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The Blockchain Association has filed a lawsuit against the U.S. Internal Revenue Service (IRS), alleging that its latest cryptocurrency broker rules exceed statutory authority and violate the Administrative Procedure Act.
The IRS issued its final regulations on December 27, 2024, expanding the definition of brokers to include decentralized exchanges (DEXs) and other front-end platforms. These regulations require brokers to report gross proceeds from digital asset sales, along with taxpayer information, starting in 2027.
Kristin Smith, CEO of the Blockchain Association, announced the lawsuit in a December 28 post on X (formerly Twitter), stating:
“Today we’re taking action, filing a lawsuit that argues today’s broker rulemaking violates the Administrative Procedure Act and is unconstitutional.”
Smith emphasized the association’s commitment to supporting innovation:
“We stand with our nation’s innovators and will continue working to ensure the future of crypto – and DeFi – is here in the United States.”
Implications for DeFi Platforms
Under the new rules, DeFi platforms facilitating digital asset exchanges—whether through smart contracts or front-end interfaces—may be classified as brokers if they exert control over transactions. This could impose significant compliance obligations on software developers and trading infrastructure providers.
The Blockchain Association criticized the IRS for placing “unlawful compliance burdens on software developers,” arguing that the rules threaten the broader blockchain ecosystem.
Legal and Privacy Concerns
The IRS regulations have sparked concerns about their impact on privacy and innovation. Marisa Coppel, Head of Legal at the Blockchain Association, noted that including DeFi trading front-ends in the broker definition infringes on users’ privacy rights:
“Not only is this an infringement on the privacy rights of individuals using decentralized technology, it would push this entire, burgeoning technology offshore.”
The Blockchain Association pledged to continue fighting what it calls “misguided rulemaking” and to stand with DeFi innovators and users.
Broader Industry Context
The lawsuit draws parallels to other regulatory actions affecting blockchain developers. For example, Tornado Cash developer Alex Pertsev was sentenced to over five years in prison for alleged money laundering involving the cryptocurrency mixer. Critics argue that punishing developers for the use of their software sets a dangerous precedent.
Affected Parties and Timeline
The IRS estimates that the new regulations will impact between 650 and 875 DeFi brokers and up to 2.6 million U.S. taxpayers. Brokers will need to begin data collection in 2026, with reporting requirements starting in 2027.
Conclusion
The lawsuit marks a significant escalation in the crypto industry’s battle against regulatory overreach. As the debate over these rules continues, the outcome of this legal challenge could shape the future of decentralized finance in the U.S. and beyond.
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