IRS Faces Legal Action Over Regulations for Decentralized Finance Intermediaries.
In a legal battle that has been ongoing since December 2024, the Blockchain Association, Fund DeFi, and Texas Blockchain are challenging the Internal Revenue Service (IRS) over the broker rule for Decentralized Finance (DeFi). As of August 2025, there is no public update detailing the current procedural status of this lawsuit or its implications on privacy and constitutionality.
The broker rule, if implemented, would require DeFi brokers to disclose client and transaction data to the IRS. However, the rule faced a significant setback in April 2025 when Congress passed a joint resolution under the Congressional Review Act (CRA) disapproving the IRS final rule. This resolution, signed into law, directed the Treasury and IRS to remove the rule from the Federal Register.
The Supreme Court also weighed in on the issue, albeit in a different case, by affirming the government's access to some third-party crypto data. In a case challenging IRS authority to subpoena third-party financial records from Coinbase, the Court did not revise the third-party doctrine, which holds that individuals have limited Fourth Amendment privacy expectations in information voluntarily shared with third parties. This decision could impact arguments against IRS reporting rules based on privacy grounds.
Despite these developments, the lawsuit itself does not have publicly available updates on court rulings or settlements as of August 2025. The IRS has extended transitional relief for brokers on backup withholding requirements for digital asset transactions through 2027, suggesting a phased implementation of crypto tax regulations despite litigation pressures.
The plaintiffs in the lawsuit argue that the broker rule contradicts the Infrastructure Investment and Jobs Act and violates the Administrative Procedure Act. They also assert that the rule exceeds the IRS's authority and that interface providers, software, and wallets in DeFi are not correctly classified as brokers under the rule. The plaintiffs believe the IRS's proposed rules contradict the Constitution and argue that the information gathering required by the broker rule violates the privacy of DeFi users.
Marisa Coppel, head of legal at the Blockchain Association, has stated that the government's actions increase risks and create opportunities for inequality in DeFi. She also noted that the government's actions are attempting to impose intermediaries where there are none in DeFi.
A separate lawsuit is being undertaken by a Tezos validator couple to challenge the IRS's staking income tax rules. The specific connection between this lawsuit and the previous lawsuit against the IRS regarding the broker rule remains unclear.
Further information would require direct case docket review or new public disclosures. The requirements of the broker rule are set to take effect on January 1, 2027.
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