The IRS' proposal appears to require that any entity that might facilitate a crypto transaction collect information about the transaction's participants if they meet the definition of a "digital asset middleman."
"A person providing trading front-end services ordinarily would know or be in a position to know the nature of the transaction potentially giving rise to gross proceeds from a sale of digital assets if that person maintains control or sufficient influence over the trading front-end services to have the ability to determine whether and the extent to which the transfer of digital assets involved in a transaction gives rise to gross proceeds," the rule said.
This includes any person who has the ability to amend or change "the terms under which the services are provided," or can add instructions soliciting information from the transaction processing.
Less clear is how exactly developers who aren't themselves operating any services might be affected, Coin Center said in a blog post.
"Today’s final rule could still obligate mere developers and infrastructure providers to surveil and report on the users of their tools," the blog post said.
These obligations may be impossible to comply with for certain developers, Coin Center suggested in the post.
"So if you add immutable encryption-based restrictions to your software that protect the privacy of your software users and also prevent you from being in a position to know their transactions, you will still be obligated as a broker to learn the identity of the users of your software and report the details of their trades," the blog post said. "This is, in effect, a prohibition on building software tools that empower and protect users."
Miles Fuller of TaxBit said on LinkedIn that validators and wallet service providers are carved out, unless the wallet service providers are also providing effectuating services.
I imagine this won't be the last we hear about this rule in the months ahead.
