IRS Files Lawsuit Over Regulations for Decentralized Finance Brokers
In a significant turn of events, a major lawsuit filed by blockchain associations, including the Blockchain Association, Fund_Defi, and Texas Blockchain, challenging the IRS’s broker rule for DeFi brokers has been effectively resolved through legislative action. The lawsuit, which raised concerns about privacy and constitutionality, was brought to a halt in April 2025 when Congress passed a joint resolution under the Congressional Review Act (CRA) disapproving the IRS broker rule.
The IRS broker rule, which required DeFi exchanges and certain crypto service providers to report customer trade information through Forms 1099-DA, has been nullified, as the President signed the resolution into law on April 10, 2025. This action directed the Treasury Department and IRS to remove the rule from the Federal Register, thereby avoiding the issues raised about privacy and constitutionality.
While this legislative action effectively supersedes the lawsuit, the broader constitutional challenges to IRS third-party summons authority remain unsuccessful. Courts have continued to uphold existing precedents that users have diminished privacy expectations in information voluntarily shared with third parties.
The plaintiffs in the lawsuit argued that the IRS's proposed rules increase risks in DeFi, create more opportunities for inequality, and are unconstitutional. They claimed that these service providers do not have "clients" in the conventional sense, are not traditional intermediaries, and do not facilitate transactions. They also argued that the information gathering by the IRS violates the privacy of DeFi users.
Marisa Coppel, head of the legal department at Blockchain Association, stated that the government is imposing intermediaries where there are none in DeFi. The IRS introduced a provision requiring DeFi brokers to disclose client and transaction data to the agency, effective January 1, 2027.
Separately, a Tezos validator couple is attempting to change the IRS’s staking income tax rules through the courts. This development underscores the ongoing criticism within the community regarding the IRS's regulations in the crypto space.
The lawsuit was filed against the IRS challenging the finalization of the broker rule, as the plaintiffs argued that the rules incorrectly classify interface providers, software, and wallets as brokers. They also claimed that the IRS's proposed rules contradict the Infrastructure Investment and Jobs Act.
As discussions on tax classification and stablecoin regulations continue independently under new legislation, the resolution of the broker rule lawsuit marks a significant step in addressing the concerns of the blockchain community regarding privacy and constitutionality in the DeFi space.
What's the impact of the resolution on finance, business, and technology in the DeFi space? The nullification of the IRS broker rule has eased concerns about privacy and constitutionality for DeFi exchanges and crypto service providers, as they no longer have to report customer trade information through Forms 1099-DA. However, broader constitutional challenges to IRS third-party summons authority remain unresolved, and the plaintiffs' claims about the risks, opportunities for inequality, and unconstitutionality of the IRS's rules continue to be contested.
