The Impact on the Crypto Industry of the Upcoming Infrastructure Bill
What Is Actually In The Bill, The Proposed Amendment, And How It Will Impact The Industry
One of the main goals of the new Biden administration is to pass a massive $550 Billion infrastructure bill in a bi-partisan manner (which usually means the worst ideas of both parties make it in). This bill is huge, and what typically happens with large bills like this is that certain particular sections are often thrown in to either “pay for” a certain benefit or to garner support from specific lawmakers for the bill (usually because those sections would benefit one of their campaign contributors, which is basically bribery, but hey, that’s the system we’re in). Here, the situation is no different. As part of an effort to “find” more money to pay for the benefits, lawmakers (likely influenced by their Wall Street benefactors) inserted a section in the bill that would supposedly generate $28 Billion in revenue. Here’s the specific link to the actual text of the bill: https://s3.documentcloud.org/documents/21031186/edw21a09.pdf The pertinent pages are 2433- 2437.
The text basically changes the IRS regulation that determines the definition of a “Broker” to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” Currently, if the IRS considers someone a “broker”, they are obligated to report to the IRS (and to the taxpayer) the taxpayer’s payment history. The language basically makes anyone that handles digital assets a “broker” in the eyes of the IRS and imposing on them these reporting requirements, making tax reporting of cryptocurrencies such as BitCoin and Ethereum required or risk facing the wrath of the IRS (not something I would recommend).
There’s been some pushback from the industry, pointing out that the language could be construed to impact ordinary persons or DeFi platforms, both of which would be handling transactions of digital assets with wallets they own. Because of that pressure, an amendment to the bill is being submitted by Senators Ron Wyden and Pat Toomey:
Toomey said in a statement on Monday that the bill included “an overly broad definition of broker” that would include nonfinancial intermediaries such as miners and network validators that don’t have control of digital assets or related personal information. He’s also concerned it would allow the Treasury secretary to define a digital asset with broad discretion, according to an aide.
There’s no guarantee this amendment passes however, as it would need to cross the 60 vote threshold that the entire bill must also pass. However, given that the original intent of the bill, which is to regulate cryptocurrency and digital asset exchanges, would still be part of the new language, I’m optimistic it will stick.
If this new amendment doesn’t pass, but the law does, crypto developers, especially those working in DeFi protocols, as well as miners and others playing rolls in digital transfers, may be lumped into the IRS definition of brokers, causing issues for them. Luckily, regardless of any of this, none of these rules would go into effect until January 1, 2023, a lifetime for crypto these days so who knows where we’ll be by then. The good thing is that it looks like blockchain technology is getting attention from regulators, which will ultimately lead to more stability in the marketplace since we’ll all know the rules of the game. However, it’s important that Congress doesn’t overstep and inadvertently quash emerging technologies (especially at the behest of entrenched players such as banks and wall street brokers). All in all, the language along with the purported adjustments in the Amendment proposed will make it harder to dodge taxes with crypto, leading to less shady actors in the pool and a better and more sustainable industry (if it’s paying taxes, the government will want to keep it going).
Thanks for reading and please follow us on all of our social media accounts! Look out for our upcoming podcast and video content.
