In an important development, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) have officially repealed a contentious rule related to cryptocurrency transactions. The rule in question, often referred to as the ‘crypto broker’ rule, mandated various decentralized exchanges and other protocols to share customer transaction information for taxation purposes.
The End of a Contentious Rule
With its official scrapping, the chapter comes to a close on a rule that had caused considerable controversy within the crypto realm for a length of time. Many advocates for cryptocurrency had vociferously argued that the implementation of such a rule was practically a non-starter; in essence, it was unenforceable. On one hand, the proponents of the Treasury’s rule opined that it was a measure designed to foster greater financial transparency. On the other, its detractors raised serious concerns pertaining to the potential invasion of privacy, a detrimental impact on the burgeoning DeFi (Decentralized Finance) sector, and a stifling effect on the wider crypto industry within U.S. borders.
Reversing the Rule
Following the successful enactment of a joint resolution in conjunction with the Congressional Review Act (CRA), the Treasury clarified that the rule carries no legal force or weight. A “release” issued by them stated, “The Department of the Treasury and the IRS hereby remove this final rule from the Code of Federal Regulations (CFR) and revert the relevant text of the CFR back to the text that was in effect immediately prior to the effective date of this final rule.”
The ‘Crypto Broker’ Rule & Its Journey
The Biden administration had first sought to integrate the ‘crypto broker’ rule as part of the Infrastructure Investment and Jobs Act in November 2021. The act expanded the understanding of a ‘broker’ to also include participants in the crypto network. The goal was to fill in a perceived gap in information. Following a softening of the definition to exclude crypto miners and node operators, who are typically incapable of collecting customer transaction details, the rule was part and parcel of the IRS’s finalized regulation for ‘DeFi brokers’ in late 2024.
Implications of the Rule
The rule stipulated that non-custodial service providers would need to function similarly to conventional securities brokers. Consequently, they would have to gather customer names and addresses for the purposes of tax collection. This mandate faced severe criticism, especially from DeFi industry insiders, who protested that automated blockchain protocols are ill-equipped to gather such data.
Echoes of Opposition
Senator Ted Cruz of Texas spearheaded an effort to bring a CRA resolution to the fore, aiming to repeal the IRS’s crypto rule. The argument was that autonomous blockchain protocols simply weren’t equipped or designed to collect such data.
Closing the Chapter
After considerable debate, Congress eventually voted to overrule the crypto broker rule in the month of March. Following this legislative move, it was President Donald Trump who signed a resolution to repeal the rule on April 11, marking an end to a longstanding battle surrounding cryptocurrency taxation.
