The Blockchain Association has filed a joint case against the US Internal Revenue Service (IRS) over its stringent regulations affecting the DeFi sector. Other plaintiff parties in the joint lawsuit include the Texas Blockchain Council and the DeFi Education Fund. According to the Association, the new measures represents abuse of authority by the revenue service.
Kristin Smith, CEO at Blockchain Association announced the lawsuit in a post on X, terming the new IRS regulations ‘unconstitutional.’ She stated, “Today we’re taking action, filing a lawsuit that argues today’s broker rulemaking violates the Administrative Procedure Act and is unconstitutional.”
This lawsuit comes just two days after the IRS issued its final report on regulations of digital assets. The new regulations which are set to take effect in 2027, make it mandatory for crypto brokers to report all crypto transactions carried out by users on the platforms. This will include the decentralized exchanges (DEX). Additionally, the IRS also requires the brokers to share information about the taxpayers involved in the transactions.
DeFi Platforms and Developers Face Heightened Regulations
With the new regulations, the IRS has classified various DeFi platforms that provide digital assets transactions through smart contracts as brokers. This simply means that the revenue entity requires these DeFi platforms to follow all rules adhered to by traditional brokers. This includes sharing of the Know Your Customer (KYC) documents with the IRS.
The Blockchain Association has condemned the IRS definition of ‘brokers’ while expressing concerns over infringement of DeFi users’ privacy rights. According to Marisa Coppel, the Chief Legal Officer at Blockchain Association, the new measures could force these users to carry out their activities elsewhere.
“Not only is this an infringement on the privacy rights of individuals using decentralized technology, it would push this entire, burgeoning technology offshore,” Merissa stated referring to the new IRS definition of broker. Merissa further added that the Blockchain Association will continue to side with innovators and DeFi users in fighting the IRS’ misguided rules.
Impact of the New IRS Rules
The new IRS regulations will affect several DeFi firms. According to the Treasury Department and the IRS for instance, 650 to 875 DeFi brokers will be affected by the regulatory changes. The two have also estimated that the new rules will affect approximately 2.625 million customers.
On the other hand, the IRS mandates for the brokers to start collecting the data they will use in the 2027 reporting, as from 2026. However, this could change as various legal experts have urged the court or Trump’s administration to reverse the decision.
While the progression of the lawsuit remains unknown, the crypto industry sees the case as a pioneer of change in digital asset regulations. The lawsuit could help shape the relationship between the DeFi industry and the regulators.
