A controversial tax rule proposed by the U.S. Internal Revenue Service, requiring decentralized finance brokers to report crypto transactions, could be overturned as lawmakers have pushed to repeal it.

On Feb. 26, U.S. House Representatives advanced a resolution to scrap the rule, with the House Ways and Means Committee voting 26-16 in favor of the repeal. The resolution now moves to the full House for a vote.

If it passes, the Senate will then decide its fate. A successful Senate vote would send the measure to President Donald Trump, who can either sign it into law or veto it. However, if it is not overturned, the rule will take effect on January 1, 2027.

The “DeFi broker rule,” proposed by the IRS in August 2023 and officially finalized in January 2024, would require certain DeFi operators—including front-end service providers for decentralized exchanges—to collect and report user transaction data, including gross proceeds from crypto sales.

According to the IRS, it would “level the taxpayer playing field” by applying the same standards as traditional finance institutions.

However, industry leaders see it differently. Critics like Ways and Means Committee Chairman Jason Smith argue the rule is unworkable for DeFi, where platforms often operate without centralized control and do not collect user data by design.

Commenting on the development, Miller Whitehouse-Levine, CEO of the DeFi Education Fund, welcomed the decision to repeal the rule, arguing that the rule represents an “unlawful and unconstitutional overreach” that undermines the financial privacy of Americans and stifles innovation in decentralized finance.

DeFi advocates have previously raised concerns about privacy implications. Some fear platforms like Uniswap could be required to collect user identities, contradicting the fundamental ethos of decentralized finance. 

Others, like Consensys attorney Bill Hughes, see it as a last-minute attempt by the previous administration to clamp down on crypto before leaving office.

A day after the IRS finalized the rule on December 27, Kristin Smith, CEO of the Blockchain Association, called it “unconstitutional” and warned that it could push crypto innovation offshore. 

Texas Blockchain Council President Lee Bratcher echoed this concern, saying compliance is “practically impossible” for many in the decentralized space.

The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council have already sued the IRS, claiming the rule would force DeFi developers to comply with regulations they simply can’t implement.

Despite the controversy, the IRS remains firm. In a joint statement with the Treasury, the agency dismissed arguments that DeFi should be exempt, saying, “Persons with technology expertise that operate trades or businesses relating to financial services should comply with the same rules as any other person operating financial services businesses.”