The U.S. Senate will debate and later vote on whether to overturn a controversial tax rule that requires "custodial brokers" to collect and report user data to the Internal Revenue Service — and is set to get President Donald Trump's sign-off.

Sen. Ted Cruz, R-Texas, introduced the resolution earlier this year to overturn that rule, calling it "an effort to target decentralized finance." The vote is set to happen later on Tuesday.

"It would dramatically infringe on both the privacy and security of Americans while disincentivizing innovation and potentially crippling decentralized finance and cryptocurrency development in the United States," Cruz said in January.

The Trump administration's senior advisors plan to recommend that the president sign the Senate resolution into law, according to a statement of administration policy posted on Tuesday by White House Crypto A.I. and Crypto Czar David Sacks.

"This rule, issued as a midnight regulation in the final days of the previous Administration, would stifle American innovation and raise privacy concerns over the sharing of taxpayers' personal information, while imposing an unprecedented compliance burden on American DeFi companies," according to the administration's statement.

Last week, the U.S. House Ways and Means Committee voted 26-16 to advance a companion resolution from Rep. Mike Carey, R-Ohio. That would need a full House floor vote before going to Trump's desk.  Some House Democrats opposed overturning the rule, saying that Republicans are trying to weaken the IRS.

The IRS said in late December it will require "DeFi brokers" to act like traditional securities brokers who are required to collect information about their users' trades. Some "decentralized finance industry participants" will have to send their customers Form 1099 tax returns, which are used to report payments that typically aren't from an employer, like gambling winnings, rents and royalties.

The U.S. Treasury Department noted the finalized rule applies to "front-end service providers" that interact "directly with customers," which suggests entities that run the primary website used to access a decentralized protocol, rather than the protocol itself. The rule is expected to go into effect on or after Jan. 1, 2027.

Many in the crypto industry have criticized the expanded tax reporting requirements over privacy implications for crypto users and the practicality around the rule. Noncustodial crypto service providers, like Uniswap, serve different functions than traditional brokers — and it's not always clear who or what entity would be required to collect user information.

For instance, DeFi brokers may have to record "the name and address of each customer," according to the rule. In some instances, however, there are no centralized service providers that interface directly with users — making it what some have called an "unsquarable circle."

Some in the industry have gone so far as to sue the IRS. The Blockchain Association and two other groups sued the IRS quickly after the rule was finalized and warned the requirements would "push this entire, burgeoning technology offshore."

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