Lawmakers in the U.S. and President Joe Biden have finalized the details for a $1 Trillion bipartisan package for infrastructure. The plan also contains measures to improve tax compliance and comes with measures that are specifically directed at improving tax compliance around cryptocurrencies and crypto-assets.
A “Once In A Generation” Investment
The bill, described as a “once in a generation” investment in the U.S. infrastructure, also includes $550 Billion in new Federal investment into America’s infrastructure. This will be spent on constructing bridges, roads, high-speed internet, electric vehicles, shipping ports, upgrading public infrastructure, and other areas. The bill also outlines provisions that would enable the government to raise $28 billion from cryptocurrency transactions.
Crypto In The Firing Line
The plans to step up tax enforcement around cryptocurrency assets were not originally a part of the bill. However, they were added in at the last minute to raise additional funds for the infrastructure package.
The bill includes measures to increase tax enforcement, such as reporting requirements on exchanges and crypto brokerages. According to the bill, exchanges and crypto brokerages will be required to provide all details about cryptocurrency transactions equal to or more than $10,000 to the IRS.
A Broad Definition
Jake Chervinksy of Compound Finance tore into the proposed legislation on Twitter, breaking down the bill to highlight the consequences for the crypto industry. According to Chervinksy, the bill essentially broadens the definition of “broker” to include almost every economic actor involved in the crypto industry. The new draft could also include miners and validators.
The bill could cover DeFi markets and participants, too, such as Liquidity Providers, Decentralized exchanges, protocol governors, and liquidators.
Potential For Surveillance Or a De Facto Mining Ban
Chervinksy also highlighted the potential for surveillance, as the tax code mandates that brokers comply with IRS reporting requirements and have to give their customers Form 1099s and file them with the IRS. The form requires that brokers collect customer data, including personal details such as phone number, name, and address.
This essentially would mean that brokers will need to verify all KYC for their customers to comply with the IRS reporting requirements, defeating the entire purpose of crypto, whose users are pseudo-anonymous. For non-custodial actors such as miners, it is almost impossible to get the required information required for Form 1099s, which in practice could point to a de facto mining ban in the U.S.
Improving Tax Compliance
The latest crypto legislation is part of a bipartisan infrastructure bill that is highly likely to pass. The bill includes provisions to raise revenue for spending and ensure that it is revenue-neutral. The definition of “broker” has been included as one of the pay-for provisions in the draft of the bill.
Revenue can be raised through current taxes, new taxes, or improving tax compliance, with crypto falling into the third category according to legislators, with the “broker” definition set to add $28 Billion in added tax revenue.
A Misguided Proposition
Chervinksy called the provision “misguided” and said it could do more harm than good for the following reasons.
- Compliance is nearly impossible, and the bill could end up killing the crypto industry in the U.S.
- It would be a massive failure of foreign policy as many in the crypto space were hoping America would capitalize on China forcing miners out.
- Losing the crypto industry would do more harm than good, with the U.S. losing more revenue if the crypto industry decided to move offshore.
- It would jeopardize the discussion with FinCEN, discussions that were bearing fruit.
- It places a burden on civil rights, and Article 4 places limits on surveillance without a warrant.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.