IRS Faces Litigation Over Regulations Imposed on Decentralized Finance Brokers in the USA
The Blockchain Association, Texas Blockchain Council, and DeFi Education Fund have filed a lawsuit against the Internal Revenue Service (IRS) over a finalized rule from December 2024 that required decentralized finance (DeFi) companies acting as "brokers" to report user and transaction data.
The IRS's rule, known as T.D. 10021, targeted DeFi brokers, mandating information reporting to trace digital asset sales and exchanges, but excluded certain complex transactions like staking and lending. The rule, critics argued, was overly burdensome and harmful to the crypto industry.
The lawsuit contends that the rule is excessive, vague, and creates compliance challenges that threaten innovation and privacy in DeFi. In response to industry and legislative pushback, Congress passed a joint resolution disapproving the rule under the Congressional Review Act, and the President signed it into law on April 10, 2025, revoking the rule and nullifying the regulatory text.
On July 11, 2025, the Treasury Department and IRS formally removed the rule from the Code of Federal Regulations, effectively ending the obligation for DeFi companies to report under that specific rule. However, the legal challenge continues as stakeholders seek clear, appropriate tax and Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) guidance tailored for DeFi, emphasizing innovation-friendly compliance without undue burden.
The lawsuit, which does not aim to destroy DeFi technology, according to Marisa Coppel, Head of Legal at the Blockchain Association, is aimed at protecting DeFi technology. Coppel stated that the government's actions are increasing risks and creating opportunities for inequality in DeFi. The lawsuit also claims that the proposed rules exceed the IRS's authority and violate the U.S. Constitution and the Infrastructure Investment and Jobs Act.
Apart from the broader efforts to clarify and modernize digital asset reporting and taxation rules, a couple of Tezos validators are pursuing a court case to force the IRS to revise taxation rules for staking income. The court case is related to the taxation of staking income in the context of DeFi and alleges that data collection from DeFi users infringes on privacy.
The lawsuit further argues that the government is imposing intermediaries where there are none in DeFi, a concern that underscores the industry's push for regulation that respects and fosters its decentralized nature while ensuring compliance. As the regulatory atmosphere continues to evolve, the crypto industry closely watches for new guidance that balances tax compliance with innovation.
- The lawsuit filed by the Blockchain Association, Texas Blockchain Council, and DeFi Education Fund Against the Internal Revenue Service (IRS) is not aimed at destroying DeFi technology, according to Marisa Coppel, Head of Legal at the Blockchain Association.
- The court case pursued by certain Tezos validators aims to force the IRS to revise taxation rules for staking income in the context of DeFi, alleging that data collection from DeFi users infringes on privacy and expressing concern that the government is imposing intermediaries where none exist in DeFi.
