Key Takeaways
- The US Senate has voted its consent to repeal the controversial IRS DeFi Broker Rule, which was passed by the previous Biden administration.
- The rule, which warranted DeFi operators to collect user data and reports, also asked them to issue Form 1099 tax returns to customers, reporting nonemployment income such as gambling winnings, rents, and royalties.
- White House Crypto A.I. and Crypto Czar David Sacks will soon recommend that President Trump to sign executive orders to repeal the IRS DeFi Broker Rule.
- The revoking of this rule will address the privacy concerns regarding the DeFi sector and instill trust in crypto traders and investors.
The US Senate has given its consent to repeal the controversial IRS DeFi Broker Rule, which was passed by the previous Biden administration. The rule warranted the decentralized finance industry participants to operate like traditional securities brokers and made it mandatory for them to collect user trading data and report them to the concerned authorities. The rule was passed by the Biden government amidst protests from DeFi users and crypto enthusiasts.
Under this rule, DeFi operators would also have to issue Form 1099 tax returns to customers, reporting nonemployment income such as gambling winnings, rents, and royalties. The rule was purportedly focused on the first-line service providers of DeFi business such as the websites that host these decentralized financial services.
This rule was passed by the Biden administration soon before the end of their tenure. This bill aimed to strangle the growth of DeFi infrastructures in the United States as Biden and the Democrats were against the DeFi sector and cryptocurrencies.
Trump’s Decision To Quash The Bill
The incumbent president Donald Trump, who is a crypto enthusiast was critical of this ruling and will soon sign the order to revoke this rule with the support of the Senate which voted for this matter in a ratio of 70:28. White House Crypto A.I. and Crypto Czar David Sacks has said that the recommendations to repeal the rule will soon be sent to President Trump.
Trump himself was critical of this rule. In a March 4 statement, Trump criticized the hasty passing of this rule as a midnight regulation brought by the Biden administration in its final days. He also stated that the rule would not be taken forward because of the privacy concerns it poses to DeFi investors.
As the rule was tied to a budget provision, final consent was required from the Senate before the papers reached Trump for his consent. Most of the votes in favor of revoking the rule came from the Republican members of the Senate. The democrats opposed the revocation of the rule, except for some like Senate Minority Leader Chuck Schumer, who voted in support of revoking the IRS rule. This would be the first crypto bill signed by Trump in his second term.
Public Response Towards Revoking The Bill
The major purpose of reworking the traditional IRS rules is to prevent this upcoming technology from being pushed offshore, and the innovations made in the name of blockchain technology remain alive for many years.
Amanda Tuminelli, the executive director of the DeFi Education Fund, said that the decision would be a crucial step by the US government to encourage the formulation of such bills that would build clear legislations without the burden of overarching regulations. She hailed the senators who voted in favor of the DeFi Broker’s CRA resolution, which set right the far-reaching consequences of the IRS’s misguided rulemaking. Overall, the legislative decision to revoke the IRS rules was welcomed by the pro-crypto enthusiasts.
The IRS DeFi Broker Rules
The IRS DeFi Broker Rules extended the broker reporting obligations to decentralized finance (DeFi), which involves digital asset transactions without a traditional intermediary. Under this ruling, the following entities were classified as brokers.
- custodial and non-custodial digital asset exchanges
- Hosted waller providers managing wallets and verifying user identities.
- Bitcoin ATMs and other physical kiosks handling digital assets.
- Platforms that enable transactions involving digital assets while confirming buyers and sellers.
- front-end service providers, such as token swap interfaces, who are considered as DeFi brokers.
If the orders to repeal these rules are signed by the Donald Trump administration, it would permanently stop the IRS from implementing similar regulations.
The Bottom Line
With the Senate’s assent for the repealing of the IRS broker rules and Donald Trump’s decision to sign executive orders to confirm this matter, the United States is once again reaffirming its commitment to building a pro-crypto environment. The decentralized nature of the industry will be maintained with no user information collected at any stage of its operations by any stakeholders. This will help in increasing user confidence in DeFi, which is critical for its success.