November 18, 2021
ShareThe Controversy on the Cryptocurrency Provision in The Infrastructure Bill
The bipartisan U.S. Infrastructure Bill, which Senate approved on August 10, 2021, has caused quite a stir when a part of the bill counts on cryptocurrency taxes as one way to pay for the $1.2 trillion budget.
The cryptocurrency tax provision in the bill proposes tax reporting requirements for cryptocurrency transactions, thereby seeking to regulate and impose taxes thereon. In addition, it seeks to establish the U.S. Treasury’s authority to tax revenue from digital assets, similar to traditional stock transactions.
According to recent estimates, this proposed plan anticipates raising around $28 billion in revenue in 10 years.
The Cryptocurrency Market
It should be noted that the market for cryptocurrencies has grown to an estimate of $1.8 trillion.
Cryptocurrencies are basically digital or virtual “currencies” that are made up of computer codes. These assets are secured by cryptography, which means they are digitally signed each time they move from one holder to the other. This feature makes it nearly impossible for people to counterfeit or double-spend.
They are not tied to banks nor any government, thus, allowing users to spend money directly with anyone.
According to statistics, many American investors have an increasing interest in currencies like Bitcoin and Ethereum. Data shows that 6% of adults with over $10,000 stocks, bonds, or mutual funds investments also own Bitcoin. At present, bitcoin ownership can almost be likened to gold.
The Controversy
The cryptocurrency provision expands the definition of a “broker.” This expanded definition has raised concerns that the Internal Revenue Service might seek to impose broker information reporting requirements on non-broker entities such as miners.
That being so, it has unleashed opposition from the cryptocurrency industry and internet freedom advocacy groups.
One advocacy group even launched a #DontKillCrypto campaign to fight the provisions of the Infrastructure Bill, saying it would violate user privacy.
The crypto industry has shown a vigorous response to the bill, with think tanks, trade associations, and many more players rallying to create a change in the original language of the provision in the bill.
Ultimately, the definition of a broker and the proposed tax reporting obligations for cryptocurrency transactions is the crux of the matter.
The opposition claims that the provision’s definition of a ‘broker’ is too broad. As such, it could potentially stifle innovation by arbitrarily imposing new tax-reporting obligations on software developers and crypto miners.
Opponents have submitted proposed amendments to the provisions, but they failed to gain Senate approval. Consequently, the Senate sent the dispute over cryptocurrency, taxes, and brokers to the House of Representatives, which will discuss the controversy in Autumn.
Takeaway
Undoubtedly, the U.S. infrastructure plan will tighten the collection on cryptocurrency. It will make meaningful progress on tax evasion in the cryptocurrency market. At present, it is unclear how much freedom does the House has to modify the bill. Nevertheless, many are looking forward to the progress the bill may undergo. But one thing is for sure, the bill will undoubtedly impact the cryptocurrency industry in the future.
Timothy Shields is a Partner at Kelley Kronenberg focusing his practice on Technology, Data Privacy, and Social Media Representation. Tim serves technology companies as general counsel for a flat monthly rate based on the company’s needs starting at $1300/month.
Contact Timothy Shields at:
Phone: 833-830-HELP (4357)
Email: tshields@kklaw.com