Lawsuit Instigated Against the IRS of the U.S. over Decentralized Finance Intermediary Regulations
The proposed taxation rules for staking income in the DeFi (Decentralized Finance) ecosystem, which had sparked a court case by a couple of Tezos validators, have become a thing of the past. The rules, which were seen as a potential intervention in the DeFi ecosystem and a questionable use of the IRS's authority, have been invalidated by legislative action rather than judicial.
The original IRS regulation, finalized on December 30, 2024, classified persons providing DeFi front-end services as "brokers" who must report transactions and user data to the IRS using Form 1099-DA starting in 2025 (later moved to 2027). However, industry groups and critics argued that these rules were impractical due to the nature of DeFi, where platforms typically do not have access to or control over smart contracts executing trades, making reporting infeasible or overly burdensome.
In early 2025, Congress passed and the President signed a joint resolution under the Congressional Review Act (CRA) disapproving the rule, officially nullifying it and preventing its enforcement. As a result, no ongoing court cases are challenging these particular regulations because they have been invalidated by legislation rather than judicial action.
The lawsuit against the IRS, which alleged data collection from DeFi users infringed on their privacy, was one of the cases that was anticipated but will not materialize. Marisa Coppel, Head of Legal at the Blockchain Association, stated that the government's actions are increasing risks and creating opportunities for inequality in DeFi. She further added that the government is imposing intermediaries where there are none in DeFi.
In conclusion, the IRS DeFi reporting rule, which was a source of concern for many in the DeFi community, has been legally invalidated, and no current lawsuits exist against it. The issue was resolved legislatively through the CRA with broad congressional and presidential action.
- The DeFi industry, which has long questioned the application of traditional finance regulations, experienced a shift as the IRS DeFi reporting rule was invalidated, thanks to legislative action taken by both Congress and the President.
- The recent nullification of the IRS DeFi reporting rule by legislative action under the Congressional Review Act (CRA) has alleviated concerns within the DeFi technology sector, where data privacy and decentralization are crucial.
