
J. David Ake
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gettyimages.com- IntroductionIntroduction
- Crypto Groups Sue IRSCrypto Groups Sue IRS
- Key Points of ContentionKey Points of Contention
- Impact on DeFi EntitiesImpact on DeFi Entities
- Industry Resistance to RegulationsIndustry Resistance to Regulations
Crypto Groups Sue IRS
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stephenhoban
3 min read
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Based on reports from TechCrunch, three major crypto industry groups have filed a lawsuit against the Internal Revenue Service (IRS) over new cryptocurrency regulations that would require decentralized finance (DeFi) entities to report customer information, sparking a significant legal battle in the crypto sector.
Crypto Groups Sue IRS
The legal challenge against the IRS was filed in the U.S. District Court for the Northern District of Texas by the DeFi Education Fund, the Blockchain Association, and the Texas Blockchain Council12. This lawsuit comes in response to new cryptocurrency regulations finalized on December 27, 2024, which would require brokers to collect transaction data starting in 2026 and take effect for digital asset sales in 202713. The regulations are expected to impact between 650-875 DeFi brokers and potentially affect up to 2.6 million U.S. taxpayers1.
3 sources
Key Points of Contention
The lawsuit challenges the IRS's expanded definition of "broker," which now includes platforms facilitating digital asset exchanges through smart contracts. Critics argue this approach misunderstands the decentralized nature of DeFi platforms and could unduly burden trading front-ends that don't directly "effectuate transactions"1. The legal challenge asserts that the new regulations:
- Exceed the IRS's statutory authority
- Violate the Administrative Procedure Act
- Infringe on constitutional rights, particularly privacy concerns
- Could push technological development offshore, according to Blockchain Association's head of legal, Marisa Coppel2
2 sources
Impact on DeFi Entities
The new IRS regulations are poised to have significant implications for DeFi entities, potentially reshaping the landscape of decentralized finance. These rules would require DeFi platforms to implement extensive data collection and reporting systems, a task that many argue is at odds with the fundamental principles of decentralization12. The regulations are expected to affect between 650-875 DeFi brokers, impacting their operational models and potentially increasing compliance costs1. Moreover, the expanded definition of "broker" could force many DeFi front-ends to either significantly alter their operations or face potential legal challenges, potentially stifling innovation in the sector3.
3 sources
Industry Resistance to Regulations
Prominent figures and organizations in the crypto industry have rallied against the new IRS regulations, forming a united front of resistance. Venture capital firm A16z Crypto has publicly condemned the rules as unconstitutional and pledged its support for the legal challenge1. Uniswap founder Hayden Adams criticized the regulations, viewing them as a deliberate attempt to hinder DeFi development2. The industry's opposition stems from concerns that the new rules fundamentally misunderstand the decentralized nature of DeFi platforms and could create significant obstacles for developers and innovators in the space.
2 sources
Related
What are the main reasons blockchain groups are opposing the IRS "broker" rule
How might this lawsuit affect the relationship between the crypto industry and the IRS
What are the potential consequences for other industries if the IRS rules are upheld
How are other regulatory bodies around the world addressing similar issues in the crypto space
What role does innovation play in the arguments against the IRS regulations
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