Crypto Advocacy Groups File Lawsuit Against IRS Over DeFi Regulations
Three major crypto advocacy groups—the Blockchain Association, DeFi Education Fund, and Texas Blockchain Council—filed a lawsuit against the IRS over new regulations targeting decentralized finance (DeFi) platforms. They argue that the IRS has exceeded its legal authority by categorizing DeFi platforms as brokers, causing backlash in the crypto sector.
The IRS expanded the definition of "broker" to include decentralized exchanges and front-end platforms, requiring them to report all crypto transactions and user details. These rules, effective in 2027, aim to improve transparency in digital asset trading. Critics claim the agency's interpretation exceeds its statutory powers and violates the Administrative Procedure Act (APA).
The advocacy groups assert these regulations impose excessive compliance burdens on software developers building DeFi trading interfaces, potentially stifling innovation and pushing technologies offshore. Marisa Coppel, Head of Legal at the Blockchain Association, stated that the IRS’s actions infringe on privacy rights and unfairly target decentralized technologies.
The broader crypto community has voiced strong opposition. Bill Hughes, a lawyer at Consensys, criticized the timing of the rule's release during the holiday season, suggesting it aimed to minimize public resistance. Miles Jennings, General Counsel at a16z Crypto, described the regulation as a heavy-handed approach designed to restrict DeFi growth.
Alexander Grieve, Vice President of Government Affairs at Paradigm, urged Congress to reconsider and potentially block the regulation. Lawmakers, including French Hill and Patrick McHenry, have disapproved, calling the rule an overstep by the Treasury. Hill labeled it a poorly crafted policy finalized in the closing days of the current administration.
The lawsuit highlights growing tension between regulators and the crypto industry, raising concerns about innovation, privacy, and the future of decentralized finance in the United States.