According to the latest report, the U.S. Department of the Treasury has decided to scrap the most controversial and divisive rule for tax reporting for crypto exchanges and DeFi platforms.
(Source: Solid Intel on X)
Amid the positive developments toward the regulatory framework, the elimination of the tax reporting rule for brokers will provide great relief to crypto innovations.
“Under the joint resolution and by operation of the CRA, this final rule has no legal force or effect,” the Treasury writes in an official statement. “The Department of the Treasury (Treasury Department) and the IRS hereby remove this final rule from the Code of Federal Regulations (CFR) and revert the relevant text of the CFR back to the text that was in effect immediately prior to the effective date of this final rule.”
What Was the Crypto Tax Reporting Rule?
The US Treasury Department introduced TD 10021 under Section 6045 of the Internal Revenue Code, expanding tax reporting requirements to include decentralized finance (DeFi) platforms, crypto brokers, and certain wallet providers.
The rule would have forced these entities to collect and report user transaction data to the IRS, similar to how traditional brokers report stock trades.
The rule sought to classify DeFi platforms, DEXs (like Uniswap), and even some wallet providers as “brokers,” requiring them to file Form 1099-DA (a new crypto-specific tax form).
This rule would also require tracking and reporting customer identities (KYC), transaction details, cost basis, and gross proceeds.
Since its introduction, many crypto leaders have opposed this rule. Many argued that the rule was unworkable for truly decentralized protocols and threatened user anonymity, a core principle of crypto.
The decision from the US Treasury comes after a vote by the U.S. Congress earlier this year to revoke the regulation. On December 27, 2024, the industry groups filed a lawsuit in the U.S. District Court for the Northern District of Texas to challenge the IRS and the Treasury Department over this controversial rule.
“The IRS and Treasury have gone beyond their statutory authority in expanding the definition of ‘broker’ to include providers of DeFi trading front-ends even though they do not effectuate transactions,” Marisa Coppel, Head of Legal, Blockchain Association, said. “Not only is this an infringement on the privacy rights of individuals using decentralized technology, it would push this entire, burgeoning technology offshore.”
Miller Whitehouse-Levine, Chief Executive Officer, DeFi Education Fund, said in the official press release, “Decentralized Finance promises to make financial services and the digital economy more accessible, efficient, interoperable, dependable, and consumer-focused — this promise is at the heart of our work at the DeFi Education Fund.”
Texas Blockchain Council President Lee Bratcher said in his statement, “The rule fails to recognize the decentralized nature of this technology, where many actors simply do not have access to the information the IRS is now demanding. This regulatory overreach risks driving critical development overseas, threatening US competitiveness in the digital economy.”
Recently, US Senator Tim Scott raised concerns about regulatory ambiguity around digital assets, saying that “a lack of regulatory clarity has serious consequences – it leads to innovation and jobs leaving the United States.”
Also Read: Regulatory Ambiguity has Serious Consequences: Sen. Tim Scott
