Three prominent blockchain advocacy organizations filed a lawsuit challenging the Internal Revenue Service’s new broker reporting requirements.

The organizations argue that the rules could severely impact the U.S. digital asset sector, particularly decentralized finance (DeFi).

The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council jointly filed the legal challenge in the U.S. District Court for the Northern District of Texas.

They contended that the IRS and Treasury Department’s final “broker” rulemaking exceeds their authority.

The lawsuit specifically targets the rule’s expansion of the “broker” definition to include providers of DeFi trading front-end services, despite these entities not directly facilitating transactions.

The Blockchain Association CEO Kristin Smith called the broker rule “unconstitutional,” alleging that the IRS is violating the Administrative Procedure Act.

Today we’re taking action, filing a lawsuit that argues today’s broker rulemaking violates the Administrative Procedure Act and is unconstitutional.

We stand with our nation’s innovators and will continue working to ensure the future of crypto – and DeFi – is here in the United… https://t.co/CwZWzjwT5O

— Kristin Smith (@KMSmithDC) December 28, 2024

According to the Blockchain Association’s Head of Legal, Marisa Coppel, this overreach “would push this entire, burgeoning technology offshore” while infringing on the privacy rights of individuals using decentralized technology.

DeFi Education Fund CEO Miller Whitehouse-Levine expressed strong disappointment in the timing and scope of the regulation. Miller called it “midnight rulemaking” that threatens financial innovation.

The organization emphasized DeFi’s potential to make financial services more accessible, efficient, and consumer-focused.

Texas Blockchain Council President Lee Bratcher highlighted the practical impossibility of compliance. He stated that many actors in the decentralized ecosystem simply cannot access the information now required by the IRS.

“This regulatory overreach risks driving critical development overseas, threatening US competitiveness in the digital economy,” Bratcher stated.

The legal challenge comes after numerous stakeholders warned during the public comment period about the potential negative impacts on the digital asset industry. Crypto.news had earlier reported that DeFi proponents had promised aggressive action against the IRS policies.