It’s time for Congress to kill the broker rule.

We anticipate that Congress will soon vote on a joint resolution to revoke the IRS’s unconstitutional December broker rule.¹ The December rule obligates mere software and infrastructure providers to identify the users of their tools, collect personal information from those users, and report that personal information to the government without a warrant. The rule places unconstitutional burdens on the publication of software and ignores the plain meaning of the Infrastructure Investment and Jobs Act (IIJA), as well as the legislative history of that law’s passage.

Coin Center hopes that revocation of the broker rule will be non-partisan, it’s the right policy no matter your politics. To that end we want to set down in this post the top three reasons why Congress should pass the joint resolution to revoke the rule. There has been much talk of the new Congress taking a friendlier stance toward crypto; this vote will be a decisive first test of that theory.

1. The CRA Proposal Preserves Smart Tax Policy While Stopping Government Overreach

The rule was finalized under authority granted to the IRS by Congress in the Infrastructure Investment and Jobs Act (IIJA). The IRS issued an Notice of Proposed Rulemaking in August of 2023, and we argued—at the time—that their proposal vastly exceeded their authority and jeopardized constitutional rights. In an unprecedented step, the IRS bifurcated the final rules made from that initial NPRM. In July of 2024, they published a final rule classifying trusted crypto exchanges as brokers. That uncontroversial policy is something Coin Center and others have supported for almost a decade. In December of 2024, however, the IRS published a second rule that classified mere software developers and infrastructure providers as brokers. We don’t know why the IRS bifurcated their rulemaking process; we can speculate that they may have been uncertain about the statutory and constitutional legitimacy of the second half (and they should be). Either way, the current joint resolution under consideration would only revoke the December rule, preventing the IRS from forcing software developers and infrastructure providers to collect private data they should not be handling. The IRS’s July rule on broker reporting—requiring real brokers like Coinbase and Kraken to report transactions—remains intact.

2. The December Rule Lacks Statutory Authority because of the efforts of a Bipartisan Group of Senators

During the passage of the Infrastructure Investment and Jobs Act, a bipartisan group in the Senate rewrote the definition of “broker” in order to prevent the IRS from doing exactly what they ended up trying in the recent December rule. The revocation of that extralegal rule should be similarly bipartisan.

An early draft of the IIJA would have given the IRS exactly the authority they are seeking. The definition of broker in that early draft included “noncustodial” wallet developers and “decentralized exchange” providers. It treated people as brokers merely for “facilitating” transfers. Thanks to the leadership of Democrat Senators Wyden and Warner alongside Republican Senators Lummis and Toomey, that early definition was struck and replaced with a definition that only obligated persons “effectuating” transfers, like custodial exchanges Coinbase and Kraken, and that had no mention of noncustodial or decentralized exchange providers being treated as brokers. Again, the debate in the Senate was not partisan. Democrats and Republicans who were knowledgeable about crypto came together to stop the IRS from getting the authority they are now seeking ultra vires through the December rule.

Immediately after the IIJA’s passage, a bipartisan group led by Senator Warner sent a letter to the IRS urging them to avoid overreach in classifying software and infrastructure providers as brokers.² Additionally, Senators Wyden and Lummis drafted a bill to ensure that the IRS would not overstep its authority.³ Senator Wyden wrote “Our bill makes clear that the new reporting requirements do not apply to individuals developing block chain technology and wallets. This will protect American innovation while at the same time ensuring those who buy and sell cryptocurrency pay the taxes they already owe.”

Additionally, a bipartisan group of Representatives wrote a letter urging Treasury to avoid an inappropriately broad interpretation of the much-debated final text: “These provisions were the subject of much debate. Any rulemaking or guidance that fails to appropriately interpret these provisions will damage the privacy of American taxpayers and stifle innovation through rising compliance costs and unnecessary regulatory burdens.”⁴ Half a year later, a group of seven Republicans and five Democrats in the House introduced the Keep Innovation in America Act to explicitly forbid the IRS from treating developers as brokers.⁵ That bill also corrects other tax issues related to 6050I reporting and will hopefully be reintroduced this year, but the CRA is a good way to quickly fix the broker definition today.

There has always been bipartisan support for limiting the broker definition to trusted entities like Coinbase and Kraken. There should be similar bipartisan support for the revocation of the IRS’s December rule; these issues are the same.

3. The December Rule is not merely burdensome, it is inappropriate from a privacy and civil liberties standpoint.

The rule does not simply impose costly compliance burdens on developers and infrastructure providers, it directs them to fundamentally change the nature of their activities from the impersonal publication of software and maintenance of infrastructure to the highly personal collection of individual user data. “Compliance” here is not just difficult or technologically unfeasible, it is fundamentally inappropriate.

It may be reasonable to ask certain persons engaged in customer-facing businesses to know their customers. It may be reasonable to ask persons who routinely collect private information about their customers to make that information available for lawful criminal and civil investigations. It is not, however, reasonable to ask persons who have no customers to treat the mere users of their software or tools as if they were their customers, to collect their private information, and report it to the government without a warrant. In the context of software developers that is similar to asking a novelist to treat her readers as “customers” and collect and report their intimate personal details to the state. In the context of non-custodial infrastructure providers that is similar to asking the telephone company to record and report the phone calls that travel over their wires. “Compliance” here is not just difficult or technologically unfeasible, it is fundamentally inappropriate in a free and open society.

We’re optimistic that Congress will undo the inappropriate policies extralegally enacted by the IRS in their December rule and hope that this will be a moment of sensible bipartisanship that can be a guide for other efforts this year.

Notes