IRS DeFi Broker Rule: The Tax Rule That Almost Broke Crypto (But Failed)

Lawmakers recently stepped in to shut the IRS DeFi Broker Rule down. The rule was imposing unfeasible compliance burdens on DeFi developers. Let's dive into more details!

What Was This IRS DeFi Broker Rule?

The IRS DeFi Broker Rule came from the 2021 Infrastructure Investment and Jobs Act that aimed to classify Decentralized Finance (DeFi) platforms as "brokers," requiring them to collect and report detailed user transaction data (like names, addresses, and trade details) to the IRS.

IRS were trying to apply the same rule they apply to traditional financial institutions such as banks or centralized crypto exchanges (e.g., Coinbase) to DeFi.

In simple terms, this meant:

• DeFi platforms would be treated just like banks or Coinbase

• They'd have to collect your personal info: name, address, and details of every single trade

• Then hand over all that data to the IRS for tax enforcement

• Fail to comply? Face potential penalties and legal trouble

The Problem?

Most DeFi platforms are just computer code running on blockchains!

There's no company or person controlling them who could even collect this info if they wanted to. It's like asking the internet itself to check your ID.

Why This Rule Was Unfeasible?

Mission impossible for Devs - Many DeFi devs would not be able to comply with KYC even if they wanted to. It would be like asking your calculator app to check your ID before solving math problems. DeFi platforms are built without infrastructure to enforece KYC.

Undermined Autonomy: The whole point of DeFi for many users is financial privacy and autonomy. Most DeFi platforms rely on pseudonymous transactions.

Innovation Threat: Experts warned that compliance burderns would just push all the cool crypto projects to move overseas outside of the US.

Government Overreach: Many saw this as old-school regulators trying to force old rules onto completely new technology.

The Repeal Process

Mar 4, 2025 - The Senate voted 70-27 to kill the rule

Mar 11, 2025 - The House followed with 292-132 vote

Apr 10, 2025 - President Trump signed the repeal!

It was a rare moment of Washington that both sides agree this is a terrible idea thing.

Crypto Twitter (X) went wild celebrating what they called a win for "permissionless finance" (in simple terms = "let people use their money without asking permission")

PS You still owe taxes on your crypto gains (sorry!) and lastly this shows that the US signaled a lighter touch on crypto compared to the EU.