The US House recently voted to overturn the IRS-imposed broker rule for DeFi platforms, which would have mandated digital asset firms to collect transaction data.
The Policy Was Too Broad to Apply
The proposed broker rule was part of the 2021 Infrastructure Investment and Jobs Act. Had it been enacted, DeFi platforms and crypto exchanges would have been required to report users' transaction data to the IRS. Proponents from the Democratic Party said it was aimed at improving tax compliance. However, critics, including crypto supporters, argued that the policy was overly broad and could negatively impact the US crypto ecosystem.
Harm to Business and Innovation
Representative Mike Carey, who submitted the repeal motion, noted that the rule invades the privacy of millions of Americans and hinders industry development. Missouri Representative Jason Smith argued that the rule threatened business environments since DeFi platforms cannot collect and provide the necessary data to the IRS like traditional financial institutions.
IRS Attempted to use the Old Reporting Framework
Because of their operational nature, the rule would have been an insurmountable barrier for DeFi operators. Critics alleged that the IRS tried to apply outdated financial structures to decentralized systems. Platforms using smart contracts and blockchain protocols cannot collect user data, presenting a burden for startups and developers, potentially driving innovation away from the US.
The House's defeat of the IRS broker rule for DeFi platforms is a significant step in crypto regulation debates. It underlines the need for lawmakers to comprehend crypto's technical and policy issues in their decisions.
