All eyes in the crypto space have been on American legislators recently, as a provision in the U.S. Senate’s infrastructure bill could have disastrous consequences for cryptocurrency tax rules—and the future development of crypto in the United States.
The bill, widely rejected throughout the industry, includes a provision for imposing stricter rules on how “digital assets” are taxed. This, lawmakers argue, will help pay for the landmark $1 trillion bipartisan infrastructure bill.
So, what does the bill involve, and what does it mean for crypto?
The $1 trillion bipartisan infrastructure bill was passed by the Senate in the early hours of Wednesday morning (Aug. 11). The vote has been heralded as a major win by the Joe Biden administration. The White House claims that the infrastructure bill will create millions of jobs through an unprecedented investment in the country’s infrastructure—from updating the national power grid and overhauling roads and bridges to rolling out greener policies for electric cars.
While making it through the Senate is arguably the largest hurdle, the House must still approve the bill before it becomes law. And speaker Nancy Pelosi is reportedly pledging not even to consider it without a $3.5 trillion reconciliation bill that would provide access to healthcare for millions, create a pathway to citizenship for immigrants, and invest in education and other key areas.
The White House has proposed several financing sources to pay for the bills, the most significant of which is closing the “tax gap” (roughly, the difference between the estimated amount of taxes owed to the Internal Revenue Service (IRS) and the actual amount of taxes paid every year). This will give the IRS the power to collect some $700 billion worth of additional tax revenue over the next ten years to channel toward the infrastructure bill.
The bill has the potential to seriously affect cryptocurrency tax rules, as a provision was added at the eleventh hour in ambiguous language that could halt innovation in its tracks. Beyond reporting transactions of above $10,000 to the IRS (which is already mandated), so-called “brokers” would be required to report gains using a kind of 1099 form.
This provision was met with furor by the crypto community and key Senators alike as the definition in the bill defines brokers as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” The concern is that the definition is too broad and could make some cryptocurrency ecosystem participants vulnerable.
With the strong backing of the cryptocurrency community, digital asset advocate and Wyoming Senator Cynthia Lummis, along with the support of Senators Ron Wyden and Pat Toomey, introduced an amendment to the bill that would change the definition of “broker” to exclude miners, validators, and developers.
“Our amendment will ensure non-financial intermediaries like miners, network validators and other service providers—many of whom don’t even have the personal-identifying information needed to file a 1099 with the IRS—are not subject to the reporting requirements specified in the bipartisan infrastructure package,” Toomey told CNBC on Aug. 4.
Ohio Senator Rob Portman, along with the support of senators Mark Warner, and Kyrsten Sinema, also submitted their own amendment to the “broker” definition. While it proposed to clarify the language, it received less support from the crypto community as it was deemed not to go far enough. Unfortunately, both amendments were rejected.
The bill isn’t yet over the line and could meet with some resistance when it reaches the House. Moreover, while the amendments have been rejected at this stage, their proponents remain hopeful that all is not lost and that there is still a chance to change the bill at the House. Senator Lumis said on Twitter:
Thank you to @RonWyden and @SenToomey for fighting with me for the innovators that make our country great. The fight isn’t over. It always takes work to convince skeptics of the merits of new technology
If the Lumis-Wyden-Toomey amendment is approved, it will safeguard the entities that don’t broker digital assets and don’t have customer information to report to the IRS. This would mean that miners, stakers, and blockchain developers (who don’t usually have customers) would be exempt from complying.
If the Portman-Warner-Sinema amendment is approved, many in the crypto community believe it would not be sufficient to protect blockchain developers and validators. The amendment only protects Proof of Work (PoW) projects that entail miners than Proof of Stake (PoS) projects that involve validators.
If neither of these amendments is approved when the bill makes it to the House, the future development of the cryptocurrency industry in the United States could be called into question and even have the effect of sending innovation offshore. Crypto business and trading moving overseas could impact the entire crypto market and, without protections for developers, many may be forced to seek friendlier pastures, such as Singapore.
Still, nothing is set in stone just yet. As the Blockchain Association pointed out in a tweet:
“This fight isn’t over. If they didn’t before, Washington now understands the power, passion, intensity and dedication of the crypto community. We plan to continue to fight to keep crypto in the U.S.”
Senator Lumis echoed the sentiment:
“We will continue to look for ways to fix the digital asset language in this bill. It might not be today, but we won’t give up.”
The rejection of the amendments may have been a blow to crypto but, as the asset class grows ever larger and gains the support of more influential voices, the industry in the U.S. certainly won’t go down without a fight.
It feels like only yesterday that celebrities from Stephen Curry to Jimmy Fallon were clamoring to purchase Bored Apes. The average sale price for BAYC NFTs reached an eyewatering $200,000, with some individual pieces commanding over $1,000,000. But that was so 2021.
Just as many investors were getting comfortable with the concept of stablecoins and their place in the crypto market, the TerraUSD (UST) scandal caused them to stop in their tracks.
Bringing digital assets to the world.
EQONEX is a digital assets financial services company focused on delivering a full, digital asset ecosystem that offers innovative, trusted, and transparent products and services.
© 2022 EQONEX Capital Pte Ltd
All rights reserved.