Crypto Community Bands Together To Challenge Controversial IRS Ruling

The DeFi Education Fund, the Blockchain Association, and the Texas Blockchain Council are contesting the Internal Revenue Service (IRS) and their decision to classify DeFi platforms as brokers, arguing that it exceeds the authority of the agency, violates the Administrative Procedure Act (APA), and infringes on constitutional rights.

Lawsuit Against the IRS

Filed on December 27th, 2024, the lawsuit challenges the aforementioned broker rule, which expands the definition to include decentralized exchanges (DEXs) and other platforms facilitating digital asset transactions.

The rule requires DeFi platforms to report detailed transaction information, such as gross proceeds, transaction dates, and user identities (names, addresses, TINs) via Form 1099-DA, starting in 2027, to improve transparency and reduce tax evasion.

The crypto community argues that the IRS has overstepped its bounds, as DeFi platforms do not execute transactions like traditional brokers. They also claim the rules would burden software developers, who lack access to the required user data, potentially further stifling innovation.

Broader Impact On DeFi

The lawsuit also claims violations of the APA and the Constitution, highlighting that public concerns raised during the comment period were ignored. More importantly, the lawsuit comes amid increased scrutiny of the crypto industry, with potential far-reaching effects on DeFi and the broader digital asset ecosystem.