A joint resolution for disapproval of a Biden-era final rule on digital asset broker gross proceeds reporting requirements advanced out of the House Ways and Means Committee February 26 by a 26-16 vote.
Middleman regs and the CRA.
Introduced by Mike Carey (R-OH) in December, H.J.Res. 25 seeks to overturn TD 10021, final regs issued by the IRS during the last month of the Biden administration. The regs apply certain digital asset transaction reporting rules under Code Sec. 6045 — as amended by the Infrastructure Investment and Jobs Act (P.L. 117-58) — to digital asset brokers in the decentralized (or “DeFi”) segment of the ever-evolving industry.
These so-called digital asset middlemen include DeFi brokers who provide front-end services, described by the IRS to generally mean services with direct customer interactions. The regs do not apply broker rules and Form 1099-DA, Digital Asset Proceeds From Broker Transactions, obligations to operators of autonomous protocols. The regs are currently in effect for transactions starting January 1, 2025.
But because the regs were finalized in December 2024, they are considered a ‘midnight rule’ for the purposes of the Congressional Review Act (CRA). The CRA features legislative mechanisms that allow Congress, especially after a presidential transition where the incoming president belongs to a different political party than their predecessor, to undo agency rulemaking done in the waning months of the prior administration.
This ‘lookback’ provision is intended to discourage outgoing administrations from implementing a suite of new regulations on their way out. Congressional Republicans are eyeing the approximately 1,400 Biden midnight rules in-scope of the CRA that were finalized since last August.
Earlier this month, the House passed legislation, the Midnight Rules Relief Act (H.R. 77), that would allow Congress to consider multiple midnight rules in a single joint resolution for disapproval. See House Narrowly Passes Midnight Rules Relief Act (02/13/2025).
For more on the CRA and a list of tax regs that could be on the chopping block, see here.
Note: Related final regs implementing the bulk of IIJA digital asset provisions issued over the summer are out of the review period. The rules at issue in this resolution mainly serve to identify which DeFi entities will be treated as brokers.
Ways and Means markup.
In his opening remarks at Wednesday’s markup, Ways and Means Chair Jason Smith (R-MO) said the rule adversely impacts “roughly 1 in 4 Americans who own cryptocurrency” while benefiting “foreign digital asset companies who are exempt from the burdensome requirements.”
Smith cited comments from former IRS Commissioner Chuck Rettig, who “publicly stated that this regulation would create a blizzard of paperwork that the IRS can neither handle nor administer in an efficient and effective way.” Later in the meeting when the committee began its consideration of the resolution, Smith added that “millions of taxpayers” will now need to file Forms 1099-DA under the rule.
Carey, thankful for the chairman’s support for his resolution, said it is “inappropriate to impose consumer and technology-related regulatory policy through Tax Code, especially in the absence of explicit delegation of the legislative authority. Self custodial wallet providers do not have the customer-level transaction data the IRS seeks.”
According to Carey, the IRS’ implementation of the IIJA digital asset provisions will result in the agency overloading itself with “8 billion” new Forms 1099-DA, more than “double” the amount of other information returns.
The Joint Committee on Taxation (JCT) estimated that repealing the final reg would reduce federal revenues by $3.9 billion through 2034, a point raised by Ranking Member Richard Neal (D-MA). “Make no mistake about it, the bill is unpaid for,” said Neal, “a pattern we are seeing from our colleagues across the aisle, notwithstanding their fidelity to so-called fiscal responsibility.” Neal accused Republicans of “weakening the tools that the IRS has to enforce tax laws.”
Representative Lloyd Doggett (D-TX) asked JCT Chief of Staff Tom Barthold if the $3.9 billion “will be lost not because taxes have been cut anywhere, but because people will evade and avoid their taxes through the bill.”
Barthold answered the direct loss would stem from a “reduction in payment of reported tax liabilities,” to which Doggett replied is “just another way of saying that people that owe taxes don’t report them.” Barthold added that “gross proceeds reporting and basis reporting also aids taxpayers in… proper computation, but the factor that you mentioned is is an important factor.”
Representative David Schweikert (R-AZ) asked Barthold how the JCT arrived at that revenue estimate. He looked for clarification as to how the JCT modeled collections from “these sorts of exchanges,” referring to DeFi platforms.
Barthold acknowledged that it is “hard to do precise modeling,” but his team “tracked both private and publicly reported information on the scale of trades in digital assets.” Additionally, the JCT analyzed “gain realizations reported on sales of digital assets for tax years, 2019, 2020, 2021, and 2022.”
Representative Brad Schneider (D-IL) warned that overturning the reg “would push more people to conduct crypto trading using decentralized platforms, which operate without that traditional oversight, and… attract nefarious actors to fund illicit activities.”
Although the resolution passed along party lines, Republicans at the markup referred to H.J.Res. 25 as a bipartisan bill, as there is a Democrat cosponsor as of February 24: Representative Shri Thanedar (D-MI).
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