Key Insights:
The IRS could be on Trump's target after the Senate overturned a key rule hindering DeFi market growth.
The IRS had several controversial anti-crypto rule, like the DeFi Broken Rule.
Defunding the IRS has also been a key demand from the crypto markets, which allege specific targeting of crypto users.
The IRS has been mandated to implement tax laws in the USA but has been alleged to act with malice when dealing with crypto users.
The US Senate has effectively neutralized and overturned the controversial DeFi broker rule that forced decentralized exchanges, swap protocols and even crypto wallets to collect KYC data in a rather anonymous and decentralized world.
There were 70 votes in favor of scrapping the rule while 28 voted to support the IRS rule. A resolution was earlier passed by the US House of Representatives (292 in favor vs. 132 opposing) on 11 March 2025 to scrap the rule. Following this, it landed on the Senate's desk.
After a successful overturn by the Senate, the bill will now be moved to receive the President's assent, following which the IRS will be forced to mend its ways of collecting data.
The DeFi broker rule was highly controversial because it was trying to classify DeFi organizations into a centralized sector and collect data, which was indeed opposite to centralization.
IRS brought a DeFi Broker Rule last year, citing that any organization that facilitated the transaction of digital assets between two individuals would be considered a broker and was legally liable to submit all the user data to the IRS.
Though this rule could have been applied to centralized exchanges, it was impossible to successfully implement it on Decentralized Exchanges, Crypto Wallets, P2P portals, Swap Protocols, and Liquidity Pools because none of them kept any record of users, nor did they collect any KYC. However, by the controversial rule, all of them were legally categorized as brokers.
In response to this, the US Blockchain Association commented that this rule will indeed kill all DeFi projects based in the country.
Trump had openly stated his dislike for the IRS, which has several times gone out of its mandate to implement an iron-grip tax regime, which in its letter and spirit was supposed to be "voluntary."
Below is a statement from Trump's Commerce Secretary where he clearly states that it was in Trump's agenda to end the Internal Revenue Service (IRS) and
Donald Trump's dislike for the IRS stems from his thought that it harasses hardworking individual taxpayers while entities like NGOs escape it. He has also mentioned how the IRS scrutinized right-leaning political and apolitical groups in the USA while no such mass action was taken for left-leaning ones.
The crypto markets have been overwhelmingly in favor of defunding the IRS, and this demand has been voiced time and again because of the agency's selective controversial rules against crypto.
Market participants have gone ahead to call the IRS a corrupt organization. Several have also raised allegations that it helped fund protests in the USA from the money sanctioned by the US Government as USAID.
Another conclusive evidence that the markets (both crypto and stock) are in favor of defunding the IRS is a poll conducted by Elon Musk. The result of the poll showed the average market participant is much more likely to support the end of the IRS, with 90.5% voting in favor of either decreasing or defunding the IRS budget.
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