Crypto Industry Strikes Back: Lawsuit Challenges ‘Unconstitutional’ IRS Regulations

Crypto Coalition Pushes Back Against Treasury and IRS Overreach

The Blockchain Association, the DeFi Education Fund, and the Texas Blockchain Council have united to challenge newly finalized cryptocurrency ‘broker’ rules issued by the Treasury and the Internal Revenue Service (IRS). This coalition argues that the regulations are unconstitutional and represent a significant overreach of authority.

Legal Action Against IRS Rulemaking

The coalition has filed a joint lawsuit in the U.S. District Court for the Northern District of Texas, aiming to vacate the Treasury and IRS’s “broker” rulemaking. Their lawsuit alleges that the regulations violate the Administrative Procedure Act (APA) and exceed the statutory authority granted to these agencies.

The contested rules would impose compliance requirements on decentralized finance (DeFi) applications and wallet providers, similar to those faced by centralized exchanges. If implemented, these measures would become effective in 2027 and could significantly alter the U.S. cryptocurrency industry.

Industry Concerns Over ‘Broker’ Definition Expansion

Key industry players argue that the IRS’s expanded definition of “broker” infringes on privacy rights and imposes unreasonable compliance burdens. Marisa Coppel, head of legal at the Blockchain Association, expressed the serious implications of these rules:

“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 decentralized technology, but it would also push this entire, burgeoning technology offshore.”

Industry Rejection and Future Implications

The regulations have faced widespread criticism throughout the public commentary period. Industry representatives warn that these rules could cripple innovation and force businesses and technology development outside the United States.

Bill Hughes, Senior Counsel at ConsenSys, highlighted the broader implications of the rulemaking, suggesting that it may eventually face congressional oversight and potential revocation.

A Fight for the Future of Crypto

This lawsuit represents a pivotal moment in the cryptocurrency industry’s ongoing battle for fair and reasonable regulation. By challenging the IRS’s definition of “broker,” the Blockchain Association, the DeFi Education Fund, and the Texas Blockchain Council are fighting to preserve the rights of crypto users and the future of decentralized finance in the U.S.