DeFi Education Fund Sues US IRS Over Controversial Tax Rules

Crypto industry advocacy group, the DeFi Education Fund has filed a lawsuit against the US IRS barely 24 hours after it released its controversial tax framework. Despite claims that the agency finalized the regulation months ago, the DeFi Education Fund tagged it a “midnight” rulemaking. Specifically, the lawsuit alleges that the tax body exceeded its statutory authority with its demand from DeFi platforms.

The Fight Against DeFi Tax Rules

The lawsuit from DeFi Education Fund alleges that the new tax rules targeting DeFi protocol violates the Administrative Procedure Act (APA). The Fund explained that during the rule’s comment period, the public advised the US IRS not to move forward with the planned tax rules.

However, the tax agency ignored the warnings that the rules will place unnecessary burden on software developers. The suit argues that this rule “puts unlawful compliance burdens on software developers who build so-called ‘trading front-end services.'”

The DeFi Education Fund said this regulation will stiffen innovation and burden American enterpreneurs if it stands.

As part of the provisions of the new DeFi tax, the trading front-end service providers will have to record the transaction details of users. This way, the outfits will need to provide these details on demand to the IRS with users advised to fill Form 1099 for tax reporting purposes.

Bill Hughes, a lawyer with software provider ConsenSys had already predicted that this rulemaking from the regulation will come with lawsuits. It remains to be seen how the case will pan out, even with the growing support from members of the community.

Controversial US IRS Regulations

Besides the DeFi broker tax rules, the broader crypto industry have always called out the US IRS for some of its demands. As reported earlier by Coingape, the regulator has declared that crypto staking is taxable upon receipt. The agency revealed this in a lawsuit, filed against it by an industry insider Joshua Jarrett.

In addition to these, the Digital Chamber has flagged some privacy concerns in some of the agency’s tax policies. Overall, experts believe the regulator is doing all it can to established some of its ideologies before the new administration takes over.

With key lawsuits now hanging over the US IRS, all eyes are now on Treasury Sec nominee Scott Bessent on whether these rules will be repealed or not.