The cryptocurrency lobby won some major concessions in the $1 trillion infrastructure bill just approved on a bipartisan basis in the Senate, the New York Times reported on Monday, but are still pressing for more.
The Senate agreement doesn’t change much about how cryptocurrency will be taxed moving forward, but provisions that would kick in several years from now would make it harder for crypto investors to dodge taxes by expanding reporting requirements. This would raise an estimated $28 billion over a decade, all of which would be owed to the U.S. government regardless of whether a bill is passed. Industry groups say there are built-in technical barriers to full transparency—that legislators don’t understand, or don’t care, how anonymity is baked into the crypto market. And while lobbyists have generally agreed the industry will tolerate more regulatory oversight, the anonymity and potential to shield profits from the feds are part of the appeal of cryptocurrency in some quarters in the first place.
According to the Times, Joe Biden’s Treasury Department originally sought expanded reporting requirements for investors transferring cryptocurrency from one broker to another, or for any business that took in more than $10,000 in revenue from cryptocurrency. It also wanted more money for the IRS to crack down on tax evasion in general. The Senate later agreed on language in the infrastructure bill that didn’t give the IRS more enforcement money, but did have broad language that would expand the definition of broker to all parties involved in the transfer of crypto assets.
Lobbyists claimed that would impose regulatory burdens on everyone in the sector from miners (the operators of server farms that fuel cryptocurrency networks) to developers and everyday crypto holders. The Times reported that as of Monday, the Senate has responded and will “clarify” what a broker is instead of expanding the reporting requirements, as well as remove language singling out “any decentralized exchange or peer-to-peer marketplace.” The new Senate version defines a broker as anyone who takes a fee to be “responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” Roll Call wrote one aim all versions of the infrastructure bill agreed on was gaining greater insight into what kinds of deals U.S. taxpayers are making overseas without paying their fair share to the feds.
According to Axios, figures in the industry remain opposed, because the updated text still doesn’t clearly exempt “parties like miners, node operators, and software developers” working on things like wallets, as well as decentralized exchanges with no one individual or group in charge, and some of these parties might not be able to comply with the reporting mandate. For example, decentralized exchanges don’t have any central administration in place to implement the changes and don’t collect names of users, let alone other data like contact information or Social Security numbers. The result, industry groups have said, would be a de facto ban on some activities currently performed anonymously—for example, Axios noted Coin Center Executive Director Jerry Brito tweeted that the reporting requirements may be “unconstitutional surveillance.”
Blockchain Association Executive Director Kristin Smith told Bloomberg that the bill remains “hands-down the single greatest legislative threat that we’ve seen gain momentum.” Shehan Chandrasekera, the head of tax strategy for CoinTracker, told the news agency that while the bill treats cryptocurrency as “covered securities” requiring brokers to report how much any transferred asset was originally purchased for, in order to determine the tax implications of capital gains or losses. Chandrasekera added that when an exchange deals with someone who “transfers crypto from their hard wallet or a decentralized exchange that doesn’t share nor track cost basis information,” it wouldn’t be able to meet the reporting requirements.
Senate Finance Chair Ron Wyden is seeking additional changes to the bill which would specifically exempt software developers from the reporting requirements but keep that reference to exchanges intact, according to Roll Call. Republican Sen. Pat Toomey is also calling for adjustments to the language, Bloomberg separately reported.
DISCUSSION
Crypto is basically designed to protect terrorists, organized crime, and people interested in avoiding their share of taxes. Maybe not intentionally, but that’s still Crypto’s killer app and there's no way of getting around that.