Lawsuit Filed Against the IRS for Alleged Overreach in DeFi Broker Regulations
In a significant turn of events, a court case filed by the Blockchain Association, Texas Blockchain Council, and DeFi Education Fund against the U.S. Internal Revenue Service (IRS) over new DeFi data reporting rules has been rendered largely moot. This follows Congress passing a joint resolution under the Congressional Review Act (CRA) disapproving the IRS final rule on "Gross Proceeds Reporting by Brokers that Regularly Provide Services Effectuating Digital Asset Sales."
The lawsuit, which claimed that the proposed rules violated the U.S. Constitution, the Infrastructure Investment and Jobs Act, and infringed on the privacy of DeFi users, among other arguments, was aimed at revising the IRS's taxation rules for staking income in DeFi. The court case by Tezos validators was also related to the broader issue of government regulation of DeFi.
The resolution, signed into law on April 10, 2025, directed the Treasury and the IRS to remove the contested rule, which required DeFi exchanges and related entities to report user trade information for tax purposes via Form 1099-DA. This move was welcomed by the industry, as it acknowledged the compliance challenges associated with the new regulations.
In response to this legislative action, the IRS extended transitional relief regarding these reporting requirements, delaying full backup withholding tax liability enforcement related to digital asset transactions through 2027. This extension provides a breather for the DeFi industry, allowing it more time to adapt to the regulatory landscape.
While broader digital asset regulatory frameworks like the GENIUS Act have been enacted to address other aspects of crypto regulation, these do not directly relate to the dismissed IRS reporting rule at the heart of this lawsuit.
Notable figures in the crypto industry, such as Marisa Coppel, Head of Legal at the Blockchain Association, have expressed relief and appreciation for the legislative action. Coppel stated that the government's actions are increasing risks and creating opportunities for inequality in DeFi, and emphasised the need to protect DeFi technology, not destroy it. She also pointed out that the government's actions are aimed at imposing intermediaries where there are none in DeFi.
In conclusion, the lawsuit against the IRS over its stringent reporting regulations for DeFi platforms has been effectively suspended due to the CRA resolution. This development is a significant step towards fostering a more conducive regulatory environment for the DeFi industry, one that respects the privacy and decentralised nature of this technology.
The DeFi Education Fund, along with the Blockchain Association and Texas Blockchain Council, aimed to revise the IRS's taxation rules for staking income in DeFi through a lawsuit, which was related to the broader issue of government regulation of DeFi. This lawsuit was rendered largely moot due to a Congressional Review Act (CRA) resolution, signed into law on April 10, 2025, that directed the Treasury and IRS to remove the contested rule regarding DeFi reporting. This resolution acknowledges the compliance challenges associated with the new regulations and provides a breather for the DeFi industry, allowing more time to adapt to the regulatory landscape while fostering a more conducive environment for DeFi business, finance, and technology.
