US Tax Authority Faces Lawsuit Over DeFi Broker Regulations

The Blockchain Association, Texas Blockchain Council, and DeFi Education Fund have petitioned the court to prevent the US Internal Revenue Service (IRS) from enforcing information disclosure rules on DeFi companies.

1/ Yesterday, @blockchainassn @fund_defi @texasblockchain_ filed a lawsuit against the IRS challenging yesterday’s finalization of the broker rule. The rule violates the Administrative Procedure Act and is unconstitutional.https://t.co/ikeKxUtpdd

— Marisa Tashman Coppel (@MTCoppel) December 28, 2024

Previously, the IRS introduced a provision requiring brokers in the decentralized finance sector to disclose client and transaction data to the agency.

The requirements are expected to take effect on January 1, 2027, sparking criticism within the community.

The plaintiffs argue that the rules mistakenly classify interface providers, software, and wallets as brokers, through which users conduct token transactions. These service providers do not execute transactions, are not traditional intermediaries, and do not have “clients” in the conventional sense.

The lawsuit also contends that the information collection infringes on the privacy of DeFi users and exceeds the IRS’s authority. The plaintiffs believe the proposed rules contradict the Constitution and the Infrastructure Investment and Jobs Act.

“DeFi allows users to participate in a fairer financial system. But now the government is imposing intermediaries where there are none, increasing risks and creating more opportunities for inequality. We need to protect DeFi technology, not destroy it,” stated Marisa Coppel, head of legal at the Blockchain Association.

Earlier, a couple of Tezos validators sought a court ruling to change IRS taxation rules on staking income.