Three leading blockchain advocacy groups have taken a stand against the Internal Revenue Service’s (IRS) new broker reporting requirements by filing a lawsuit. The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council have jointly challenged the rules, arguing that they could have a detrimental impact on the U.S. digital asset sector, particularly decentralized finance (DeFi).
The legal challenge was filed in the U.S. District Court for the Northern District of Texas, with the organizations contending that the IRS and Treasury Department’s final “broker” rulemaking goes beyond their authority. Specifically, the lawsuit takes aim at the rule’s expansion of the definition of “broker” to include providers of DeFi trading front-end services, despite these entities not directly facilitating transactions.
Kristin Smith, CEO of the Blockchain Association, has labeled the broker rule as “unconstitutional,” accusing the IRS of violating the Administrative Procedure Act. Marisa Coppel, Head of Legal at the Blockchain Association, expressed concerns that this regulatory overreach could drive innovation in the technology offshore while infringing on the privacy rights of individuals utilizing decentralized technology.
DeFi Education Fund CEO Miller Whitehouse-Levine expressed disappointment in the timing and scope of the regulation, referring to it as “midnight rulemaking” that threatens financial innovation. The organization highlighted the potential of DeFi to enhance accessibility, efficiency, and consumer focus in financial services.
Lee Bratcher, President of the Texas Blockchain Council, pointed out the practical challenges of compliance, noting that many participants in the decentralized ecosystem may not have access to the information now required by the IRS. Bratcher warned that regulatory overreach could lead to critical development moving overseas, posing a threat to U.S. competitiveness in the digital economy.
The legal challenge follows warnings from various stakeholders during the public comment period about the negative impacts the IRS policies could have on the digital asset industry. Earlier reports from Crypto.news indicated that DeFi advocates had pledged to take aggressive action against the IRS regulations.
The lawsuit represents a significant pushback against the IRS’s attempt to regulate the digital asset sector, with the blockchain advocacy organizations standing firm in their defense of decentralized technologies and financial innovation. The outcome of this legal battle could have far-reaching implications for the future of the U.S. digital economy and the development of blockchain technology.