A majority of lawmakers in the U.S. House of Representatives voted to overturn an IRS rule treating crypto entities as brokers and requiring them to collect certain taxpayer and transaction information, including decentralized finance (DeFi) platforms.

With a 292-132 vote, a bipartisan majority in the House joined the U.S. Senate in advancing the Congressional Review Act resolution overturning the rule finalized in the closing days of former President Joe Biden’s administration.

Missouri Republican Jason Smith, urging his fellow lawmakers to vote for the resolution earlier in the day, said the IRS rule risked harming U.S. businesses and disincentivized innovation.

“There are real questions that the rule can ever even be administered,” he said. “DeFi exchanges are not the same as centralized crypto exchanges or traditional banks or brokers. DeFi platforms do not and cannot even collect the information from users needed to implement this rule.”

Last week, 70 Senators voted to overturn the rule, and President Donald Trump’s senior advisers have already recommended he sign the provision. However, the Senate will need to approve the resolution again due to budget rules, Rep. Jason Smith (R-Mo.) noted. If it approves the resolution and Trump signs it, the IRS will be barred from ever bringing a similar rule again.

Illinois Democrat Danny Davis pushed back against the resolution, noting that it stemmed from the 2021 bipartisan Infrastructure Investment and Jobs Act, and comparing crypto to stocks.

“When you sell stock with a stock broker, the broker reports the proceeds of the sale to both you and the Internal Revenue Service,” he said. “Probably to no one’s surprise, when there is independent reporting on these sales, taxpayers are more likely to report their income to the Internal Revenue Service.”

North Carolina Republican Tim Moore said the rule “goes far beyond” Congress’s intention with the 2021 law.

“This rule has placed impossible burdens on software developers threatening American leadership in digital asset innovation,” he said.

Texas Democrat Lloyd Doggett called the resolution “special interest legislation,” adding that it could be “exploited by wealthy tax cheats, drug traffickers and terrorist financiers,” and add $4 billion to the national debt, conflicting with U.S. President Donald Trump’s stated goal of cutting the debt.

Tuesday’s vote was preceded by the House vote on a continuing resolution to fund the U.S. government through Sept. 30, 2025, which passed with 217 votes in favor to 213 votes against. That funding resolution now heads to the Senate.

Between the holidays and New Years, the IRS used the last passing days of the Biden administration to finalize its long feared Broker Rule: a regulation requiring all cryptocurrency exchanges – custodial and non-custodial, fiat to crypto and crypto to crypto – to effectively subject their users to Know-Your-Customer (KYC) measures.

The rule establishes that custody over funds is not necessary to be deemed a broker by the IRS, obliging “DeFi front-end services” to report trading activity via the 1099 tax form to the agency. This includes any developer of “screens, buttons, forms, and other visual elements incorporated in websites, mobile device apps, and browser extensions—that users can use to trade digital assets in their unhosted wallets”. 

With its broker rule, the IRS deems said developers to have a certain amount of “control” over the offered services, despite never taking custody of coins and the lack of ability to influence the underlying protocols – the rule is in line with digital asset guidance from the Financial Action Task Force (FATF), which deems developers of user interfaces to qualify as Virtual Asset Service Providers subject to anti-money laundering and countering the financing of terrorism obligations. 

Similar to FATF, the broker rule defines control as “the ability to amend, update, or otherwise substantively affect the terms under which the services are provided,” as well as “the ability to collect the fees charged for those services from the transaction flow […] whether or not the person actually collects fees in this manner,” and/or if that person has the ability “to add to the order a sequence of instructions to query the cryptographically secured distributed ledger to determine if the processed order is, in fact, executed or to use another method of confirmation based on information known to that person as a result of providing the trading front-end services.”

In light of such enormous overreach – control over funds has been widely understood as a prerequisite to be regulated as a financial service according to FinCEN guidance – the industry moved quickly. A day after publication of the rule, the Blockchain Association filed a lawsuit against the IRS and the Treasury Department, asking federal judges to strike the rule down before it takes effect, alleging that the rule is unconstitutional and contrary to existing federal laws. 

In addition to the suit, Senator Ted Cruz introduced a joint resolution to disapprove of the IRS’ rule by Congressional power, co-sponsored by Senator Cynthia Lummis, Senator Bill Hagerty, Senator Mike Lee, and Senator Tim Scott, among others.

 “This regulation undermines the purpose of DeFi technology: to enable individuals to freely buy, sell, and exchange digital assets,” Cruz said in a press release regarding the resolution. Representative Corey, who introduced the resolution together with Cruz, called the rule a “clear overreach”. 

The resolution was voted on yesterday in the Senate, with overwhelming support of 70 to 27 in favor, and will now move for a vote in the House.

The broker rule is another effort of the Biden administration to extend control over non-custodial services. In both the criminal prosecution of Samourai Developers, as well as the criminal prosecution of Tornado Cash developers, the US Department of Justice is alleging that control over funds is not necessary to be held liable as a money service business under US law, arguing that the development of user interfaces and other features demonstrate enough control over a service to be subjected to sanctions, anti-money laundering and countering the financing of terrorism regulations.

While the possible overturning of the broker rule would no doubt be a success, the sentencing of Samourai and Tornado Cash developers would yield similar results regarding reporting requirements for non-custodial service providers.

To clarify that non-custodial service providers are exempt from being classified as money service businesses, the Blockchain Regulatory Certainty Act by Representative Tom Emmer has been introduced to Congress, offering widespread protections for developers.

This is a guest post by L0la L33tz. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Three prominent blockchain advocacy organizations filed a lawsuit challenging the Internal Revenue Service’s new broker reporting requirements.

The organizations argue that the rules could severely impact the U.S. digital asset sector, particularly decentralized finance (DeFi).

The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council jointly filed the legal challenge in the U.S. District Court for the Northern District of Texas.

They contended that the IRS and Treasury Department’s final “broker” rulemaking exceeds their authority.

The lawsuit specifically targets the rule’s expansion of the “broker” definition to include providers of DeFi trading front-end services, despite these entities not directly facilitating transactions.

The Blockchain Association CEO Kristin Smith called the broker rule “unconstitutional,” alleging that the IRS is violating the Administrative Procedure Act.

According to the Blockchain Association’s Head of Legal, Marisa Coppel, this overreach “would push this entire, burgeoning technology offshore” while infringing on the privacy rights of individuals using decentralized technology.

DeFi Education Fund CEO Miller Whitehouse-Levine expressed strong disappointment in the timing and scope of the regulation. Miller called it “midnight rulemaking” that threatens financial innovation.

The organization emphasized DeFi’s potential to make financial services more accessible, efficient, and consumer-focused.

Texas Blockchain Council President Lee Bratcher highlighted the practical impossibility of compliance. He stated that many actors in the decentralized ecosystem simply cannot access the information now required by the IRS.

“This regulatory overreach risks driving critical development overseas, threatening US competitiveness in the digital economy,” Bratcher stated.

The legal challenge comes after numerous stakeholders warned during the public comment period about the potential negative impacts on the digital asset industry. Crypto.news had earlier reported that DeFi proponents had promised aggressive action against the IRS policies.