Crypto Groups Sue IRS Over Strict DeFi Reporting Rules

Three prominent cryptocurrency advocacy groups—the DeFi Education Fund, the Blockchain Association, and the Texas Blockchain Council—have filed a lawsuit against the Internal Revenue Service (IRS) to block newly finalized tax regulations that mandate decentralized finance (DeFi) platforms to collect and report user data.

The IRS Push for Digital Asset Surveillance

The legal challenge targets new regulations enacted under the Biden administration’s Infrastructure Investment and Jobs Act. According to the IRS, these stricter reporting guidelines are essential to close the tax compliance “information gap” currently associated with digital assets.

Why DeFi Platforms Reject the “Broker” Label

The lawsuit argues that the government’s mandate places an impossible regulatory burden on “DeFi trading front-ends.” These software interfaces allow users to interact with decentralized protocols but do not actually execute or clear the transactions themselves. The industry groups maintain that classifying these front-ends as financial brokers is fundamentally flawed, as decentralized networks operate entirely without traditional intermediaries.

Privacy Violations and the Threat of Offshore Migration

In a statement, Marisa Coppel, head of legal at the Blockchain Association, declared that the newly finalized IRS rules infringe upon the privacy rights of individuals utilizing decentralized technologies. Coppel also warned that imposing these heavy-handed surveillance requirements will ultimately push the United States’ burgeoning Web3 and blockchain industry offshore to more favorable jurisdictions.