The U.S. House of Representatives opposes an IRS regulation that impacts decentralized finance (DeFi) platforms.
The House Ways and Means Committee introduced a new bill to prevent the IRS from enforcing tax reporting requirements on DeFi projects. The proposal, which advanced with a 26-16 vote, has gained support from Republican lawmakers, who argue that the rule imposes excessive burdens on the crypto industry.
Opposition to IRS broker classification
In December, the IRS issued a regulation classifying DeFi platforms as brokers, requiring them to follow the same tax reporting standards as traditional financial brokers. This includes providing Form 1099 tax documents to users, a move that the U.S. Treasury Department claims will improve tax compliance and reduce errors. However, critics argue that the rule creates unfair challenges for U.S.-based DeFi projects while exempting foreign entities from similar requirements.
House Ways and Means Committee Chair Jason Smith (R-Mo.) voiced concerns that the regulation gives international competitors an advantage by placing strict obligations only on domestic projects. Other lawmakers, including Rep. Mike Carey (R-Ohio), warned that the rule would increase the workload for taxpayers and the IRS. The Blockchain Association and other crypto advocacy groups have also urged Congress to repeal the regulation, arguing that it could stifle innovation and slow the growth of blockchain technology in the United States.
Divided opinions in Congress
Democratic lawmakers have defended the IRS rule, emphasizing the importance of tax compliance. Rep. Richard Neal (D-Mass.) stated that the regulation helps prevent tax evasion and ensures all taxpayers contribute pretty. He also pointed out that repealing the rule could result in an estimated $3.9 billion revenue loss over the next decade.
On the other hand, Republican lawmakers believe the IRS is overstepping its authority. House Ways and Means Committee Chairman Jason Smith criticized the federal government for what he described as regulatory overreach. The debate reflects a broader divide over how cryptocurrency should be regulated, with Republicans advocating for fewer restrictions and Democrats prioritizing stricter enforcement.
Impact on the Crypto industry
The House resolution aligns with efforts in the Senate, where Sen. Ted Cruz (R-Texas) introduced a similar measure in January. Cruz has argued that excessive regulation could push blockchain innovation overseas, harming the U.S. economy.
The proposed repeal must pass both chambers of Congress and receive presidential approval under the Congressional Review Act. If enacted, the measure would eliminate the IRS broker classification for DeFi platforms, relieving them of tax reporting obligations. Meanwhile, the IRS has clarified that cryptocurrency staking rewards are taxable upon receipt, reinforcing the agency’s stance on digital asset taxation.