Three prominent blockchain advocacy organizations have filed a lawsuit challenging new broker reporting requirements issued by the Internal Revenue Service.

Organizations He argues The rules could severely impact the digital asset sector in the United States, especially decentralized finance (DeFi).

The Blockchain Association, the Decentralized Education Fund, and the Texas Blockchain Council have filed a joint legal challenge in the US District Court for the Northern District of Texas.

They claimed that the IRS and Treasury Department's final "intermediary" rulemaking exceeded their authority.

The lawsuit specifically targets the rule's expansion of the definition of "intermediary" to include front-end service providers for DeFi trading, even though these entities do not directly facilitate transactions.

Christine Smith, CEO of the Blockchain Association, called the broker rule “unconstitutional,” claiming that the IRS is violating the Administrative Procedure Act.

Today we take action, filing a lawsuit arguing that today's broker rulemaking violates the Administrative Procedure Act and is unconstitutional.

We stand with our country's innovators and will continue to work to ensure the future of cryptocurrencies – and decentralized finance – here in the United States... https://t.co/CwZWzjwT5O

-Kristin Smith (@KMSmithDC) December 28, 2024

According to Head of Legal at the Blockchain AssociationMarissa Koppel, such overreach “would push this entire burgeoning technology offshore” while violating the privacy rights of individuals using decentralized technology.

Miller Whitehouse Levin, CEO of the DeFi Education Fund, expressed his extreme disappointment in the timing and scope of the regulation. Miller has described it as “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 do not have access to the information the IRS now requires.

“This regulatory overreach threatens to drive critical development abroad, threatening U.S. competitiveness in the digital economy,” Bratcher said.

The legal challenge comes after several stakeholders warned during the public comment period of potential negative impacts on the digital asset industry. Crypto.news was earlier I mentioned DeFi proponents have promised to crack down on IRS policies.