Blockchain Association Sues IRS Over Cryptocurrency Broker Rules
Blockchain Association Pushes Back Against IRS Cryptocurrency Regulation
The Blockchain Association is pushing back against the latest cryptocurrency regulatory move by the United States Internal Revenue Service (IRS) with a joint lawsuit.
IRS Issues Final Regulations on Digital Asset Transactions
On December 27, the IRS issued final regulations requiring brokers to report digital asset transactions. This expands existing reporting requirements to include front-end platforms such as decentralized exchanges (DEXs). The new rules mandate that brokers disclose gross proceeds from sales of cryptocurrencies and other digital assets, including information regarding taxpayers involved in the transactions.
Rules Set to Take Effect in 2027
The rules are set to take effect in 2027. However, brokers will need to begin collecting and reporting the necessary data for digital asset transactions starting in 2026. According to the IRS’ estimations, between 650 and 875 estimated DeFi brokers and up to 2.6 million US taxpayers will be affected by these final regulations.
Blockchain Association Fights Back with Joint Lawsuit
In response to the new rules, the Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS. The lawsuit argues that the broker rulemaking violates the Administrative Procedure Act and is unconstitutional.
Quote from Kristin Smith, CEO of the Blockchain Association
"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," said Kristin Smith, CEO of the Blockchain Association. "Today we’re taking action, filing a lawsuit that argues today’s broker rulemaking violates the Administrative Procedure Act and is unconstitutional."
Concerns for Blockchain Software Developers
The decision raises significant concerns for blockchain software developers. The IRS’ rulemaking puts "unlawful compliance burdens" on software developers building front-end trading infrastructure. This means that if a decentralized finance (DeFi) platform facilitates the exchange or sale of digital assets – even through smart contracts – and exercises sufficient control or influence over the transaction process, it could meet the definition of a broker.
Example of Tornado Cash Developer
Notably, Tornado Cash developer Alex Pertsev was found guilty of money laundering by Dutch judges at the s-Hertogenbosch Court of Appeal on May 14. He was sentenced to five years and four months for allegedly laundering $1.2 billion worth of illicit funds despite Tornado Cash being a non-custodial cryptocurrency mixer.
Impact on DeFi Users’ Privacy Rights
Some legal experts consider the IRS’ new rules to be an infringement of the privacy rights of DeFi users. The IRS’ new definition of ‘broker’ includes DeFi trading front-ends, which do not effectuate transactions. This means that users may have their information shared with the government without their consent.
Quote from Marisa Coppel, Head of Legal at the Blockchain Association
"Not only is this an infringement on the privacy rights of individuals using decentralized technology, it would push this entire, burgeoning technology offshore," said Marisa Coppel, Head of Legal at the Blockchain Association. "Blockchain Association continues to stand with the innovators and users of DeFi, and will continue to fight this misguided rulemaking…"
Estimated Impact on DeFi Brokers and Taxpayers
According to the IRS’ estimations, between 650 and 875 estimated DeFi brokers and up to 2.6 million US taxpayers will be affected by these final regulations.
What Does This Mean for Blockchain Developers?
The new rules have significant implications for blockchain developers. If a decentralized finance (DeFi) platform facilitates the exchange or sale of digital assets – even through smart contracts – and exercises sufficient control or influence over the transaction process, it could meet the definition of a broker.
Why Is the Blockchain Association Fighting This Regulation?
The Blockchain Association is fighting this regulation because it believes that the IRS’ new rules are an infringement on the privacy rights of DeFi users. The association also argues that the rules would push DeFi technology offshore, which would have significant implications for the development and growth of decentralized finance.
What Is the Blockchain Association Doing to Fight This Regulation?
The Blockchain Association is filing a joint lawsuit with the Texas Blockchain Council against the IRS. The lawsuit argues that the broker rulemaking violates the Administrative Procedure Act and is unconstitutional.
Why Should We Care About This Regulation?
This regulation has significant implications for the growth and development of decentralized finance (DeFi) in the United States. If the IRS’ new rules are enforced, it could push DeFi technology offshore, which would have significant implications for the development and growth of decentralized finance.
Conclusion
The Blockchain Association’s lawsuit against the IRS is an important step in fighting back against this misguided regulation. The association’s efforts will continue to ensure that the future of crypto – and DeFi – is here in the United States.