Cynthia Lummis, U.S. Senator from Wyoming, expressed concerns over the Internal Revenue Service's (IRS) new rule on decentralized finance (DeFi), stating that it fundamentally misunderstands how decentralized technology operates. She emphasized that regulatory clarity, rather than overreach, is essential for fostering innovation. Lummis made these remarks in a March 4 post on X.
"The IRS rule on DeFi fundamentally misunderstands how decentralized technology works," said Lummis. "Wyoming has been at the forefront of responsible digital asset regulation, and I've seen firsthand how regulatory clarity—not overreach—fosters innovation. We must pass this resolution to avoid this nightmare for American taxpayers and for the IRS, while ensuring that the United States is in fact in a position to lead the world in innovation with digital assets and in the crypto sector."
The IRS's rule expands the definition of "broker" to include DeFi platforms, requiring them to report user transactions to the agency. Critics argue that this imposes burdensome reporting requirements on DeFi platforms, which may not have access to necessary user information due to their decentralized nature. According to the Wall Street Journal, industry leaders believe this could hinder innovation and drive cryptocurrency activities overseas.
The IRS rule originates from the 2021 bipartisan infrastructure law aimed at boosting tax compliance and projected to raise $28 billion over a decade. The rule mandates entities classified as brokers to report detailed information on digital asset transactions to the IRS. The Wall Street Journal reports that implementation has been delayed, with the final DeFi rule set for 2027, and it currently faces legal challenges from the crypto industry.
In response, Senator Ted Cruz and other lawmakers introduced a joint resolution under the Congressional Review Act to overturn the regulation. This legislative effort seeks to prevent the rule from taking effect due to concerns about its potential negative impact on the cryptocurrency industry. A press release from Cruz's office states that the resolution aims to protect American innovation in the digital asset sector.
Senator Lummis has been an advocate for cryptocurrency and blockchain technology in the U.S. Senate. Representing Wyoming, known for its progressive stance on digital asset regulation, she has actively promoted legislation integrating cryptocurrencies into the financial system. According to CoinSpeaker, Lummis co-introduced the Responsible Financial Innovation Act, aiming to create a comprehensive regulatory framework for digital assets.
