The massive $550 billion United States infrastructure bill apparently has bipartisan support to pass the Senate, but a small clause introduced last week regarding cryptocurrency tax information reporting has some crypto advocates fearing the worst. Over the weekend, the situation appeared to improve slightly.
Congress seeks to raise $28 billion of the bill’s total by expanding the definition of a broker for tax purposes. As of Friday, the bill’s language specified that it was “any person who (for consideration) is responsible for and regularly provides and services effectuating transfers of digital assets.”
Industry advocates feared that the language was too broad, and could affect cryptocurrency miners, the transaction validators who help maintain proof-of-stake blockchain networks, and perhaps even decentralized finance (DeFi) users such as liquidators or governance token holders.
If true, then those individuals would have to meet IRS reporting requirements, including filing 1099 forms, thus ratcheting up the amount of financial surveillance on cryptocurrency users. In adding such a provision, the Senate aims to boost tax payments on crypto transactions to generate funds for the bill.
On Sunday, the language was fine-tuned in the final draft of the bill to expand the broker definition for tax purposes to “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
Jerry Brito, executive director of crypto industry think tank Coin Center, tweeted about the changes and claimed that there is still room for improvement. “We didn’t get the language we wanted in the final bill text,” he wrote. “It’s better than where it started, but still not good enough to clearly exclude miners and similarly situated persons.”
1/ We didn't get the language we wanted in the final bill text. It's better than where it started, but still not good enough to clearly exclude miners and similarly situated persons.
Here's how it started and the final with the changes we were able to get. pic.twitter.com/Y0LSUf7UEY
— Jerry Brito (@jerrybrito) August 2, 2021
According to Brito, an amendment process will begin today, and he is working with “our friends and allies in the Senate,” as well as “a committed group of crypto orgs and firms” to try and clarify the language in the final bill.
Decrypt has reached out to Coin Center for comment on the process ahead and how they hope to see the language clarified. We will update this article if we hear back.
Jake Chervinsky, General Counsel for Compound Finance and DeFi chair for the Blockchain Association, also tweeted: “We’ve made progress, but the language is still unacceptable. Next, we’ll advocate for an amendment on the Senate floor. If that fails, we’ll take our fight to the House.”
Last week, Chervinsky tweeted that the provision as previously written would be impossible for miners to satisfy, due to an inability to get needed information for a 1099 form. He suggested that it could equate to “a de facto ban on mining in the USA.”
While the updated language seems to exclude miners and the like, Brito wrote in a tweet response that Congress can do more to make it unambiguous. “That’s what miners will have to argue in court if the IRS demands they report, but it would be better to avoid that possibility. If Congress intends to exclude them, they can do so very easily,” he tweeted.
The Blockchain Association, which represents 46 member companies including Compound, Binance.US, and Ripple, issued a statement this morning suggesting that although the bill language has improved, there’s still work to be done.
“While some minor improvements have been made, the latest language still poses fundamental concerns and questions about certain terms and definitions used in the provision,” said Blockchain Association Executive Director Kristin Smith, in a statement.
“This provision is written in a way that could be interpreted to apply to persons in the crypto ecosystem who don’t have access to the information required for information reporting,” Smith added. “If these network participants—who don’t have any customer relationships—are required to provide such information, it will be impossible to comply, driving innovation and business overseas.”