US House Proposes Bill to Protect DeFi

The US House of Representatives has proposed a bill to prohibit the IRS from regulating taxes on decentralized finance (DeFi) platforms. The bill advanced to the House floor by the House Ways and Means Committee with a 26-16 vote, backed by Republicans supporting cryptocurrencies.

> The Ways and Means Committee just passed H.J.Res. 25 – a resolution that repeals an unfair and unworkable cryptocurrency rule that would hamper cryptocurrency holders and the IRS with additional, burdensome paperwork.
> — Ways and Means Committee (@WaysandMeansGOP) February 26, 2025

The resolution targets an IRS regulation from December that classified DeFi projects as brokers. Under this rule, DeFi platforms would have faced the same reporting standards as brokers dealing in equities or debt securities, including the requirement to provide users with Form 1099 tax documents.

The US Treasury Department states that this form may help reduce errors and enhance compliance. House Ways and Means Committee Chair Jason Smith (R-Mo.) argues that the measure unnecessarily burdens DeFi projects while favoring international competitors by imposing high standards solely on U.S. projects.

Major crypto firms and lobbying groups like the Blockchain Association have criticized the rule, urging Congress to rescind it. Opponents claim it stifles innovation and places undue pressure on DeFi platforms. Rep. Mike Carey emphasized that it would overburden taxpayers and the IRS, while Smith accused the federal government of overreaching existing tax laws.

In contrast, Democratic lawmakers defend the rule as vital for tax compliance. Rep. Richard Neal argued it is against tax avoidance, asserting that everyone must pay their dues. Repealing the rule could lead to a revenue loss of $3.9 billion over the next decade in the US.

Broader Crypto Industry Response

The resolution aligns with Senate initiatives, where Sen. Ted Cruz (R-TX) introduced a similar measure in January, expressing concern that the IRS rule could hamper blockchain technology’s progress in the US.

However, the resolution won’t take effect without approval from both chambers of Congress and the president, as per the Congressional Review Act. If passed, it would repeal the IRS rule, exempting DeFi projects from tax reporting.

Additionally, the IRS clarified that staking rewards for cryptocurrencies are taxable upon receipt.