The Blockchain Association is pushing back against the latest cryptocurrency regulatory move of the United States Internal Revenue Service (IRS) with a joint lawsuit.

On Dec. 27, the IRS issued final regulations requiring brokers to report digital asset transactions, expanding existing reporting requirements to include front-end platforms, such as decentralized exchanges (DEXs) .

Set to take effect in 2027, the rules mandate that brokers disclose gross proceeds from sales of cryptocurrencies and other digital assets, including information regarding taxpayers involved in the transactions.

In response to the new rules, the Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS, announced Kristin Smith, the CEO of the Blockchain Association, in a Dec. 28 X post :

“Today we’re taking action, filing a lawsuit that argues today’s broker rulemaking violates the Administrative Procedure Act and is unconstitutional.”

“We stand with our nation’s innovators and will continue working to ensure the future of crypto – and DeFi – is here in the United States,” added Smith.

Blockchain Association sues IRS over crypto broker rules image 0

Source: Kristin Smith

Under the new rules, if a decentralized finance (DeFi ) platform facilitates the exchange or sale of digital assets — even through smart contracts — and exercises sufficient control or influence over the transaction process, it could meet the definition of a broker.

The IRS’ rulemaking puts “unlawful compliance burgers on software developers” building front-end trading infrastructure, wrote the Blockchain Association.

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Blockchain Association lawsuit against IRS. Source: theblockchainassociation.org

The decision raises significant concerns for blockchain software developers, considering that other code developers have already been sanctioned for how their software is being used.

Notably, Tornado Cash developer Alex Pertsev was found guilty of money laundering by Dutch judges at the s-Hertogenbosch Court of Appeal on May 14. He was sentenced to five years and four months for allegedly laundering $1.2 billion worth of illicit funds despite Tornado Cash being a non-custodial cryptocurrency mixer.

Related: Crypto mixing is ‘not a crime,’ says CryptoQuant CEO

IRS’s new regulation is an “infringement” on privacy rights of DeFi users: legal expert

Some legal experts consider the IRS’ new rules to be an infringement of the privacy rights of DeFi users.

The IRS’ new definition of “broker” includes DeFi trading front-ends, which do not effectuate transactions, wrote Marisa Coppel, Head of Legal, Blockchain Association, adding:

“Not only is this an infringement on the privacy rights of individuals using decentralized 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…” 

Related: South Korea sanctions 15 North Koreans for crypto heists and cyber theft

The IRS’ rules will apply to digital asset sales starting in 2027. Brokers will need to begin collecting and reporting the necessary data for digital asset transactions starting in 2026. 

According to the IRS’ estimations, between 650 and 875 estimated DeFi brokers and up to 2.6 million US taxpayers will be affected by these final regulations. 

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