The US House of Representatives has voted to repeal the controversial IRS DeFi broker rule, a regulation that sought to expand tax reporting requirements to decentralized finance (DeFi) protocols and other crypto-related entities. The decision comes after the US Senate also moved to block the measure, escalating the ongoing battle over how digital assets should be regulated in the United States.‍

House Overturns Rule with Bipartisan Support

On March 11, the House passed the resolution with a 292-132 vote, following strong bipartisan support for rolling back the rule. Notably, all 132 votes to keep the rule came from Democrats, but 76 members of the party broke ranks and joined Republicans in voting for its repeal.

The vote follows the March 4 Senate decision, where lawmakers overturned the rule in a 70-27 vote, demonstrating broad opposition to the IRS’s expanded oversight of DeFi. 

The regulation, issued on December 30, 2024, sought to classify DeFi platforms, software developers, and decentralized exchanges as “brokers,” requiring them to report gross proceeds from crypto transactions to the IRS. Critics warned that the measure would be impossible to enforce in decentralized environments, place heavy compliance burdens on developers, and compromise user privacy.‍

Lawmakers React to the Vote

Republican Representative Mike Carey, who introduced the repeal motion, celebrated the House’s decision, arguing that the rule would have harmed innovation and violated Americans’ financial privacy. 

Speaking after the vote, Carey said the rule "invades the privacy of tens of millions of Americans, hinders the development of an important new industry in the United States, and would overwhelm the IRS.”

His sentiments were echoed by House Financial Services Committee Chairman French Hill, who called the IRS’s move “a clear example of government overreach” that would stifle blockchain innovation and push development offshore.

However, opposition to the repeal came from Democratic Representative Lloyd Doggett, who argued that eliminating the rule would open the door for tax evasion and illicit financial activities. 

Doggett claimed that the repeal was a “special interest exemption” designed to benefit wealthy Republican donors who used decentralized exchanges to hide their financial transactions. Doggett also warned that removing the rule would create a loophole that could be exploited by tax cheats, drug traffickers, and terrorist financiers.‍

Crypto Advocacy Groups Sue IRS and Treasury

While Congress debates the fate of the regulation, crypto advocacy groups have taken legal action. The DeFi Education Fund, the Blockchain Association, and the Texas Blockchain Council have filed a lawsuit against the IRS and the US Treasury Department back in Dec. 2024, arguing that the expanded definition of a “broker” exceeds their legal authority and violates the Administrative Procedure Act (APA).

The lawsuit, submitted to the US District Court for the Northern District of Texas, challenges the rule on the basis that it imposes undue compliance burdens on DeFi developers and undermines innovation in the digital asset industry. ‍

What’s Next? Biden Administration’s Stance

The resolution now heads to President Donald Trump, who has signaled his support for repealing the IRS rule. If he signs it into law, the measure will be permanently nullified, preventing the tax reporting requirements from being enforced.

Meanwhile, regulatory debates over digital assets continue. Some Democratic lawmakers and government officials have expressed concerns about repealing the rule, arguing that it weakens tax enforcement. 

With the battle over crypto taxation and regulation intensifying, the future of blockchain innovation in the US remains uncertain.