Key Takeaways:
- President Trump has signed his first crypto bill, repealing a Biden-era IRS ruling that mandated DeFi service providers to collect and report user data for tax purposes. The rule set to take effect in 2027 was heavily criticized by industry proponents and lawmakers alike.
- The DeFi Tax rule classified DEXs and crypto wallet services as similar to traditional securities brokers, mandating them to share customers’ crypto transactions and issue Form 1099 tax returns for users. Most importantly, the rule only targeted front-end websites and not the DeFi protocols themselves.
- Senator Ted Cruz and Representative Mike Carey introduced a joint resolution in the Senate and House in March to repeal the controversial crypto reporting rule, which gained bipartisan support from both Republicans and Democrats.
- The White House called it a “midnight regulation” by President Biden to stifle innovation in the DeFi sector and force companies out of the United States. DeFi Education Fund director Amanda Tuminello said the repeal is a crucial step toward removing unclear and burdensome crypto regulations.
On Thursday, U.S. President Donald Trump signed a bipartisan resolution to repeal a controversial Internal Revenue Service (IRS) rule passed at the tail end of the Biden administration in December, requiring crypto platforms offering decentralized finance (DeFi) services to collect and report user data to the federal tax agency.
This was the first piece of crypto legislation signed into law by Trump, and it was much-anticipated, given that the White House had signaled its support for the resolution and called the measure a “midnight regulation in the final days of the previous administration,” while warning that it posed serious privacy concerns.
Trump’s First Crypto Bill Gets Rid of The IRS’s Crypto Transaction Reporting Rule
The DeFi tax rule required certain “decentralized finance industry participants,” such as decentralized exchanges (DEX) and wallet services, to operate like traditional securities brokers, mandating them to collect and report users’ crypto trading data. It would also have obligated them to issue Form 1099 tax returns for customers to report nonemployment income such as gambling winnings, rents, and royalties.
The U.S Treasury Department under President Biden said that the finalized rule applied to “front-end service providers” that interact directly with customers, which meant it primarily targeted the websites accessing a decentralized protocol rather than the protocol itself.
The IRS defended its position regarding the rule, which was set to go into effect in 2027, by claiming it was asking DeFi apps and wallets to collect vast amounts of customer data in the name of preventing tax evasion while helping users report their taxes accurately to the agency. As per the original proposal, it was supposed to include DeFi protocols as well, but officials moved forward with a watered-down version that only applied to front-end services.
Also Read: SEC Drops Helium Case, Brings Clarity To The DePIN Regulations
Senate and House Voted In Favor of Repealing The Rule That Posed Serious Privacy Concerns
Crypto experts voiced concerns that the DeFi tax rule could pose an existential threat to blockchain-based, decentralized finance technologies that are designed to eliminate middlemen such as banks and other financial institutions. Industry advocates like the DeFi Education Fund even sued the IRS shortly after the rule was finalized, warning that it would push the “burgeoning technology” away from the United States.
Last month, Senator Ted Cruz (R-Texas) and Representative Mike Carey (R-Ohio) introduced a joint resolution in the Senate to repeal the controversial crypto reporting rule. The Senate voted 70-28 in favor of overturning the mandate, followed by the House, and sent the measure to the White House. At the time, White House AI and Crypto Czar David Sacks said that he and other senior advisors planned to recommend that the President sign it.
Although the bill received the most support from Republicans, it also garnered support from Democrats, including Senate Minority Leader Chuck Schumer. However, some Democrats opposed the resolution by arguing that the Republicans were intentionally trying to weaken the IRS.
Rep. Richard Neal (D-Massachusetts) said during a hearing in February that the bill would repeal “sensible and important” Treasury regulations to ensure that taxpayers meet their tax filing obligations and do not “skirt” the law by selling cryptocurrencies without reporting the gains. He added that repealing the rule would cost the federal government $4 billion in revenue.
Amanda Tuminello, the executive director of the DeFi Education Fund, called the repeal a “crucial step” towards protecting U.S. innovation and ensuring that developers can continue to build cutting-edge technologies without the burden of “unclear” and “overreaching” regulations. She also heralded the bipartisan support for the bill, saying that it retains Americans’ freedom to choose how they transact.
Rep. Carey, who attended the signing event at the White House, said that it was the first crypto bill ever to be signed into law by any U.S. President. He added that by repealing the “misguided” rule, President Trump and Congress have given the IRS an opportunity to turn its focus towards the duties and obligations it already owes to the American taxpayer instead of creating new bureaucratic hurdles.