A major policy pivot at the U.S. Department of Justice (DOJ) is reshaping the regulatory landscape for cryptocurrency. The appointment of Todd Blanche as acting Attorney General has ushered in a new era focused on "Ending Regulation by Prosecution," a shift with profound implications for DeFi users, privacy tool developers, and every crypto taxpayer navigating this evolving environment.

A New Era at the DOJ: Todd Blanche and the Crypto Pivot

The change in crypto enforcement strategy began in earnest with the appointment of Todd Blanche, first as Deputy Attorney General and subsequently as the nation's acting top prosecutor in April 2026. This move followed a significant policy shift initiated by Blanche in 2025.

As reported by sources like CoinDesk, one of Blanche's first major actions as Deputy Attorney General was to dismantle the National Cryptocurrency Enforcement Team (NCET). The NCET, formed in 2022, was tasked with tackling complex investigations and prosecutions of criminal misuses of cryptocurrency. Its dissolution signaled a clear departure from the previous administration's approach, which the new DOJ leadership characterized as overly broad and punitive towards the digital asset industry.

This pivot is not just procedural; it's ideological. The new administration has consistently voiced its intent to end what it calls the "regulatory weaponization against digital assets," aiming to foster innovation by providing clearer rules of the road rather than defining them through enforcement actions.

The 'Blanche Memo': What 'Ending Regulation by Prosecution' Means

The cornerstone of this new policy is a memorandum issued by then-Deputy Attorney General Blanche on April 7, 2025, titled "Ending Regulation by Prosecution." This document, analyzed by legal experts at firms like Dentons and Steptoe, directs federal prosecutors to fundamentally change how they approach digital asset cases.

The memo's key directives include:

Focus on Core Criminality: Prosecutions will now prioritize cases involving clear financial harm to investors (e.g., fraud) and the use of digital assets in furthering high-priority crimes like terrorism, drug trafficking, and organized crime.
De-emphasis on Regulatory Violations: The DOJ will no longer actively pursue cases based on "regulatory violations" alone. This includes charges like operating an unlicensed money transmitting business or violations of the Bank Secrecy Act (BSA), unless prosecutors can prove the defendant willfully and knowingly violated a known registration requirement.
Avoiding the "Security vs. Commodity" Debate: Prosecutors are instructed not to bring charges that would require the DOJ to litigate whether a specific digital asset is a security or a commodity, especially when an alternative charge like wire fraud is available. This defers the classification battle to regulatory agencies like the SEC and CFTC.
Protecting Tool Providers: The memo explicitly states that the DOJ will "no longer target virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulations."

This represents a significant shift from targeting infrastructure to targeting illicit actors who misuse that infrastructure.

Impact on Privacy Tools: The Tornado Cash Precedent

The new DOJ policy has direct implications for developers and users of privacy-enhancing tools like mixers. The ongoing case against Tornado Cash developer Roman Storm provides a real-time example of this evolving legal landscape.

Under the previous enforcement regime, developers of such tools faced significant legal risk, with prosecutors arguing that creating and operating the tool itself constituted a criminal enterprise. Storm's defense has consistently argued that Tornado Cash is a neutral, open-source tool and that developers cannot be held liable for its misuse by third parties.

The "Blanche Memo" appears to lend weight to this defense. As noted by compliance experts, the new policy discourages prosecuting platforms for the actions of their users. While the memo did not exist when charges were first brought against Storm, its principles are now influencing ongoing legal strategies. For instance, the memo was cited in the Tornado Cash case, leading to the dismissal of one charge against the developer (coindesk.com).

However, prosecutors are pushing back, arguing that the facts in the Tornado Cash case go beyond the passive development of a neutral tool (bitcoinethereumnews.com). The ultimate outcome remains uncertain, but the DOJ's stated policy shift provides a new, more favorable framework for developers of privacy-preserving technologies.

Tax & Compliance Risks in a Post-NCET World

It is crucial for taxpayers to understand a critical distinction: the Department of Justice is not the Internal Revenue Service (IRS). The DOJ's shift in enforcement priorities has no direct impact on your tax obligations.

The IRS operates under a separate mandate to enforce the U.S. tax code. Its position, established in IRS Notice 2014-21 (March 25, 2014, virtual currency = property), remains the law of the land. Every disposal of a cryptocurrency—whether selling for cash, swapping for another crypto, or using it to buy goods—is a taxable event that must be reported.

The compliance landscape is actually becoming more stringent on the tax front:

Form 1040 Digital Asset Question: Since the 2020 tax year, every U.S. taxpayer must answer "Yes" or "No" to a question on the front of their tax return about their digital asset activities. A false "No" is perjury.
Broker Reporting (Form 1099-DA): Under IRC §6045 (digital asset broker reporting via IIJA 2021; Form 1099-DA effective tax year 2025), exchanges will begin reporting transaction proceeds to the IRS for the 2025 tax year (forms sent in early 2026). Cost basis reporting will follow for the 2026 tax year. This gives the IRS unprecedented visibility into taxpayer activity.
Global Data Sharing: The OECD CARF (MCAA signed November 26, 2024; 69 jurisdictions committed by March 2026; first exchanges 2027) and EU DAC8 (Directive 2023/2226, applies from January 1, 2026) will create a global framework for tax authorities to automatically exchange information on crypto transactions.

