White House Backs Move to Overturn IRS Rule Targeting DeFi Developers

• Lawmakers seek to repeal an IRS rule that classifies DeFi developers as brokers and imposes strict reporting rules.
• Supporters argue that traditional financial rules do not fit DeFi and could harm innovation in the digital asset space.
• The Senate voted to repeal the rule and the resolution now moves to the House before reaching President Trump.

US legislators are seeking to reverse an Internal Revenue Service (IRS) regulation that classifies decentralized finance (DeFi) developers as brokers. Senator Ted Cruz introduced a resolution under the Congressional Review Act (CRA) to eliminate this IRS regulation. Initial voting on the DeFi resolution was planned for March 5 however it may face delays because of scheduling conflicts including the State of the Union speech.

If approved by a simple majority in both chambers, the resolution would nullify the rule. Supporters argue that applying traditional financial reporting standards to DeFi is impractical. The rule expands the definition of brokers, requiring DeFi platforms to track user transactions, enforce compliance measures, and implement Know Your Customer (KYC) processes.

Industry Pushback Against Regulation

The IRS completed the broker rule last year which imposed tax reporting obligations on organizations that handle digital assets transactions. The regulation requires reporting obligations to all digital assets, including non-fungible tokens (NFTs) and stablecoins. Some critics argue that the policy fails to consider DeFi’s distinct characteristics and could harm technological innovation.

Crypto advocacy groups have opposed the rule, calling it a misinterpretation of DeFi technology. Industry leaders claim it creates excessive compliance burdens and privacy concerns. Some warn that enforcement could drive DeFi development outside the United States. Lawmakers supporting the resolution believe revoking the rule aligns with broader efforts to foster a favorable environment for digital assets.

Political and Legislative Implications

The Senate passed a resolution on March 4 with a 70-27 vote to repeal the rule. The measure now moves to the House for approval. If it passes, it will be sent to President Donald Trump, who has expressed support for striking down the regulation.

The White House has backed the resolution, arguing that the rule stifles American innovation and creates unnecessary burdens. Crypto industry leaders see the vote as a key test of Congress’s stance on digital assets. 

This development indicates that regulatory structures may be shifting toward becoming more supportive. Additional regulatory actions from lawmakers are expected to reshape crypto legislation in the upcoming months.