Congress Approves $4 Billion Giveaway To Crypto Industry

WASHINGTON ― Congress on Wednesday killed a regulation requiring certain digital asset trading platforms to report customer transactions to the IRS.

The change will save the crypto industry an estimated $4 billion in taxes that will still be owed but won’t be paid.

The regulation, which was finalized in December and wouldn’t take effect until 2027, would have required decentralized crypto platforms like Uniswap to comply with the same tax reporting rules that apply to stockbrokers, banks and, as of this year, centralized crypto exchanges like Coinbase.

One company that could benefit from killing the regulation? President Donald Trump’s own decentralized finance platform, World Liberty Financial.

The crypto industry complained that since decentralized platforms don’t hold assets or information about their customers, the regulation was unwieldy.

“Under the rule, software companies that never take custody or control of users’ assets will be required to radically rebuild their services in order to unnecessarily collect and then report to the government the personal identifying information and transaction details of potentially tens of millions of American users,” dozens of firms said in a February letter to members of Congress.

The industry also said the regulation would stifle innovation and disadvantage American firms, arguments stunningly reminiscent of Wall Street’s push two decades ago to deregulate the exotic financial instruments that helped inflate the housing market bubble and ultimately tank the entire economy.

The Senate killed the crypto regulation Wednesday evening by a vote of 70 to 28, with all Republicans and 18 Democrats in support; the House voted earlier this month. Congress has given itself special power to kill regulations finalized in an outgoing president’s final weeks in office. The IRS was required to write the crypto rule as part of a bipartisan infrastructure law Congress passed in 2021. The IRS will now be forbidden from ever promulgating a similar rule in the future.

Since the U.S. tax system runs on voluntary compliance, if the decentralized trading platforms aren’t reporting people’s transactions to the IRS, then customers can be more confident that the IRS won’t know what it’s missing. The Joint Committee on Taxation, the congressional experts on the budgetary effects of tax policy, said killing the regulation would lose the government $4.5 billion over a decade.

Cruz called the revenue loss estimate silly.

“It was a terrible rule which would have done enormous damage, and I don’t believe there is any cost to not implementing a bad rule that has never been implemented,” Cruz told HuffPost.

Killing the regulation fits broader Republican efforts in favor of deregulating crypto and against increased tax compliance. Undoing former President Joe Biden’s beefed-up IRS enforcement efforts has been a top Republican priority, even though it cuts against their quest to shrink annual budget deficits.

Though several Democrats voted for the Cruz resolution, not all did.

“The bill before us today would repeal sensible and important Treasury regulations ensuring that taxpayers meet their tax-filing obligations and do not skirt the law by selling cryptocurrency without reporting the gains. It’s really that simple,” Rep. Richard Neal (D-Mass.) said last month when the House Ways and Means Committee approved the resolution.

“I think we want to have tighter controls, not looser controls, on an industry that seems to be funneling a lot of dark scary trade in this country,” Sen. Chris Murphy (D-Conn.) told HuffPost on Wednesday.