Three leading blockchain advocacy groups have filed a lawsuit against the Internal Revenue Service (IRS), challenging its new broker reporting requirements. The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council initiated the legal challenge in the U.S. District Court for the Northern District of Texas, arguing that the regulations could severely impact the U.S. digital asset sector, especially decentralized finance (DeFi).
The legal action contends that the IRS and the Treasury Department overstepped their authority by expanding the definition of “brokers” to include providers of DeFi trading front-end services. These providers, although not directly executing transactions, are now being included under the new rules.
Kristin Smith, CEO of the Blockchain Association, described the rule as “unconstitutional,” asserting that the IRS has violated the Administrative Procedure Act. Marisa Coppel, the association’s Head of Legal, warned that the IRS’s actions could drive this burgeoning technology overseas, infringing on privacy rights and potentially pushing development outside the U.S.
Miller Whitehouse-Levine, CEO of the DeFi Education Fund, criticized the timing and scope of the regulation, labeling it as “midnight rulemaking” that could hinder financial innovation. He stressed DeFi’s potential to enhance accessibility, efficiency, and consumer focus in financial services.
Lee Bratcher, President of the Texas Blockchain Council, expressed concerns over the practical challenges of compliance, noting that many actors in the decentralized ecosystem lack access to the information now mandated by the IRS. He warned that such regulatory overreach threatens U.S. competitiveness in the digital economy by risking key development being moved overseas.
The lawsuit emerged after multiple warnings from stakeholders during the public comment period regarding the potential negative impacts on the digital asset industry.
