Senate Approves Repeal of IRS Crypto Tax Rule as Trump Prepares to Sign Historic Legislation

The U.S. Senate voted late Wednesday to repeal a contentious tax rule imposed by the Internal Revenue Service, marking a pivotal moment for decentralized finance regulation. The decision, passed with a decisive 70-28 vote, now heads to President Donald Trump’s desk, where it is widely anticipated to be signed into law.

White House Crypto A.I. and Crypto Czar David Sacks confirmed that Trump’s senior advisors are urging him to approve the measure, signaling strong executive support. The rule, finalized in the waning days of the Biden administration, had sparked widespread debate over its implications for privacy and innovation in the rapidly evolving crypto sector.

Introduced by Sen. Ted Cruz of Texas and Rep. Mike Carey of Ohio, the joint resolution targeted an IRS regulation that took effect in late December. This rule compelled certain participants in the DeFi industry to adopt practices akin to those of traditional securities brokers. Specifically, it required these entities to gather and report detailed user trading data and issue Form 1099 tax returns to customers for non-employment income, such as gambling winnings or royalties.

The U.S. Treasury Department clarified that the regulation primarily applied to front-end service providers interacting directly with customers, such as exchanges serving as gateways to decentralized protocols, rather than the protocols themselves. Critics, including the Trump administration, decried it as a last-minute overreach, with a March 4 White House statement highlighting potential privacy risks.

Bipartisan Support Signals Shift in Crypto Policy

The path to repeal has been notably collaborative, with the Senate initially voting earlier this month to overturn the rule, followed by House approval. Tied to a budget provision, the measure required a final Senate vote before reaching the president.

While predominantly backed by Republicans, the effort has also garnered some Democratic support, including from Senate Minority Leader Chuck Schumer, reflecting a rare bipartisan consensus on cryptocurrency policy. Ron Hammond, senior director of government relations at the Blockchain Association, emphasized the historic nature of the legislation noting that it would become the first crypto-specific bill signed by Trump once enacted.

The rule’s finalization late last year ignited immediate backlash from industry leaders, culminating in a lawsuit filed by the DeFi Education Fund and other advocacy groups against the IRS. They argued that the stringent requirements threatened to stifle innovation and drive the growing DeFi sector overseas.

Despite the widespread support, some Democrats have voiced opposition, accusing Republicans of undermining the IRS’s authority. Rep. Richard Neal of Massachusetts, speaking at a February hearing, criticized the GOP for what he sees as a pattern of weakening the agency through underfunding and now regulatory rollbacks. This dissent highlights ongoing tensions over how best to balance oversight with innovation in the crypto space.