A coalition of crypto advocacy groups has launched a legal challenge against the US Internal Revenue Service (IRS), arguing that its new reporting requirements for decentralized finance (DeFi) platforms represent an overreach and threaten user privacy.
Related: An introduction to decentralized finance
The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council jointly filed a lawsuit contesting the IRS and Treasury Department’s decision to classify DeFi platforms as “brokers.”
This move, finalized on December 27, has drawn sharp criticism from within the cryptocurrency sector. By broadening the definition of a broker, the IRS now requires decentralized exchanges and other related platforms to report all digital asset transactions, including sensitive taxpayer details. The rule is set to take effect in 2027.
We obtained a copy of the lawsuit for you here.
This regulatory change exceeds the IRS’s statutory authority, violates the Administrative Procedure Act, and raises constitutional concerns. The plaintiffs contend that the rule imposes excessive compliance burdens, particularly on software developers who create DeFi trading interfaces. They warn that such requirements could stifle innovation and push technological advancements offshore.
“The IRS and Treasury have gone beyond their statutory authority in expanding the definition of ‘broker’ to include providers of DeFi trading front-ends even though they do not effectuate transactions,” said Marisa Coppel, Head of Legal at the Blockchain Association. “Not only is this an infringement on the privacy rights of individuals using decentralized technology, but it would also push this entire, burgeoning technology offshore.”
The new rule has sparked outrage across the crypto industry, with prominent figures calling for legislative intervention. Bill Hughes, an attorney at Consensys, criticized the timing of the rule’s release, accusing the IRS of strategically announcing it during the holiday season to dampen opposition. Similarly, Miles Jennings, General Counsel at a16z Crypto, labeled the rule an “overreach” aimed at cracking down on DeFi platforms.
Industry advocates are urging Congress to act. Alexander Grieve, Vice President of Government Affairs at Paradigm, called on lawmakers to reject the regulation, while representatives such as French Hill and Patrick McHenry have already voiced their disapproval. “The Biden-Harris Treasury chose to defy both Democrats and Republicans in Congress by finalizing its controversial broker tax reporting rule today,” said Hill. “This rule is an overreach by the Treasury, a blatant and poorly crafted attempt to target DeFi, and should never have been finalized in the final days of the Biden-Harris Administration.”
