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Three prominent cryptocurrency advocates — the Blockchain Association, the DeFi Education Foundation, and the Texas Blockchain Council — have brought a lawsuit against the U.S. Internal Revenue Service (IRS).
The lawsuit challenges the recent decision by the IRS and the Treasury Department to classify DeFi (DeFi) platforms as brokers, a ruling that has caused much controversy in crypto circles.
IRS Redefinition of “Broker” Triggers Legal and Legislative Issues
On December 27, the IRS finalized new regulations targeting the DeFi industry by expanding the definition of broker to include decentralized exchanges and other interface platforms.
This adjustment requires these entities to report all cryptocurrency and other digital asset transactions, including relevant taxpayer information. These regulations are expected to be implemented starting in 2027, aiming to increase transparency in digital asset transactions.
However, crypto advocacy groups argue that the IRS’s expansion of broker status to DeFi platforms exceeds the legal authority granted to the agency. They also argued that the move violates the Administrative Procedure Act (APA) and deemed the move unconstitutional.
Additionally, they argue that the regulation places an undue compliance burden on software developers, especially those who create trading interfaces. According to them, this could seriously hinder innovation and cause great damage to US entrepreneurs.
“The IRS and Treasury Department exceeded their legal authority by expanding the definition of ‘broker’ to include DeFi trading interface providers even though they do not conduct transactions. This not only violates the privacy of individuals using decentralized technology, but also pushes this growing technology industry overseas,” said Marisa Coppel, Head of Legal at the Blockchain Association, said.
Meanwhile, this regulatory change has also sparked strong reactions from the broader crypto community, with some industry leaders demanding legislative intervention.
Bill Hughes, an attorney at Consensys, criticize issuing regulations during the holiday season as a strategic move to minimize industry pushback. Similarly, Miles Jennings, General Counsel at a16z Crypto, describe This regulation is an excessive expansion of power to control DeFi operations.
Furthermore, Alexander Grieve, VP of Government Liaison at Paradigm, has calling The upcoming Congress will review and possibly reject these new regulations.
US lawmakers such as French Hill and Patrick McHenry have expressed opposition to the move, suggesting they may oppose it.
“The Treasury Department under the Biden-Harris administration chose to ignore both Democrats and Republicans in Congress by finalizing a controversial broker tax reporting rule today. This rule is an overextension of the Treasury Department, a clear and incompetent attempt to target DeFi, and should not have been finalized in the final days of the Biden-Harris Administration,” Hill said. stated.
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