The key takeaway is that while the risk of being prosecuted for a regulatory violation may have decreased, the risk of being audited or prosecuted for tax evasion is increasing. The IRS will have more data than ever before, making accurate reporting essential.

Comparing DOJ Enforcement Models: Old Risk vs. New Risk

To understand the practical effect of this policy change, it's helpful to compare the previous enforcement model with the new one outlined in the Blanche Memo.

Feature	Previous DOJ Model (Pre-2025)	New DOJ Model (Post-Blanche Memo)
Primary Target	Infrastructure (exchanges, mixers, developers)	Illicit Actors (fraudsters, terrorists, traffickers)
Primary Charges	Regulatory violations (unlicensed money transmission, BSA)	Core financial crimes (wire fraud, money laundering, sanctions evasion)
View of Privacy Tools	Potentially criminal enterprises if used for illicit finance.	Neutral tools; liability falls on the criminal user, not the developer.
Enforcement Unit	Centralized NCET	Disbanded; cases handled by traditional DOJ criminal divisions.
Goal	"Regulation by Enforcement" to shape industry behavior.	"Ending Regulation by Prosecution" to target specific criminal acts.

This shift means that while a DeFi protocol developer might face less risk of a BSA-related charge, a user who launders stolen funds through that same protocol faces the full, focused force of the DOJ.

How to Prepare Your Tax Strategy for the New Enforcement Climate

The new environment demands a renewed focus on meticulous tax compliance. A less aggressive regulatory posture from the DOJ should not be mistaken for a free pass from the IRS.

Document Everything: Every single transaction, from a simple buy/sell on an exchange to a complex multi-step DeFi protocol interaction, must be recorded. This includes dates, times, assets involved, U.S. dollar fair market value at the time of the transaction, and any associated fees.
Understand Taxable Events: Remember that under IRS Notice 2014-21, nearly every action in crypto creates a taxable event. This includes swapping one token for another, providing liquidity to a pool, wrapping a token (e.g., ETH to WETH), and receiving staking rewards, which are treated as ordinary income per Rev. Rul. 2023-14 (July 31, 2023; staking = ordinary income at dominion-and-control).
Calculate Basis Accurately: Your cost basis is what you paid to acquire an asset. Correctly tracking the acquisition cost for every crypto asset you own is fundamental to calculating your capital gains or losses on Form 8949 (Sales and Other Dispositions of Capital Assets).
Leverage a Crypto Tax Platform: The complexity of DeFi, NFTs, and airdrops makes manual tracking nearly impossible. A dedicated crypto tax software platform is essential. Tools like dTax can connect directly to your wallets and exchanges, automatically import your transaction history, and categorize complex events like liquidity providing or staking, which significantly reduces manual reconciliation effort. The platform's high-accuracy AI-assisted classification helps ensure your tax reports are comprehensive and defensible.
Consult a Professional: The rules are complex and constantly evolving. Use a platform to organize your data, then review the final reports with a qualified tax professional who understands the nuances of digital assets.

The DOJ's pivot away from "regulation by prosecution" is a welcome development for many in the crypto industry. It signals a move towards clearer rules and a focus on punishing actual criminals rather than the innovators building new financial tools. However, this regulatory relief does not extend to tax obligations. With enhanced IRS reporting and global data sharing on the horizon, the need for diligent, accurate, and automated tax compliance has never been greater.

This content is for informational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional for your specific situation.

Ready to take control of your crypto tax reporting in this new era? Start automating your crypto taxes with dTax.

Frequently Asked Questions

Does the DOJ's new policy mean I don't have to worry about using privacy coins or mixers?

No. While the DOJ's focus has shifted away from prosecuting the developers of these tools simply for creating them, using a mixer to launder proceeds of crime or evade taxes is still a serious federal offense. The policy protects the tool, not the illicit user. Any transaction intended to obscure the source of funds for tax evasion purposes can be viewed as a criminal act by the IRS and DOJ.

How does the DOJ's policy affect my DeFi tax reporting?

The DOJ's policy does not change your tax reporting obligations for DeFi activities. Every interaction—swapping tokens, adding or removing liquidity, claiming yield farming rewards—is still a taxable event under IRS rules. The key difference is that the DOJ is less likely to pursue the DeFi protocol itself for regulatory violations, but the IRS will still expect you to report all gains, losses, and income from your use of that protocol.

With the NCET disbanded, is there less overall crypto enforcement now?

Not necessarily. The enforcement resources are being reallocated, not eliminated. The DOJ's Criminal Division and individual U.S. Attorney's Offices will now handle these cases, focusing on fraud and illicit finance. Simultaneously, the IRS Criminal Investigation (IRS-CI) division continues to be a global leader in tracing crypto transactions and investigating tax fraud. The type of enforcement has changed, but the overall scrutiny on illicit financial activity and tax evasion remains high.