- The Blockchain Association and others have filed a lawsuit against the IRS, Treasury Department, and Secretary Janet Yellen over new broker reporting rules
- The plaintiffs argue the regulations exceed statutory authority, threaten the decentralized finance (DeFi) industry, and violate constitutional rights
- The rules redefine “brokers” to include DeFi participants, requiring onerous reporting standards that plaintiffs claim are unfeasible and unconstitutional
The Blockchain Association, Texas Blockchain Council, and DeFi Education Fund have initiated legal proceedings against the U.S. Treasury and IRS, challenging newly issued rules that impose traditional broker reporting standards on participants in the decentralized finance (DeFi) industry. The plaintiffs assert the new definitions and requirements are not only impractical but also represent governmental overreach and constitutional violations, warning that these measures threaten the very existence of DeFi by undermining its core functionality. The new rules were only outlined on December 27, showing the level of concern among the plaintiffs.
Changes Contradict “Entire Premise” of DeFi
The change in the definition of DeFi brokers stems from the Infrastructure Investment and Jobs Act of 2021, which expanded IRS reporting obligations to include digital asset brokers. While Congress specifically excluded decentralized exchanges and peer-to-peer marketplaces, the Treasury’s new rules interpret “brokers” more broadly to encompass entities facilitating DeFi transactions, regardless of their intermediary status.
The plaintiffs—Blockchain Association, Texas Blockchain Council, and DeFi Education Fund—contend this redefinition is unlawful. They emphasize that decentralized finance operates without traditional brokers and cannot comply with requirements like identifying and reporting user transaction details. “DeFi transactions are peer-to-peer by design,” the Blockchain Association noted, “and forcing these structures to conform to centralized models contradicts their entire premise.”
IRS Doesn’t Have Right to Define Brokers
The lawsuit cites violations of the Administrative Procedure Act (APA), claiming the IRS lacks statutory authority to redefine “broker.” It also raises constitutional concerns, arguing the rule infringes on Fourth Amendment protections against unreasonable searches and Fifth Amendment rights to due process.
Compliance with the Treasury’s new rules is expected to cost the industry billions of dollars annually, according to estimates cited in the complaint; many DeFi operators, especially startups, could shut down or relocate overseas. The plaintiffs warn this would stifle innovation and reduce consumer access to secure, low-cost financial tools.
The lawsuit seeks to enjoin the rule’s implementation, highlighting the potential economic and technological setbacks. The case adds to growing legal scrutiny of regulatory approaches to digital assets, a rapidly evolving sector vital to modern financial innovation.
