A trio of US cryptocurrency and blockchain industry organisations have mounted a legal challenge against a recent ruling by the Inland Revenue Service (IRS) and US Treasury Department.
The two government bodies’ updated income tax regulations on 27 December 2024, requiring ‘certain decentralised finance industry participants’ to file and furnish information returns as brokers.
Brokers must now disclose information about taxpayers involved in digital asset transactions and report gross proceeds from digital asset sales.
The rules will apply to brokers who act as what the IRS and Treasury call ‘agents and dealers’ in digital asset transactions with customers. Brokers which act as ‘middlemen’, allowing the use of digital assets to make certain payments, will also be subject to the rules.
In response, the Blockchain Association, Texas Blockchain Council and the DeFi Education Fund have initiated a suit against the IRS and Treasury in the US District Council for the Northern District of Texas.
The trio argue that the rulemaking ‘exceeds the agencies’ statutory authority, is unconstitutional and violates the Administrative Procedure Act (APA), a US federal statute which governs the way federal agencies propose and establish regulations.
Marisa Coppel, Head of Legal at the Blockchain Association, said: “The IRS and Treasury have gone beyond their statutory authority in expanding the definition of “broker” to include providers of DeFi trading front-ends even though they do not effectuate transactions.
“Not only is this an infringement on the privacy rights of individuals using decentralised technology, it would push this entire, burgeoning technology offshore.
“Blockchain Association continues to stand with the innovators and users of DeFi, and will continue to fight this misguided rulemaking to ensure the United States remains a home for decentralised finance technology and developers alike.”
The suit has cited concerns raised during the rule’s comment period during formulation, with some commentators arguing that the change would ‘cripple’ the US digital asset industry.
The trio argue that the rule will ‘stifle innovation and burden American entrepreneurs’ – though noting this will only occur ‘if it stands’. The associations may hope that the suit will ultimately prove unnecessary due to crypto-friendly Republican President Donald Trump returning to the White House later this month.
Crypto stakeholders have been particularly politically vocal over the last year. Although the Blockchain Association and others did not overtly endorse Donald Trump in the November US election, it and other associations have been calling on crypto holders and stakeholders to vote for pro-crypto candidates.
Various crypto stakeholders have voiced discontent with the US Securities and Exchange Commission’s (SEC) approach to crypto under Chair Gary Gensler, and this recent suit against the IRS and Treasury is indicative of the wider discontent US crypto has towards the country’s regulators and agencies.
As pro-crypto and regulation-adverse Trump prepares to start his second term as US President, the industry is likely anticipating a hands-off approach to how crypto is governed and an end to ‘regulatory overreach’ by government organisations.
“The new IRS broker rule imposes unrealistic expectations on the digital asset ecosystem,” said Texas Blockchain Council President, Lee Bratcher.
“The rule fails to recognize the decentralised nature of this technology, where many actors simply do not have access to the information the IRS is now demanding.
“This regulatory overreach risks driving critical development overseas, threatening US competitiveness in the digital economy.”
