The IRS should prioritize centralized exchanges, according to a blockchain executive.

Most people haven’t given much thought to what Kristin Smith predicts will be the year’s “biggest regulatory item.”

The Blockchain Association’s executive director was referring to the $1.2 trillion bipartisan infrastructure plan signed into law by President Joe Biden on November 15, 2021. He used it to create a new tax rule that defines a “broker” as “any person who is regularly responsible for providing any service effectuating transfers of digital assets on behalf of another person.”

The crypto industry was concerned at the time that this would include miners, developers, stakers, and others who do not have a typical customer relationship with the people whose transactions they facilitate.

Tax experts predicted that the crypto industry would have little to do in 2021 until the Internal Revenue Service figured out how to implement the rule. They estimated at the time that it would take at least two years before anything happened.

We’ve arrived.

“We do expect the IRS to take this up this year,” Smith said on the gm from Decrypt podcast. She went on to say: “I believe the IRS is a reasonable organization. Is saying that going to get me in trouble?”

The IRS will focus on requiring centralized exchanges to collect tax information from their customers if the Blockchain Association has its way.

“Our hope is that they focus on that, because it’s obviously going to be very difficult if they start with miners, validators, and software providers, who help with transaction operation but don’t actually take control of customer funds,” Smith said. “Compliance will be impossible for them.”

Senators Cynthia Lummis (R-WY), Ron Wyden (D-OR), and Pat Toomey (R-PA) proposed an amendment when the spending plan was first introduced, stating that miners, developers, and network validators were not included in the “broker” definition.

Coinbase, Block, Inc. (formerly Square), Ribbit Capital, Coin Center, and the Blockchain Association all supported their amendment.

Coinbase issued an official statement saying that cryptocurrency “should not be subject to potentially devastating legislation without public participation and public comment,” calling the provision as written “too broad and vague.”

“We support reasonable reporting requirements consistent with those applicable to traditional financial services,” the company wrote.

However, the amendment did not receive enough votes, leaving in place a provision that Coinbase described as a “massive increase in financial surveillance.”

We support the digital asset provision in the infrastructure bill along with @Square, @RibbitCapital, @coincenter, and @BlockchainAssn. And we applaud @ronWyden, @senLummis, and @senToomey for proposing a thoughtful amendment to address the technical issues.
Read our official statement https://t.co/YrkohsDny7

August 4, 2021 — Coinbase News (@CoinbaseNews)

Smith is now hoping that the IRS will implement the rule in the manner that Senators Lummis, Wyden, and Toomey requested in writing. She believes the rulemaking will take several rounds of proposed IRS implementations, followed by invitations to the industry and tax professionals to comment, before anything is finalized.