On January 21, 2025, Senator Ted Cruz (R-TX), writing for himself and Senators Cynthia Lummis (R-WY), Bill Hagerty (R-TN), Thomas Tillis (R-NC), Tim Sheehy (R-MT), and Ted Budd (R-NC), introduced a joint resolution to the Senate Finance Committee to challenge broker reporting regulations for non-custodial brokers.
The final regulations at issue were finalized by the U.S. Department of the Treasury and the IRS via T.D. 10021, which was published on December 27, 2024. An identical resolution was introduced in the House of Representatives by Rep. Mike Carey (R-OH).
The final regulations require “front-end” DeFi service providers, as well as others providing “effectuating services” to file form 1099-DA to report their users’ sales of digital assets. These rules, which are slated to go into effect on January 1, 2027, would likely require a major overhaul of many service providers’ platforms.
Cruz’s challenge is under the Congressional Review Act (5 U.S.C. Chapter 8), a rule allowing Congress to challenge regulatory guidance issued by agencies such as the IRS. If the joint resolution is passed by Congress and signed by the president, the rules relating to DeFi reporting obligations will have no effect.
The joint resolution is the latest in the ongoing debate as to whether the broker reporting regulations with respect to DeFi are aligned with Congressional intent in modifying Section 6045 of the Tax Code, which states that the definition of broker includes “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” The joint resolution argues that it is not.
The implementation of the broker reporting regime on DeFi drew significant attention from the blockchain industry, too. Hundreds of thousands of comments, including comment authored by Fenwick attorneys, were submitted in response to the proposed version of the regulations, with many pointing to the legitimate issues with implementing a broker reporting regime for DeFi platforms.
Treasury—well aware of potential challenges to the regulations, including under Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024)—spent much of the preamble to T.D. 10021 arguing that it had the statutory authority to issue broker regulations with respect to DeFi. And indeed, a complaint challenging the validity of the final DeFi regulations was filed mere hours after they were promulgated. See Complaint for Declaratory and Injunctive Relief, Blockchain Association v. Internal Revenue Service, No. 3:24-cv-03259-X (N.D. Tex. Dec. 27, 2024).
If passed, the joint resolution would obviate any challenge to the DeFi regulations. And even if Congress does not act under the CRA, significant uncertainty looms over the ultimate fate of the DeFi broker reporting regime.
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