, may slow things down.
If passed with a simple majority in the Senate and the House, the CRA would invalidate the IRS rule, which expands what constitutes a “broker” to include DeFi developers and front-end operators.
White House Crypto Adviser David Sacks Weighs In
The IRS rule is incompatible with decentralized finance and overly burdens compliance, critics contend. The rule, which was completed last year, mandates that DeFi platforms comply with tax reporting, Know Your Customer (KYC) protocols, and other regulatory requirements for dealing with digital assets such as NFTs and stablecoins.
Senator Cruz slammed the rule as an attempt from the Biden administration to stifle crypto innovation in America.
“As a midnight swoop, the Biden administration had released their rule on decentralized finance that would imperil American cryptocurrency innovation directly and instantly and would drive development offshores,” Cruz stated.
White House Crypto & AI Advisor David Sacks was also opposed. On Tuesday, he referred to the IRS rule as an “11th-hour attack on the crypto community by the Biden administration.”
Lawmakers Challenge CFPB Digital Asset Regulations
Along with the IRS broker rule challenge, lawmakers are also targeting the Consumer Financial Protection Bureau’s (CFPB) digital payment application rule. Senator Pete Ricketts has introduced a resolution to reverse this rule, which regulators and stakeholders claim discriminatorily burdens fintech companies offering digital wallets and payment solutions.
The Biden administration did everything they could to strangle financial innovation, threatening to send digital asset firms overseas,” Senate Majority Leader John Thune said. “The Senate is acting to repeal these overreaching regulations one at a time to restore financial freedom for the American people.”
A companion resolution has already passed the House. If both houses pass, the final decision will be up to the president.
Crypto Community Pushes Back Against IRS Rule
Crypto lobbying groups, led by The Blockchain Association, are still opposed to the IRS rule. They argue that characterizing DeFi infrastructure as financial intermediaries reads too much into the technology and oversteps regulatory bounds.
Supporters of the rule do think it is needed for tax compliance and regulation, however. The outcome of the congressional vote can have a significant impact on the future of DeFi in the U.S.
While the White House is set to host its crypto summit on March 7, the resolution of these regulatory issues may lay the groundwork for further policy discussion and provide the long-awaited clarity for the sector.
