Cryptocurrency industry fears big tax hit in infrastructure bill

They see the new reporting requirements as potentially detrimental to the economic viability of the cryptocurrency markets, which saw a rapid increase in new users during the pandemic.

Given the potential new tax revenues and the advances that have been made on the bill, many doubt the language will be abolished, so they are focusing on efforts to achieve what they see as improvements.

Industry groups such as the Blockchain Association, Coin Center and the Association for Digital Asset Markets presented their rejection of the requirements in statements on Thursday, taking particular note of the provisions of the draft, which could lead to a targeted approach to individual users.

Perianne Boring, founder and president of the Chamber of Digital Commerce, said in an interview on Friday that her group proposed changing the language of the bill to “tighten the definition of brokerage” to make cryptocurrency miners and operators more decentralized Exclude financial platforms.

“The idea of ​​putting this in a Congressional mandate or as a source of revenue for something completely disjointed is not the preferred way or the right way to get the best policy,” Boring said, noting that ADAM and others have asked repeatedly have for further guidance from the IRS on how to enforce existing laws.

ADAM CEO Michelle Bond said, “It is vital that the industry is around the table to provide technical support for proposals of this magnitude.”

Tax compliance is considered a major problem with cryptocurrencies, and lawmakers are hungry for the $ 28 billion their proposals are supposed to raise to fund their massive spending plans.

The subject is complex and has potential implications for banking and securities law. It also crosses jurisdictions in Congress, from tax committees to banking boards.

The move to increase cryptocurrency reporting comes after Republicans thwarted a plan to strengthen IRS enforcement by heavily expanding the agency’s budget – something Democrats are expected to address in a separate tax reconciliation package.

IRS Commissioner Charles Rettig has repeatedly asked legislators for more powers to improve tax compliance in the cryptocurrency industry, where many market participants are unaware of their obligations or are simply cheating.

Although industry officials swear to fight the proposals, they are likely to have an uphill battle ahead of them.

The plan calls for a quick Senate vote, and lawmakers will refuse to blast a hole in the infrastructure proposal after weeks of fighting over how to meet the cost of the plan.

The fact that few lawmakers understand cryptocurrencies and their relationship to taxes means any lobbying requires a major educational campaign. The most knowledgeable member of Congress on the matter, Senator Rob Portman (R-Ohio), happens to be one of the lead authors of the larger infrastructure package.

Portman spokesman Drew Nirenberg said in a statement: “This legal language does not redefine digital assets or cryptocurrency as ‘security’ for tax purposes, violate the privacy of individual crypto owners or force non-brokers, such as software developers and crypto miners, to comply with reporting requirements comply with the IRS. It simply makes it clear that every natural or legal person who acts as a broker by facilitating business for customers and accepting cash must comply with a standard information obligation. “

Much of the proposal is intended to emulate the reporting system that is imposed when selling shares in companies such as Apple or Ford.

Brokers would have to report people’s so-called base, or the price at which they bought cryptocurrencies, as well as their gross proceeds – which would make calculating their tax bills a lot easier. Studies have long shown that knowing that someone else is reporting their income to the IRS independently are far less likely to evade tax obligations.

Legislators also want to include anti-money laundering regulations required by the Treasury Department, which require transactions worth more than $ 10,000 to be reported to the government.

Behind the scenes, lawmakers have been debating a language that would expand the definition of brokers to include decentralized exchanges with no traditional middlemen and peer-to-peer transactions, although some say the language of the proposal is broad enough to include others like cryptocurrencies Miners.

“The expansion of the definition of ‘broker’ comes as a surprise,” said Lisa Zarlenga, partner at Steptoe & Johnson LLP, which deals with cryptocurrency tax issues.

Another point of contention: provisions that could potentially extend beyond cryptocurrencies to other types of digital assets such as non-fungible tokens.

The Treasury Department had already worked on rules to tighten reporting requirements for brokers like Coinbase, but the imprimatur of Congress would help avert potential legal challenges to the agency’s power to enact new regulations.

Industry officials swear a fight.

Kristin Smith, executive director of the Blockchain Association, expressed frustration over the last-minute scramble to write the bill, saying it could place new demands on “all sorts of different actors in the ecosystem.”

“We believe this could have the effect of driving many of these actors and companies and individuals involved in cryptocurrencies overseas and really stifling innovation in this area here in the United States,” she said.

Although the plan is expected to raise $ 28 billion, it is highly uncertain and the estimate immediately raised some eyebrows.

While Congressional budget forecasters can confidently predict the cost of tax changes similar to those previously made by lawmakers – such as the expansion of the child tax credit – they invariably have a harder time coming up with new policy proposals.

Cryptocurrencies pose a particularly difficult challenge as their valuations can fluctuate widely, it is difficult to know how many people are buying and selling the assets, and forecasters have to make estimates of the tax rates they are likely to pay.

CORRECTION: This story has been corrected to say that the Chamber of Digital Commerce is pushing for the exclusion of cryptocurrency miners and decentralized financial service operators from legislation.