Blockchain Association Sues IRS Over Crypto Broker Regulations
The Blockchain Association is pushing back against the United States Internal Revenue Service's (IRS) recent cryptocurrency regulatory move with a joint lawsuit.
On December 27, the IRS issued final regulations requiring brokers to report digital asset transactions, expanding existing reporting requirements to include front-end platforms such as decentralized exchanges (DEXs).
In the year To take effect in 2027, the regulations will require brokers to disclose gross income from the sale of cryptocurrencies and other digital assets, including information on the taxpayers involved in the transactions.
In response to the new regulations, the Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS, Blockchain Association CEO Christine Smith announced in a December 28 post.
We are taking action today. We have filed a lawsuit saying that the administrative procedure of today's regulation of brokers is against the law and against the constitution.
“We stand with our nation's creators and continue to work to ensure the future of crypto – and DeFi – exists here in the United States,” Smith added.
Source: Christine Smith
According to the new regulations, a decentralized financial (DeFi) platform can meet the definition of a broker if it facilitates the exchange or sale of digital assets – even through smart contracts – and has sufficient control or influence over the transaction process.
IRS rulemaking places “illegal compliance bar on software developers.” It builds the front-end business infrastructure, writes the Blockchain Association.
Blockchain Society's Lawsuit Against the IRS. Source: theblockchainassociation.org
The decision raises serious concerns for blockchain software developers, considering that other code developers are already sanctioned for how their software is used.
In particular, Alex Perseve, the developer of Tornado Cash, was found guilty of money laundering by a Dutch jury at the s-Hertogenbosch Court of Appeal on May 14. He was sentenced to five years and four months for defrauding Tornado Cash of an estimated $1.2 billion. A non-custodial cryptocurrency mixer.
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The IRS's new regulation is a “violation” of DeFi users' privacy rights: a lawyer
Some legal experts consider the IRS's new rules to violate the privacy rights of DeFi users.
The IRS's new definition of “broker” includes the front-end of a DeFi transaction that doesn't execute transactions, writes Marissa Koppel, head of law, The Blockchain Association.
“This not only violates the privacy rights of individuals using decentralized technology, but it pushes this entire growing technology off the coasts. The Blockchain Association continues to stand with the creators and users of DeFi, and will continue to fight this misguided rulemaking…”
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IRS rules will apply to digital asset sales starting in 2027. Brokers must begin collecting and reporting the necessary information for digital asset transactions starting in 2026.
According to IRS estimates, between 650 and 875 DeFi brokers and up to 2.6 million US taxpayers will be affected by these final regulations.
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