Crypto Industry Groups Sue IRS Over Broker Reporting Rule

IRS Sued Over New DeFi Regulations

A coalition of three prominent cryptocurrency organizations – the DeFi Education Fund, the Blockchain Association, and the Texas Blockchain Council – has initiated legal action against the Internal Revenue Service (IRS).

The lawsuit aims to prevent the implementation of recently proposed regulations concerning the reporting of customer data by decentralized finance (DeFi) entities.

Background on the Regulations

These regulations are being finalized by the IRS as a direct result of the Infrastructure Investment and Jobs Act passed under the Biden administration.

According to the IRS, the updated rules are intended to address discrepancies in information reporting related to digital assets and effectively “close the information gap.”

The Core of the Lawsuit

The plaintiffs contend that the new regulations would place an unreasonable burden on “DeFi trading front-ends.”

These front-ends are essentially online platforms that provide users with access to crypto protocols, but do not directly “effectuate transactions.”

A central argument of the suit is that classifying these front-ends as brokers is inappropriate.

This is because, in a truly decentralized transaction, “there is simply no broker-like entity involved.”

Concerns Regarding Privacy and Innovation

Marisa Coppel, head of legal for the Blockchain Association, released a statement outlining the group’s concerns.

She characterized the new rules as “an infringement on the privacy rights of individuals using decentralized technology.”

Furthermore, Coppel suggested that the regulations could incentivize the relocation of the entire developing technology sector to jurisdictions outside of the United States.

Potential Impacts

• The lawsuit challenges the IRS’s authority to broadly define brokers in the DeFi space.
• A successful challenge could prevent significant compliance burdens for DeFi platforms.
• The outcome may influence the future development and adoption of decentralized finance.