Lawmakers Scramble To Fix ‘Devastating’ Tax Reporting Provisions In Infrastructure Bill

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FILE PHOTO: A representation of the virtual cryptocurrency Bitcoin

Lawmakers are working to fix cryptocurrency tax reporting requirements included in the bipartisan infrastructure bill.

The Infrastructure Investment And Jobs Act signed into law by President Joe Biden on Monday contains several digital asset reporting provisions opposed by the cryptocurrency industry and advocates of the technology, who view them as unworkable and stifling.

The first provision creates new reporting requirements for any entity deemed to be a broker, which is defined as “any person who is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” This means “brokers” have to collect and report customer information such as names, addresses and taxpayer identification numbers.

Opponents of the provision say the “broker” definition is too broad and could be taken to include software developers and “miners” — people who lend computing power to verify transactions in exchange for cryptocurrency — who lack that information, thereby creating an impossible regulation with which to comply.

“The Lone Star State has quickly emerged as the main hub for the cryptocurrency industry, and that exciting industry is now in danger of being stifled and driven overseas by an overreaching provision in this newly-signed, reckless spending package,” Texas Republican Sen. Ted Cruz said in a statement, calling the infrastructure bill’s reporting requirements a “devastating attack” on the crypto industry.

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Cruz, who had proposed removing the provision from the infrastructure bill in August before the Senate passed it, introduced a bill Tuesday repealing the broker definition altogether.

Democratic Sen. Ron Wyden and Republican Rep. Cynthia Lummis are also working on a bill aimed at fixing the broker definition, though their proposal clarifies the infrastructure bill’s language rather than repealing the provision altogether, Bloomberg first reported.

The second crypto provision in the infrastructure bill amends Section 6050I of the U.S. tax code and subjects certain individuals transacting in “any digital asset” to a tax reporting provision requiring businesses that receive more than $10,000 in a single transaction to report the name, address, and taxpayer identification number of their counterparty. The provision also imposes severe criminal penalties on those who fail to comply with the reporting requirements.

Some crypto advocates and lawmakers say the reporting requirement strips away financial privacy from citizens and potentially violates their constitutional rights under the Fourth Amendment, as well being potentially unworkable.

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House lawmakers introduced a bill Thursday with broad bipartisan support designed to address both the infrastructure bill’s crypto provisions. The bill, known as the Keep Innovation In America Act, is led by Republican Rep. Patrick McHenry and Democratic Rep. Tim Ryan, and is intended to clarify the broker language as well as strike the amendment to Section 6050I from law.

“We can fix these poorly constructed standards and ensure they are compatible with how this new technology actually works,” McHenry said in a statement. “The Keep Innovation in America Act will address these issues and provide additional clarity on the scope of these requirements.”

The legislation defines a broker as anyone who “stands ready in the ordinary course of a trade or business to effect sales of digital assets at the direction of their customers,” thereby excluding miners and software developers. The bill also replaces the amendment to Section 6050I with a study to be led by the Treasury Department examining the amendment’s possible effects.

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“We have to figure out how to balance consumer protections and reasonable oversight while simultaneously providing these technologies and companies with the necessary space they need to grow, innovate and democratize the financial sector,” Rep. Ryan said in a statement. “I’m committed to finding that balance, and I believe the McHenry-Ryan legislation is the best path to get us there.”

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