Washington, D.C. – The Blockchain Association, along with the Texas Blockchain Council and the DeFi Education Fund, has initiated legal action against the U.S. Internal Revenue Service (IRS), contesting the agency’s latest regulatory framework targeting the DeFi (decentralized finance) sector. This lawsuit arises from concerns that the updated rules overstep legal boundaries and infringe on privacy rights.
These regulations, finalized just days ago, are scheduled to be enforced starting in 2027, and will mandate crypto brokers to report all cryptocurrency transactions conducted on their platforms, encompassing decentralized exchanges (DEXs). Moreover, the IRS will require these brokers to disclose taxpayer information linked to the transactions, significantly expanding federal oversight over digital assets.
At the heart of the lawsuit is the IRS’s expanded definition of ‘broker’. The updated rules classify several DeFi platforms, which facilitate digital asset transactions through smart contracts, as brokers. This classification subjects them to stringent reporting mandates similar to those imposed on traditional financial brokers, including the sharing of Know Your Customer (KYC) documentation.
Kristin Smith, CEO of the Blockchain Association, has publicly criticized the IRS’s approach, calling it “unconstitutional.” She argues that the rules not only violate the Administrative Procedure Act but also encroach upon the privacy and operational freedom of DeFi platforms and their users. Marisa Coppel, Chief Legal Officer at the Blockchain Association, echoes this sentiment, warning that these measures could drive the innovative DeFi sector to relocate outside the United States.
According to the Treasury Department and IRS estimates, the new regulations will impact between 650 to 875 DeFi brokers and affect approximately 2.625 million customers. This sweeping reform is set to commence data collection in 2026 ahead of the full enforcement of the rules.
The legal community and stakeholders within the cryptocurrency industry are closely monitoring this lawsuit, viewing it as potentially pivotal in shaping future interactions between DeFi entities and regulatory bodies. It signals a growing pushback against regulatory encroachments on digital assets, a sector known for its rapid innovation and significant economic potential.
While the outcome of this legal challenge remains uncertain, its implications reach far beyond the parties involved. It may set a precedent for how technological advancements and user privacy are balanced against regulatory objectives in the swiftly evolving realm of digital finance.
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