In a move that has sent waves through the cryptocurrency community, President Donald Trump signed into law a bill that effectively nullifies an expanded rule from the Internal Revenue Service (IRS) that had included decentralized exchanges in the definition of a crypto broker. The bill’s signing took place on Thursday, marking a significant victory for the crypto sector.
The IRS’s revised rule, which was finalized during the final weeks of the Biden administration in December 2024, aimed to extend its crypto tax reporting guidelines. The changes clarified that decentralized finance (DeFi) exchanges would now be subject to the same regulations as centralized platforms like Coinbase and Kraken. However, this revision faced widespread backlash from the cryptocurrency industry, especially from DeFi platforms that argued the rule was unworkable for their decentralized model.
Background on the IRS Rule
The revised rule stemmed from a broader initiative to tighten regulations on cryptocurrency tax reporting, following the bipartisan $1 trillion Infrastructure Investment and Jobs Act of 2021. This framework required digital asset brokers to issue tax forms to both the IRS and crypto holders, aimed at ensuring that cryptocurrency users fulfill their tax obligations. Centralized exchanges, which act as intermediaries between buyers and sellers, were able to comply with these rules. However, decentralized exchanges, which eliminate intermediaries and allow users to trade directly on blockchain networks, presented challenges for enforcement.
The Industry’s Response
The crypto industry had been vocal in opposing the rule, particularly due to the nature of DeFi exchanges, which lack visibility into the identities of their users. Without this visibility, it was nearly impossible for DeFi platforms to comply with IRS tax reporting requirements. Both the House of Representatives and the Senate acted swiftly to nullify the revised rule in March, using the Congressional Review Act, which allows Congress to overturn new federal regulations with a simple majority vote.
Trump’s Stance on Cryptocurrency
President Trump, who had previously expressed his support for cryptocurrency during his campaign, emphasized his stance as a “crypto president” with promises to foster the adoption of digital assets. In line with these pledges, Trump ordered the creation of a cryptocurrency working group in the early days of his presidency, tasked with developing new regulations for digital assets. Furthermore, in March of 2024, he signed an executive order to establish a federal stockpile of Bitcoin, further solidifying his commitment to the crypto sector.
Conclusion
The new bill signed by President Trump represents a significant step in aligning the U.S. regulatory framework with the realities of decentralized finance. While the IRS’s original rule aimed to crack down on crypto tax evasion, the industry’s concerns about the practicalities of enforcing such regulations on DeFi platforms were evident. With Trump’s action, the crypto community sees a more favorable regulatory environment ahead, one that supports innovation while addressing potential tax compliance issues.
For more on cryptocurrency regulations and the future of DeFi exchanges, check out this article from Crypto News.
- Learn more about DeFi and its growing role in the crypto industry.
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