How the IRS Plans to Track DeFi Transactions beyond 2025

In a significant shift for the cryptocurrency industry, the Internal Revenue Service (IRS) has been navigating the complexities of decentralized finance (DeFi) taxation. Recent legislative actions have both challenged and shaped the agency's approach to monitoring DeFi transactions.​

Legislative Repeal of the DeFi Broker Rule

In April 2025, President Donald Trump signed a resolution nullifying the IRS's "DeFi Broker Rule," which had aimed to classify decentralized platforms as brokers, thereby subjecting them to stringent tax reporting requirements. The rule, introduced during the Biden administration, faced criticism for being impractical due to the inherently decentralized nature of DeFi platforms, which often lack centralized control and user identification mechanisms. 

The repeal was seen as a victory for the crypto industry, with proponents arguing that the rule would have stifled innovation and overwhelmed the IRS with data it was ill-equipped to handle. 

Ongoing IRS Strategies for DeFi Tax Compliance

With the repeal, participants in DeFi ecosystems are no longer subject to the broker reporting requirements outlined in the now-nullified regulations. However, it's important to note that this repeal does not absolve individual taxpayers from their obligations. Taxpayers engaging in DeFi transactions are still required to track and report their own income, gains, and losses, even though they will not receive information returns or other tax documents from noncustodial digital asset brokers. 

Furthermore, while the IRS is currently prohibited from issuing substantially similar regulations without new congressional authorization, the agency may still explore alternative methods to ensure tax compliance within the DeFi sector. As the regulatory landscape continues to evolve, both the IRS and DeFi participants must navigate the complexities of taxation in the decentralized finance space.

Industry Response and Adaptation

The cryptocurrency industry has largely welcomed the repeal of the IRS's DeFi Broker Rule, viewing it as a significant victory for innovation and decentralization. Major industry groups, including the Blockchain Association, had previously criticized the rule as an overreach that threatened the foundational principles of DeFi. They argued that the rule's requirements were technically unfeasible for decentralized platforms, which often lack centralized control and user identification mechanisms .​

In the wake of the repeal, industry leaders have expressed a desire to collaborate with regulators to develop more practical and effective frameworks for tax compliance in the DeFi space. They advocate for policies that recognize the unique characteristics of decentralized systems and aim to balance regulatory objectives with the need to foster innovation. This includes exploring solutions that leverage blockchain's transparency to enhance tax reporting without imposing undue burdens on DeFi platforms.

While the repeal marks a significant shift in the regulatory landscape, it also underscores the ongoing debate over how to effectively regulate emerging technologies without stifling their growth. The crypto industry continues to engage with policymakers to ensure that future regulations are informed, balanced, and conducive to the continued evolution of decentralized finance.

Looking Ahead

As the IRS refines its strategies to monitor DeFi transactions, the balance between effective tax enforcement and fostering innovation remains delicate. The agency's forthcoming regulations and the industry's adaptations will shape the future of DeFi taxation in the United States.​