In keeping with a resolution signed by President Trump in April, the IRS has revoked final regs addressing the application of digital asset broker gross information reporting on decentralized finance – or DeFi – brokers that regularly effectuate front-end services.
Background
In December 2024, the Treasury Department and the IRS finalized regs clarifying types of DeFi brokers subject to gross receipts and basis reporting requirements for digital asset transactions under IRC § 6045. The regs provided that a “digital asset middleman” is responsible for furnishing digital asset transaction information to the IRS and customers via Forms 1099-DA, Digital Asset Proceeds From Broker Transactions.
The December regs followed regs finalized last July applying digital asset broker rules enacted in the Infrastructure Investment and Jobs Act of 2021 after a lengthy rulemaking process underscored by delays and pushback from the crypto industry. The July regs largely discussed centralized exchanges and other common brokers.
Congressional Review Act
This year, Congress used a procedural mechanism under the Congressional Review Act to overturn the December DeFi regs. Generally, when an administration publishes final guidance at the end of the term before a new administration takes office, Congress can vote to nullify these “midnight rules” to prevent them from taking effect.
There is a limited statutory window for how far back Congress can look at final rules, often referred to as the CRA period. The July regs were beyond this look-back window, but the more controversial DeFi rules were not. Republicans – and some Democrats – opposed the ‘broad’ definition of a digital asset middleman and believed that the regs would capture brokers effectuating both indirect and direct digital asset sales.
The House Ways and Means Committee advanced a joint motion for disapproval (H.J. Res 25) that would go on to pass and reach President Trump’s desk.
This legislation, passed under the CRA procedures, formally removed the DeFi regs. As of July 11, the regs are revoked, Treasury announced in the Federal Register. This means the regs have “no legal force or effect” and have been removed from the Code of Federal Regulations.
The relevant text of Section 6045 broker reporting rules will “revert … back to the text that was in effect immediately prior to the effective date of this final rule,” read the announcement. It clarified that the revocation is due to the CRA legislation and not an amendment or repeal under the Administrative Procedure Act.
A ‘Ludicrous’ Idea
According to the Congressional Budget Office, the removal of the DeFi regs will incur a budget revenue hit of $4.5 billion through fiscal year 2035. “The repeal of the rule would lead to a reduction in third-party reporting to the IRS by decentralized participants for cryptocurrency transactions,” the CBO explained. “Because the IRS would no longer have third-party verification of certain transactions, taxable income related to cryptocurrency may be subject to greater misreporting.”
However, Cahill Gordon & Reindel Partner Jason Schwartz, speaking June 27 at a tax conference hosted by the New York University School of Law, said the regs were a “ludicrous proposal” to begin with. After all, said Schwartz, DeFi transactions are autonomous protocols and not peer-to-peer transactions.
Put differently, “websites are not brokers.” But the regs would have nonetheless required “automated systems to provide 1099s to people.” Because the regs were revoked under the CRA, though, Treasury may not repropose the regs, nor any regs “substantially similar” to the DeFi rules.
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