Controversial US IRS Tax Rule on DeFi Transactions Faces Repeal

A proposed tax rule by the US Internal Revenue Service (IRS) requiring decentralized finance (DeFi) brokers to report crypto transactions may be overturned as lawmakers push to repeal it. The rule, which has been met with criticism from industry leaders, would require certain DeFi operators to collect and report user transaction data.

House Ways and Means Committee Votes to Repeal the Rule

On February 26, the US House Representatives advanced a resolution to scrap the rule, with the House Ways and Means Committee voting 26-16 in favor of the repeal. The resolution will now move to the full House for a vote. If it passes, the Senate will then decide its fate, and a successful Senate vote would send the measure to President Donald Trump, who can either sign it into law or veto it.

What the DeFi Broker Rule Entails

The “DeFi broker rule,” proposed by the IRS in August 2023 and officially finalized in January 2024, would require certain DeFi operators, including front-end service providers for decentralized exchanges, to collect and report user transaction data, including gross proceeds from crypto sales.

According to the IRS, the rule aims to “level the taxpayer playing field” by applying the same standards as traditional finance institutions. However, critics argue that the rule is unworkable for DeFi, where platforms often operate without centralized control and do not collect user data by design.

Industry Leaders Speak Out

Miller Whitehouse-Levine, CEO of the DeFi Education Fund, welcomed the decision to repeal the rule, arguing that it represents an “unlawful and unconstitutional overreach” that undermines the financial privacy of Americans and stifles innovation in decentralized finance.

“The rule represents an unlawful and unconstitutional overreach that undermines the financial privacy of Americans and stifles innovation in decentralized finance.”

DeFi advocates have previously raised concerns about privacy implications, with some fearing that platforms like Uniswap could be required to collect user identities, contradicting the fundamental ethos of decentralized finance.

Tips for DeFi Investors and Users

  • Stay informed about the latest developments in DeFi regulations and their potential impact on your investments.
  • Consider the potential risks and benefits of investing in DeFi platforms and tokens.
  • Look for DeFi platforms that prioritize user privacy and security.

For more news and updates on the cryptocurrency and DeFi space, visit Global Crypto News.

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