People have not given much thought to what has been labeled as the year’s ‘biggest regulatory item’ by Kristin Smith for about two years.
The Blockchain Association’s executive director was talking about the bipartisan infrastructure plan worth $1.2 trillion that had been signed into law by President Joe Biden on November 15th, 2021.
In signing the law, the US President had given approval for a new tax rule, which provides a new definition of broker.
The new definition applies to anyone providing services that facilitate digital asset transfers on behalf of others.
This had resulted in concerns in the crypto industry about the law applying to stakers, developers, miners, and others who do not have the usual relationship with people on behalf of whom they work.
Tax experts had said at that time that the crypto industry would not be able to do much until the Internal Revenue Service (IRS) figures out how the rule will be implemented.
It had been estimated back then that it would take at least two years for the new tax rule to be implemented, but nothing of note has happened as yet.
Smith said that they were expecting the IRS to make a move this year. She added that the IRS was quite reasonable and she hoped she wouldn’t get in trouble for saying so.
If the IRS does take up what the Blockchain Association has said, then it is likely to collect tax information from centralized exchanges about their customers.
Smith said that they were hoping the IRS would start with centralized exchanges rather than validators, miners, or software providers.
She said that this was because the latter do facilitate transactions, but they do not have any control over the customers’ funds, which means compliance would be impossible for them.
An amendment had been put forward by Senators Pat Toomey, Ron Wyden, and Cynthia Lummis when the plan had been first introduced.
Its aim was to change the language for specifying that network validators, developers, and miners would not be part of the new definition of the term ‘broker’.
The Blockchain Association, Coinbase, Coin Center, Ribbit Capital, and Block Inc. (formerly known as Square) backed the amendment.
Coinbase had claimed that the provision was too vague and broad and had asserted that such devastating legislation should not be introduced in the crypto industry without public recourse.
The company said that it would favor reporting requirements that are sensible and consistent with the ones that are applicable in the case of traditional financial services.
However, the amendment had not been able to get the required number of votes, which means the original provision had been left in place.
Coinbase had asserted that the said provision would result in financial surveillance on a massive scale. Nonetheless, Smith hopes that the rule’s implementation by the IRS would not be the same.
She is hoping that the authority would implement it in the way the amendment had suggested.