Lawmakers have taken a step toward overturning a tax rule that mandates “custodial brokers” to gather and report user data to the IRS.
The measure, which has sparked debate over its potential impact on financial institutions and taxpayers, now awaits a vote in the full House of Representatives.
On Wednesday, the US House Ways and Means Committee approved the resolution with a 26-16 vote.
The Ways and Means Committee just passed H.J.Res. 25 – a resolution that repeals an unfair and unworkable cryptocurrency rule that would hamper cryptocurrency holders and the IRS with additional, burdensome paperwork.
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Rep. Mike Carey (R-Ohio), who introduced the resolution, argued that the rule would place an excessive burden on the IRS by flooding it with paperwork.
Arguments against the IRS rule
Speaking at the hearing, Carey said:
We must pass this resolution to avoid this nightmare for American taxpayers and for the IRS, while ensuring that the United States is in fact in a position to lead the world in innovation with digital assets and in the crypto sector.”
The measure was introduced in partnership with Sen. Ted Cruz (R-Texas) following the IRS’s move to finalize the rule late last year—a decision that drew criticism and led to lawsuits from the crypto industry.
Talking about the bill, the committee’s chairperson Rep. Jason Smith said:
Not only is it unfair, but it’s unworkable. DeFi brokers do not even collect the information from users needed to implement this rule.”
The IRS finalized the rule in December, mandating that “DeFi brokers” operate similarly to traditional securities brokers by collecting detailed trade information from users.
As part of these new regulations, certain decentralized finance participants will be required to issue Form 1099 tax returns—a form typically used for reporting non-employment income, such as gambling winnings, rents, and royalties.
The US Treasury Department has stated that the rule applies to “front-end service providers” that interact directly with customers, rather than the underlying decentralized protocols.
The rule is slated to take effect on or after January 1, 2027.
Criticisms from the crypto community
Many crypto industry experts had voiced concerns about the expanded tax reporting requirements.
Critics argued that the rule’s demand for detailed customer information poses significant privacy challenges and may be impractical for noncustodial crypto service providers, such as Uniswap, which operate differently from traditional brokers.
For example, the rule could require DeFi brokers to record “the name and address of each customer,” a requirement that is difficult to implement when no centralized service provider exists to interface directly with users—what some have called an “unsquarable circle.”
In response to the rule, the Blockchain Association and two other groups filed lawsuits, warning that the requirements could “push this entire, burgeoning technology offshore.”
The resolution was introduced under the Congressional Review Act (CRA), a law enacted in 1996 that allows lawmakers to overturn certain federal agency actions.
The CRA was previously used in an attempt to overturn the SEC’s Staff Accounting Bulletin 121, although that effort was vetoed by President Joe Biden before the bulletin was eventually rescinded by the agency.
The resolution now heads to a floor vote in the House, where its fate will be decided.
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