Advocacy Group Pushes for the Scrapping of IRS's Decentralized Finance Intermediary Classification by Congress
Rewritten Article:
The Blockchain Association has joined forces with 76 other crypto organizations to urge Congress to repeal an IRS rule that could negatively impact decentralized finance (DeFi) projects. This rule, which broadens the definition of a "broker" to include software companies facilitating DeFi protocols, has drawn criticism for its potential to stifle American innovation and push DeFi offshore.
Under this rule, decentralized exchanges could be subject to strict reporting requirements like their traditional counterparts. In a letter penned to congressional leaders on February 19, the Blockchain Association argued that this rule unfairly targets American crypto firms and endangers the growth of financial technology.
Critics also point out that this regulation, completed late in the Biden administration, is overreaching and forces software providers to collect personal data from millions of users. Since these companies do not custody assets, they would need to make significant changes to their operations to comply with these requirements. This, in turn, might hamper DeFi development in the U.S. while pushing it towards international shores.
The letter from the Blockchain Association calls the rule an example of "midnight rulemaking." They believe that lawmakers, rather than regulatory agencies, should make decisions with broad economic implications. The repeal of the rule, they argue, would protect financial privacy, foster innovation, and support job growth in the sector.
It appears that lawmakers will vote on the resolution introduced by Senator Ted Cruz to repeal the rule in early March 2025. If the rule stays in place, it could force DeFi platforms to adhere to burdensome reporting mandates. However, if it's repealed, the U.S. DeFi industry might continue growing without undue regulatory restrictions.
In recent updates, Senator Ted Cruz has succeeded in passing a Congressional Review Act (CRA) resolution to reverse the IRS's rule targeting DeFi developers. This resolution, while its specific number isn't confirmed, has received bipartisan support and awaits final approval from the President. If it becomes law, it will protect DeFi developers without custody of user assets from the IRS's broker requirements. This development follows Senator Cruz's broader advocacy for the crypto sector, including the FLARE Act, aimed at incentivizing Bitcoin mining using stranded natural gas.
- The Blockchain Association, in partnership with 76 other cryptocurrency organizations, is advocating Congress to rescind an IRS rule that may discourage decentralized finance (DeFi) projects and potentially force them offshore.
- The controversial rule, which expands the definition of a "broker" to incorporate software companies facilitating DeFi protocols, has been criticized for potentially stifling American innovation and threatening financial technology growth.
- If implemented, this rule could subject decentralized exchanges to stringent reporting requirements similar to traditional counterparts, which critics argue, unfairly targets American crypto firms and could hinder DeFi development in the United States.
- The rule, completed at the end of the Biden administration, has been denounced as an example of "midnight rulemaking," with the Blockchain Association advocating that lawmakers, not regulatory agencies, should make decisions with broad economic implications.
- Senator Ted Cruz has successfully passed a Congressional Review Act (CRA) resolution to overturn the IRS's rule targeting DeFi developers. This resolution, pending final approval from the President, will safeguard DeFi developers without custody of user assets from IRS's broker requirements, thus encouraging growth in the sector without undue regulatory restrictions.
