Blockchain Association Pushes Back Against IRS Cryptocurrency Regulations
The Blockchain Association is taking a stand against the United States Internal Revenue Service’s (IRS) latest move in cryptocurrency regulation. The association has filed a joint lawsuit with the Texas Blockchain Council in response to the IRS’ final regulations requiring brokers to report digital asset transactions.
IRS Issues Final Regulations for Reporting Digital Asset Transactions
On December 27, the IRS issued its final regulations on reporting digital asset transactions. These regulations expand existing reporting requirements to include front-end platforms such as decentralized exchanges (DEXs). The rules mandate that brokers disclose gross proceeds from sales of cryptocurrencies and other digital assets, including information regarding taxpayers involved in the transactions.
Key Provisions of the New Regulations
The new regulations will take effect in 2027. Brokers will need to begin collecting and reporting the necessary data for digital asset transactions starting in 2026. The IRS’ estimations suggest that between 650 and 875 estimated DeFi brokers and up to 2.6 million US taxpayers will be affected by these final regulations.
Blockchain Association’s Lawsuit Against the IRS
In response to the new rules, the Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS. The association’s CEO, Kristin Smith, announced the joint effort in a Xpost on December 28: "Today we’re taking action, filing a lawsuit that argues today’s broker rulemaking violates the Administrative Procedure Act and is unconstitutional."
Why the Blockchain Association Is Challenging the IRS’ Regulations
The Blockchain Association believes that the new regulations infringe upon the privacy rights of DeFi users. According to Marisa Coppel, Head of Legal at the Blockchain Association: "Not only is this an infringement on the privacy rights of individuals using decentralized technology, it would push this entire, burgeoning technology offshore."
Impact on Blockchain Software Developers
The IRS’ rulemaking has significant implications for blockchain software developers. If a DeFi platform facilitates the exchange or sale of digital assets and exercises sufficient control or influence over the transaction process, it could meet the definition of a broker.
Blockchain Association’s Stand Against the IRS Regulations
The Blockchain Association is committed to standing with innovators and users of DeFi. The association believes that the new regulations are misguided and will push this entire technology offshore if implemented. In response, the association has chosen to take action by filing a lawsuit against the IRS.
Concerns About Unlawful Compliance Burden on Software Developers
The Blockchain Association argues that the new regulations place an unlawful compliance burden on software developers building front-end trading infrastructure. Other code developers have already been sanctioned for how their software is being used. Notably, Tornado Cash developer Alex Pertsev was found guilty of money laundering by Dutch judges at the s-Hertogenbosch Court of Appeal in May 2024.
Related Developments
The IRS’ new regulation raises significant concerns about the privacy rights of DeFi users. Some legal experts consider this to be an infringement on these rights. The association believes that this move will push decentralized technology offshore, rather than promoting innovation and growth within the US.
IRS’ New Regulation: An Infringement on Privacy Rights?
The new definition of ‘broker’ in the IRS regulations includes DeFi trading front-ends, which do not effectuate transactions. This raises significant concerns about the impact on users and developers alike.
What’s Next for Blockchain Association and Texas Blockchain Council
The joint lawsuit filed by the Blockchain Association and the Texas Blockchain Council aims to challenge the constitutionality of the new regulations. The association will continue to stand with innovators and users of DeFi, advocating for a regulatory environment that promotes innovation and growth within the US.
Estimated Impact of the New Regulations
According to the IRS’ estimations, between 650 and 875 estimated DeFi brokers and up to 2.6 million US taxpayers will be affected by these final regulations.
What Does This Mean for Blockchain Software Developers?
The new regulations raise significant concerns about the impact on blockchain software developers. If a DeFi platform facilitates the exchange or sale of digital assets and exercises sufficient control or influence over the transaction process, it could meet the definition of a broker.
Conclusion
The Blockchain Association’s joint lawsuit against the IRS aims to challenge the constitutionality of the new regulations. The association believes that these regulations infringe upon the privacy rights of DeFi users and will push decentralized technology offshore rather than promoting innovation and growth within the US.