The $100 billion infrastructure bill passed by the Senate includes a plan to help cryptocurrency brokers obtain tax reporting requirements similar to the way stockbrokers report to the IRS customer sales. One of the ways lawmakers proposed is to pay for $1 trillion in infrastructure legislation would be to introduce a tax reporting requirement for cryptocurrency brokers, just as stockbrokers report their customer sales to the IRS. This could pave the way for tighter regulation of cryptocurrency as the Biden administration moves forward with its push for tax compliance.
Early plans to fund the legislation through increased IRS enforcement and a crackdown on tax fraud by individuals and businesses would raise an estimated $100 billion over ten years. According to the Federal Highway Administration, it would cost approximately $256 billion to replace bridges across the country classified as deficient. The plan would raise $28 billion over the next decade, congressional auditors have estimated.
While the bill’s authors focused on closing the cryptocurrency tax loophole to fund the massive spending plan, critics say the $1 trillion infrastructure bill fails to regulate the cryptocurrency industry. According to crypto advocates, the bill includes vague new tax reporting requirements that digital rights activists claim to threaten individual privacy and hinder industry innovation in the U.S. Instead of going back to the drawing board, plans have been hatched for stricter reporting requirements for cryptocurrency brokers.
After the backlash from the cryptocurrency industry, lawmakers returned to the drawing board over the weekend to propose new reporting rules. In May, a Biden administration in the United States published a tax compliance agenda as part of the American Family Plan that included a new proposal to report cryptocurrencies to crack down on illegal activities such as tax evasion. But shortly after the law was passed, senators blocked proposed changes to a provision that would have imposed reporting requirements on the crypto industry.
The SEC, which has won dozens of cases against cryptocurrency fraudsters, said Gary Gensler, appointed chairman of the Securities and Exchange Commission by Biden, that the SEC needs more powers from Congress and more funding to regulate the cryptocurrency market, which he calls full of fraud, fraud and abuse like the Wild West. More crypto-regulation and enforcement are on the way, but it’s a matter of when not if. The SEC has won a dozen cases against crypto fraudsters, but Gensler’s said the agency needs “more powers” from Congress as well as more funding to regulate the market better.
The debate over the cryptocurrency landed in the middle of the Senate’s work on a massive infrastructure package. Early plans to pay for the bill by strengthening IRS enforcement to crack down on tax fraud by individuals and corporations collapsed after Republicans objected to expanding the scope of the agencies. After weeks of wrangling, the Senate passed a bipartisan infrastructure package by a 69-30 vote.
As evidence of the explosive growth of cryptocurrencies in recent years and the enticing potential for revenue streams, government officials have increased pressure to rein in the unregulated market. The Senate passed an infrastructure bill with an amendment to crypto tax reporting that has been on hold for weeks in the House-passed bill. The most widely traded cryptocurrency, Bitcoin, was worth $45,000 in April but has since fallen to $64,800.
The cryptocurrency community may be battered, but events in Washington are not a total loss, experts say. The crypto industry would have liked the bill’s outcome, as would politicians, policymakers, and regulators. The crypto industry is not opposed to taxes on cryptocurrency transactions. It supports progressive policies, but it does not, for example, support the way policymakers define “brokers” because it is unclear and unworkable at the time of practical implementation.
The bill’s original wording passed the Senate but was amended when it reached the House of Representatives. After objections from the crypto industry, which saw the way in which the policy defines “brokers” as hostile to technology and innovation, amendments were introduced by Senators Pat Toomey (R-PA) and Cynthia Lummis (R-WY) to clarify this. Now that the bill has passed the House of Representatives, the rules have been changed.
The Senate passed the bipartisan infrastructure bill, which sets the tax reporting rules for the cryptocurrency industry, which could generate an estimated $28 billion in revenues to fund projects listed in the bill, including $110 billion for roads and bridges and $65 billion for broadband. The most controversial wording in the Infrastructure Act requires crypto brokers to report customer information, including transactions, to the Internal Revenue Service. Another provision ensures that cryptocurrency agencies and brokers of digital currencies must report their transactions with digital currency and digital assets to the IRS.
The provision defines brokers that opponents say will stifle innovation by imposing new tax reporting requirements on software developers, crypto-miners, and users who create coins, lend computing power, verify transactions between other users, and receive coins in return. They do not have access to the user data of the cryptocurrency that the IRS collects, opponents say. They also won’t get access to the data of cryptocurrency users that the IRS may be collecting, they say.
The growing cryptocurrency lobby has failed in its attempt to get rid of new reporting provisions in the final version of the bipartisan Senate infrastructure bill passed Tuesday. At the heart of this is the definition of “crypto-broker,” which is written in a language so broad and unspecified that some have interpreted it to include anyone involved in any type of crypto-transaction. A compromise failed in the Senate, shifting the debate on cryptocurrency taxes and brokers to the House.
A bipartisan group of senators unveiled the text of a $1 trillion infrastructure package that includes $550 billion in planned federal spending on roads and bridges, broadband expansion, and more. A half-dozen senators and two competing amendments agreed on who would oppose the amendments and their differences, with Ron Wyden the most notable last-minute amendment denier. Still, the potential concerns of multi-million-dollar cryptocurrency owners will not have much impact on the way the infrastructure bill is guarded on its agonizing journey to Biden’s desk.