IRS Crypto Rule Collapses—But Treasury Still Has Digital Assets in Its Crosshairs

The hammer drops—then bounces. A controversial IRS crypto tax rule just got scrapped, but regulators aren't backing down from their surveillance crusade.

Here's what's really happening behind the policy whiplash.

Dead Rule Walking

That proposed IRS crypto-tracking mandate? Officially DOA after industry pushback. Treasury blinked—but kept one eye firmly on the blockchain.

Shadow Surveillance State

Insiders whisper Treasury's already testing new tracking tech. "They'll regulate through backdoors if front doors get blocked," says a DC crypto lobbyist who requested anonymity—probably wisely.

Meanwhile, Wall Street banks get yet another pass on reporting $2.3 trillion in offshore derivatives. But sure, your Bitcoin wallet is the real threat to financial transparency.

Congress shuts it down, Trump signs it off

The rejection didn’t come out of nowhere. The expanded broker rule faced backlash from the minute it was announced. Developers, privacy advocates, and policy groups pushed back hard. Their argument? DeFi platforms can’t comply with rules written for custodians. Most DeFi tools don’t have sign-ins, don’t store names, and don’t control wallets. There’s nothing to report.

Miller Whitehouse-Levine, CEO of the DeFi Education Fund, said, “You can’t report data you don’t have.” His group wasn’t alone. Industry organizations warned that if the rule passed, it WOULD crush open-source development in the U.S. and push teams offshore. Even wallet providers, who don’t touch funds, were getting swept into the rule’s broad language.

By early 2025, opposition made it to Congress. Lawmakers used the Congressional Review Act to repeal the regulation entirely. It passed the Senate 70–28, then cleared the House. Trump signed the bill into law on April 11, officially cutting the IRS’s plan off before it could take effect.

The law was clear: Congress didn’t want DeFi treated like brokerage firms. The Treasury’s withdrawal this week confirms it got the message. In its filing, the department acknowledged that broker reporting should only apply to custodial exchanges and intermediaries. That means platforms like Coinbase or Binance US are still covered. But the rule no longer touches decentralized protocols or front-end developers.

IRS rule dies, but crypto still on Treasury’s radar

The now-scrapped rule had introduced a new form—1099-DA—for crypto brokers to file with the IRS. It required detailed transaction data: amounts, wallet addresses, and identities. The IRS designed it to mirror the way stock brokerages report trades. But applying that to DeFi was a mess.

The language in the rule was so wide that even tools with no control over user funds, like token aggregators and some wallet interfaces, would have had to comply. Critics called it unworkable. Many also said it violated basic privacy rights.

Still, the Treasury isn’t stepping away from crypto altogether. Under Scott Bessent, the department has been active elsewhere. Throughout 2023 and 2024, it’s issued sanctions against players in Iran’s shadow banking networks and flagged North Korean-linked hackers suspected of laundering stolen crypto. That tells you they’re still watching illicit finance closely, even as they ease up on domestic crypto developers.

On the global front, the Treasury is locked into bigger financial policy debates. It’s part of ongoing G7 discussions on setting a global minimum tax and is also working through tariff negotiations that tie into international digital trade. These talks reflect broader U.S. efforts to stay aligned with allies on tax and finance, even while scaling back harsh local rules.

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