To get Republican buy-in, Congressional Democrats have avoided adding tax increases to the bipartisan Infrastructure Investment & Jobs Act currently under consideration in Congress. How will they fund the bill? One tax-related source of revenue would come from broker reporting on digital assets. The legislation, H.R. 3684, requires crypto-brokers responsible for transfers of digital assets, such as a sale on behalf of someone else, to issue a Form 1099-B to their customers. This is the same type of reporting currently required for traditional assets like stocks and bonds. It is estimated by the Joint Committee on Taxation that the provision would raise $28 billion over 10 years.
Broker Definition a Concern
The legislation defines digital asset “broker” in the Sec. 6045 reporting rules as:
“any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.’’
Asset brokers and cryptocurrency industry representatives are concerned that the definition of “broker” in the legislation is too broad. A Cato Institute blog makes the following observations:
The provision would dramatically expand the definition of a cryptocurrency broker, imposing reporting requirements on a wide range of cryptocurrency intermediaries… While far from the services of a broker, cryptocurrency developers, miners and wallet operators all regularly “effectuate transfers of digital assets.”
Senator Answers Critics
Senator Rob Portman, R-Ohio, is spearheading an effort to bring greater clarity to the definition of brokers subject to reporting in the bill language. “In particular, we want to be sure miners and stakers and others now or in the future who play a key role by validating transactions, or sellers of hardware or software for digital wallets, or node operators, or others who are not brokers are clearly exempted,” Portman noted, in remarks on the Senate floor.
The Treasury Department has said informally that it will not target non-brokers, such as miners and software developers, and that it is studying many issues regarding crypto-assets. However, it is doubtful that Treasury will release any formal guidance on the issue before the legislation is finalized.
Blockchain Caucus Requests Fix
Rep. Tom Emmer, R-Mass, of the Congressional Blockchain Caucus sent a letter to Members of Congress urging a fix for the broker language in the infrastructure bill. Emmer argues that, as written, the bill would impose a tax reporting obligation on noncustodial blockchain technology providers who do not broker transactions and have no way to comply. He states that the bill would require these non-brokers to collect personal information from users of blockchain networks. This burden could drive innovators and opportunities out of the U.S., he contends, so Congress must clearly exempt miners and developers from the reporting rules.
The bill has been passed by both Houses of Congress, but the Senate made changes and sent it back to the House in mid-August. House Speaker Nancy Pelosi, D-Calif., has set an October 1 deadline to pass the infrastructure plan along with a much larger spending bill. Because the Democratic leadership has tied the fate of the two bills together, the passage of the bipartisan infrastructure bill could get sidetracked over the more uncertain fate of the $3.5 trillion spending bill, which has no Republican support. If the bipartisan infrastructure bill fails, broker reporting may not be enacted at this point, but the issue is unlikely to go away. The consensus in Washington appears to be that the government needs to do more to regular the cryptocurrency industry.