The IRS has announced a final rule regarding non-custodial "brokers" and their obligations for third-party tax reporting. This rule addresses part of the notice of proposed rulemaking (NPRM) that Coin Center opposed two years ago. While Coin Center does not object to custodial crypto intermediaries reporting user capital gains, it opposes imposing these obligations on non-custodial software developers, known as "unhosted wallet providers."

Coin Center's comment letter stated: "We object to the imposition of reporting obligations on any software or communications intermediaries who do not have any agency or agency-like relationship with the users of their published tools and websites, and who are in no position to know or collect personal information about those users." The organization argues that such obligations violate First Amendment rights and Fourth Amendment rights.

The final rule maintains similar language to the NPRM, potentially obligating developers to surveil and report on users. It introduces a complex multi-prong test for determining if a developer must collect user information for surveillance purposes. According to Coin Center, this creates a prohibition on distributing software without Know Your Customer (KYC) compliance.

The rule redefines terms like "facilitative service" to "effectuating service," but Coin Center believes it fails to distinguish between trusted operators and mere developers. They argue that this definition could apply equally to autonomous blockchain software as well as operator-controlled services.

Coin Center suggests Congress should use the Congressional Review Act (CRA) to rescind the rule. If CRA efforts fail, they recommend lawsuits challenging its constitutionality. Their arguments include that the rule exceeds statutory authority, violates speech rights by compelling disclosure, and constitutes warrantless search and seizure.

Coin Center concludes by emphasizing their commitment to fighting what they see as an attack on civil liberties: “There’s no fate but what we make for ourselves.”