US Lawmakers Unite to Block IRS Rule Threatening DeFi and Crypto Innovation
Lawmakers, including Ted Cruz and Mike Carey, are pushing to overturn a controversial IRS rule that redefines DeFi participants as brokers, warning it could stifle U.S. crypto innovation and push it overseas.
A new rule from the Biden administration is sparking backlash from U.S. lawmakers, who warn it could stifle innovation in the cryptocurrency and decentralized finance (DeFi) space. On January 22, Senator Ted Cruz (R-Texas) and Representative Mike Carey (R-Ohio) introduced a joint resolution aimed at overturning a controversial rule issued by the Internal Revenue Service (IRS) on December 30, 2024.
The rule in question redefines participants in DeFi as "brokers," subjecting them to stringent reporting requirements that critics argue would impose unnecessary burdens on the industry. Cruz and Carey contend that the measure could push cryptocurrency innovation and blockchain development overseas, as it forces businesses in the U.S. to comply with complex and onerous regulations. Cruz emphasized, “The Biden administration’s rule attempts to drive American cryptocurrency innovation overseas. This regulation undermines the purpose of DeFi technology: to enable individuals to freely buy, sell, and exchange digital assets.”
Both lawmakers argue that instead of fostering innovation, the rule will make it harder for U.S.-based crypto firms to operate and expand. "America’s goal should be to prioritize innovation, and this rule is the opposite," Cruz added, urging Congress to act swiftly to pass the resolution and send it to President Biden.
Rep. Carey, who led the introduction of the resolution in the House, described the IRS rule as "clear overreach" and warned that its implementation could overwhelm IRS resources, resulting in excessive paperwork and complicated tax filings for digital asset holders. He added, "We are proud to work with Senator Cruz on this important effort to avoid needlessly complicating the tax-filing process."
The resolution has garnered significant support from both lawmakers and industry groups, including Senators Cynthia Lummis (R-Wyo.), Thom Tillis (R-N.C.), Tim Sheehy (R-Utah), and Ted Budd (R-N.C.), as well as organizations like the Digital Chamber, Blockchain Association, and DeFi Education Fund. These groups argue that overturning the rule is essential to protect the U.S. digital asset sector and ensure that it remains a global leader in blockchain innovation.
The proposed resolution reflects the ongoing tension between regulatory oversight and the need to foster technological advancement in the cryptocurrency industry. While the future of the resolution remains uncertain, it underscores the importance of balancing regulation with the freedom to innovate within the digital asset space. The outcome could have significant implications for the future of DeFi and the broader blockchain ecosystem in the United States.
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