A $1T infrastructure bill will ultimately lead to two significant changes in the largely unregulated cryptocurrency industry. First, an as-yet indefinite group of people will be required to begin reporting cryptocurrency-related activity and income. And second, the bill will generate around $28 billion in infrastructure over the next decade. The government will allocate the funds to update roads, bridges, and broadband internet networks.
The future of crypto hinges on the word “broker”
Democratic Sen. Ron Wyden of Oregon and Republican Sens. Cynthia Lummis of Wyoming and Pat Toomey of Pennsylvania filed a bipartisan amendment narrowing which taxpayers will be subject to the reach of the new bill’s reporting requirements.
Wyden acknowledged a bipartisan belief in Senate that “investors failing to pay tax they owe through cryptocurrency is a real problem.” However, his concern is that the bill’s current language risks sweeping actors into that will be incapable of fulfilling its mandates.
The existing bill defines a broker as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
How the Wyden amendment defines “broker”
The amendment sought to narrow the definition of “broker” such that crypto miners, stakers, and hardware and software developers are not required to report their customers’ activity. The senators maintain that it is unrealistic for these businesses to record and store customer activity in the first place. The amendment narrows the definition of brokers to “those persons who conduct transactions on exchanges where consumers buy, sell and trade digital assets” and exempts digital asset developers from monitoring individuals who are not their customers.
Rob Portman’s response and a White House statement
Republican Sen. Rob Portman of Ohio, who drafted the original tax provision, and Mark Warner D- Va. and Krysten Sinema, D-AZ. submitted a new amendment that excluded “proof of work” as well as hardware and software sellers. However, it left out software developers. The White House released a statement favoring the Portman bill, which lit the cryptocurrency world aflame on social media.
What happens once “broker” is defined?
In the end, whatever actors fall under the definition of “broker” will be expected to collect and report names, addresses, and transactions to the IRS. The recorded individuals will almost definitely be required to pay taxes on their trades. If software developers are required to report, there is concern amongst crypto experts that development and innovation will move out of the country to jurisdictions with more lax tax reporting laws.
In the meantime, $28 billion in tax revenue and the tax returns of crypto traders nationwide hang in the balance.