Blockchain Association Challenges IRS Over New Crypto Reporting Rules
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The Blockchain Association and the Texas Blockchain Council have filed a lawsuit against the IRS over the recently finalized cryptocurrency reporting rules. Filed December 28, the lawsuit argues the new rules, which define “broker” to include decentralized exchanges (DEXs) and front-end platforms, violate the Administrative Procedure Act and the Constitution.
Brokers will have to report gross proceeds from digital asset sales and provide taxpayer info, compliance starts 2027.
Kristin Smith, Blockchain Association CEO, says these requirements will put a big and unlawful burden on developers and hurt the US’s position as a crypto hub.
Broader Implications for DeFi Platforms
One of the most problematic parts of the IRS’s rules is DeFi platforms that facilitate transactions through smart contracts. By defining these platforms as brokers, DeFi front-end developers may have to comply with requirements that will undermine the decentralization of their systems.
Marisa Coppel, Blockchain Association Legal Head, called the rules a privacy violation, saying requiring user data reporting will stifle innovation and push DeFi offshore.
Legal experts also point to the Tornado Cash developer Alex Pertsev case, who was imprisoned for enabling illicit transactions through non-custodial software.
The IRS estimates these rules will impact 875 DeFi brokers and 2.6 million US taxpayers, data collection starts 2026.
Possible Outcomes and Industry Response
Industry experts see three options for DeFi platforms: comply with the broker designation, block US users, or go fully decentralized with minimal user interaction and no fees to avoid being classified as brokers.
Alex Thorn of Galaxy Digital and Uniswap Chief Legal Officer Katherine Minarik are calling for legal and legislative challenges to the IRS’s ruling. Uniswap CEO Hayden Adams hopes Congress or the courts will overturn the rules, saying they will kill DeFi innovation.
As the lawsuit progresses, the outcome will have far-reaching implications for the cryptocurrency industry and its regulatory landscape in the U.S.
