The U.S. House Ways and Means Committee has taken a major step toward overturning a controversial IRS rule that mandates custodial brokers collect and report user data.
The 26-16 vote on Wednesday advances the resolution to the full House of Representatives, setting the stage for a heated debate over government oversight in the digital asset space.
At the heart of the controversy is the IRS’s new broker reporting requirement, finalized late last year. The rule extends traditional financial reporting obligations to decentralized finance service providers, requiring them to collect personal information and report user transactions on Form 1099-DA. Critics argue this is incompatible with DeFi, where many platforms operate without centralized control.
Industry Backlash Following IRS’ Rule
Opponents of the rule—including Rep. Mike Carey (R-Ohio), who introduced the resolution—warn that the requirements could push crypto innovation offshore and place an unrealistic burden on both companies and users. Carey, along with Sen. Ted Cruz (R-Texas), has been leading the charge to reverse what they call government overreach.
While Republicans largely support overturning the rule, Democrats argue that repealing it would undermine efforts to regulate the crypto industry and prevent tax evasion.
The Biden administration had framed the rule as a necessary tool for ensuring tax compliance in the growing digital asset space. Treasury officials argue that billions in tax revenue are lost each year due to unreported crypto transactions, justifying stricter enforcement.
The pushback comes as the Trump administration continues its efforts to create a more favorable environment for digital currencies in the U.S., and while major crypto entities increase their influence within the government.
How the Industry Reacted
The crypto industry hasn’t waited for Congress to act. The Blockchain Association, the DeFi Education Fund, and the Texas Blockchain Council have already filed lawsuits against the IRS, arguing that the rule exceeds the agency’s authority and would be impossible for noncustodial platforms to implement.
Their primary concern is that DeFi platforms don’t function like traditional financial institutions. There’s no centralized entity handling transactions, meaning compliance with the rule would require fundamental changes to how these protocols operate—or, more likely, force them to block U.S. users entirely.
The Treasury Department attempted to address some concerns by clarifying that the rule applies primarily to “front-end service providers”—companies that facilitate DeFi interactions rather than the protocols themselves. However, many in the industry remain unconvinced.
