In Bipartisan Maneuver, House Votes To Repeal Biden-Era Cryptocurrency Rule
The House of Representatives has voted to repeal a Biden-era rule focused on decentralized finance—or DeFi.
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The House of Representatives has voted to repeal a Biden-era rule focused on decentralized finance—or DeFi.
The bill reverses the “DeFi Broker Rule” published by Treasury in December 2024. The rule created reporting requirements for trading front-end service providers that work directly with users on digital asset transactions.
DeFi refers to peer-to-peer financial services on the blockchain. In simple terms, it’s crypto and digital currency without banks, financial service companies, or other middlemen. DeFi brokers are a little more challenging to define, as stakeholders pointed out after the final regulations were made public.
This was a new rule, but not a new tax—owners of digital assets have always been subject to tax on the sale or exchange of digital assets. However, under the Infrastructure Investment and Jobs Act (IIJA), reporting requirements similar to those that already apply to traditional financial services are now in place to help taxpayers file accurate returns and pay taxes.
Form 1099-DA
Included in the final regulations were reporting requirements focused on a new Form 1099-DA, Digital Asset Proceeds From Broker Transaction (last year, the IRS released a draft of Form 1099-DA). The new form and rules would have subjected DeFi brokers to the same reporting rules as brokers for securities and operators of custodial digital asset trading platforms. The issuance of Form 1099-DA does not change a transaction’s taxability—it is simply a reporting mechanism.
The drivers of the new form and related rules are compliance. When income information is reported from third parties—think about your Form W-2 or Form 1099—tax compliance exceeds 90%. However, when there is no third-party income information—self-reporting—tax compliance is just 55%. Requiring third-party reporting for digital asset transactions should boost compliance.
There’s a secondary benefit of Form 1099-DA: basis reporting. For some taxpayers, buying and selling transactions on different platforms and in multiple digital wallets may make calculating taxable gains difficult.
Taxable Transactions
Here’s why basis matters. The IRS considers cryptocurrency a capital asset. In 2014, the agency issued guidance making it clear that capital gains rules apply to any gains or losses.
- If you buy and sell cryptocurrency as an investment, you’ll calculate gains and losses the same way you buy and sell stock.
- If you treat cryptocurrency like cash—spending it directly for goods or services or using it to buy other digital assets—the individual transactions may result in a gain or a loss.
For tax purposes, you figure your capital gains or losses by determining how much your basis—typically, the cost you pay for assets—has gone up or down from when you acquired the asset until there’s a taxable event. A taxable event can include a sale, gift, or other disposition.
You can see the issue—if you can’t figure out your basis, properly calculating your tax is impossible.
Holding an asset for more than one year before a taxable event is considered a long-term gain or loss. And if you hold an asset for one year or less before a taxable event, it’s considered a short-term gain or loss.
And while cryptocurrency goes up and down, you care the most about the beginning and the end—what happens in the middle doesn’t count. That’s because when cryptocurrency dives for tax purposes, that doesn’t equal a realized loss. Similarly, when it goes back up in value, that doesn’t equal a realized gain. To realize a gain or a loss for tax purposes, you must do something with the asset, like sell or otherwise dispose of it.
At tax time, you’ll report any realized gains and losses on Schedule D. You don’t need to file a Schedule D if you don’t have any realized gains or losses—even if the value changes, if there’s no sale or disposition, there’s nothing to report.
Information, of course, is the key to reporting.
Scope Of The Regs
While the industry has been generally supportive of moves to make life easier for owners of digital assets, it has been wary of how the implementation might impact other players. That’s particularly true as it relates to those reporting requirements. When the requirements were first made public last year, Jessalyn Dean, vice president of tax information reporting at Ledgible, a digital asset tax information & accounting platform, noted at the time that the definition “pulls into scope people that operate software that aren’t financial professionals that deliver financial services.” For example, it might pull in software that doesn’t offer financial services.
Another problem? DeFi Brokers are decentralized (it’s right there in the name) and, as such, do not collect the information from users that would be needed to comply with the rule. Forcing those third parties to collect personal information to issue reporting forms, warns Dean, “could kill business and innovation.”
Predictably, there was pushback. Lawsuits and grumbling followed, with concerns—echoing Dean’s earlier worries—that it could slow down related advances in tech and investments.
Where Things Stand
The House voted 292-132 to overturn the rule. You can see how your Representative voted here.
The Senate had previously voted to overturn the rule—but will have to vote again (Congressional votes) on this version. The House has sent the bill back to the Senate, where it’s expected to pass and move to President Trump’s desk. If that happens, the President is expected to sign it.