Crypto Groups Sue IRS Over New DeFi Broker Rules
Three major crypto advocacy groups are suing the IRS, challenging new rules that classify DeFi platforms as brokers, citing overreach and privacy concerns.
Three major crypto advocacy groups—the Blockchain Association, DeFi Education Fund, and Texas Blockchain Council—have filed a lawsuit against the IRS over its new regulations targeting decentralized finance (DeFi) platforms. These groups argue that the IRS has exceeded its legal authority by categorizing DeFi platforms as brokers, sparking backlash across the crypto sector.
The IRS recently expanded the definition of "broker" to include decentralized exchanges and front-end platforms, requiring them to report all crypto transactions and user details. These rules, set to take effect in 2027, aim to improve transparency in digital asset trading. However, critics argue that the agency’s interpretation goes beyond the scope of its statutory powers and violates the Administrative Procedure Act (APA).
The advocacy groups claim these regulations create excessive compliance burdens, particularly for software developers building DeFi trading interfaces. They warn this could stifle innovation and push emerging technologies offshore. Marisa Coppel, Head of Legal at the Blockchain Association, stated that the IRS’s move infringes on privacy rights and unfairly targets decentralized technologies.
The broader crypto community has also voiced strong opposition. Bill Hughes, a lawyer at Consensys, criticized the timing of the rule's release during the holiday season, suggesting it was a tactic to minimize public resistance. Miles Jennings, General Counsel at a16z Crypto, called the regulation a heavy-handed approach designed to restrict DeFi growth.
Additionally, Alexander Grieve, Vice President of Government Affairs at Paradigm, urged Congress to reconsider and potentially block the regulation. Lawmakers, including French Hill and Patrick McHenry, have expressed their disapproval, calling the rule an overstep by the Treasury. Hill described it as a poorly crafted policy finalized in the closing days of the current administration.
The lawsuit underscores growing tension between regulators and the crypto industry, highlighting concerns about innovation, privacy, and the future of decentralized finance in the United States.
