The Blockchain Association, in partnership with the Texas Blockchain Council, has initiated legal action against the U.S. Internal Revenue Service (IRS) concerning its newly established cryptocurrency regulations.
Challenging the New Reporting Rules
The lawsuit, announced on December 28, opposes the IRS’s recent mandate requiring brokers to report digital asset transactions. These rules, scheduled for enforcement in 2027, demand brokers disclose gross proceeds from cryptocurrency and digital asset sales and provide taxpayer details.
Expanded Broker Definition Targets DeFi Platforms
Under the updated regulations, the IRS has broadened the term “broker” to include decentralized exchanges (DEXs) and front-end platforms facilitating digital asset transactions. This expansion has raised widespread concern within the blockchain and decentralized finance (DeFi) communities.
Kristin Smith, CEO of the Blockchain Association, emphasized on social media that the lawsuit claims these IRS regulations violate the Administrative Procedure Act and infringe constitutional rights. She reiterated the organization’s commitment to supporting innovation and ensuring that crypto and DeFi thrive in the U.S.
Implications for DeFi Developers
The new regulations impose significant compliance burdens on DeFi platform developers, particularly those using smart contracts for transactions. Critics argue this classification of DeFi platforms as brokers unfairly targets software developers and could stifle innovation.
Marisa Coppel, the Blockchain Association’s Head of Legal, described the rules as a privacy breach. She argued that forcing DeFi platforms to report user data undermines decentralization’s core principles. This concern echoes fears from the broader crypto community that such measures could drive DeFi innovation offshore.
Comparisons to Tornado Cash Case
Legal experts have drawn parallels between these regulations and the case of Alex Pertsev, a Tornado Cash developer sentenced to over five years in prison for enabling illicit transactions through non-custodial software. This precedent has heightened fears about potential criminal charges against developers under the IRS’s rules.
Estimated Impact of the Regulations
The IRS estimates that these rules will affect 650 to 875 DeFi brokers and up to 2.6 million U.S. taxpayers. Brokers must start collecting transaction data in 2026 to meet the reporting obligations beginning in 2027.
Potential Paths Forward
Industry analysts have suggested strategies for DeFi platforms to navigate these regulations if upheld. Alex Thorn, head of research at Galaxy Digital, proposed three options: comply with the broker classification, block U.S. users, or operate as decentralized applications with minimal user interaction and no transaction fees to avoid broker designation.
Uniswap’s Chief Legal Officer, Katherine Minarik, voiced strong opposition to the IRS’s rationale. She argued that DeFi platforms are being misclassified as brokers despite their limited role in transaction processes. Uniswap CEO Hayden Adams expressed hope that the regulations will be overturned through the Congressional Review Act (CRA) or further legal challenges.
The unfolding legal battle underscores the tension between regulatory agencies and the rapidly evolving blockchain industry. The lawsuit’s outcome could significantly influence the future of cryptocurrency and decentralized finance in the United States.
The post Blockchain Association Sues IRS Over New Crypto Regulations appeared first on Cryptonews.
