If the recently passed Senate infrastructure bill is signed into law, it will legally broaden the definition of a broker for tax purposes to include virtually anyone who deals with crypto assets.
That doesn’t mean that regulators in the United States will interpret it that way.
According to a Bloomberg report citing an unnamed official, the Treasury Department, which oversees the Internal Revenue Service and the Financial Crimes Enforcement Network among other agencies, is preparing to issue guidance that will not require third parties who aren’t actually asset brokers to follow new crypto tax reporting rules.
The cryptocurrency community was thrown into a frenzy late last month when a provision in a $1 trillion infrastructure package under consideration in the Senate defined “any person…who is responsible for and regularly provides and services effectuating transfers of digital assets” as a broker, requiring them to file 1099 forms with the IRS on behalf of customers.
Industry lobbyists argued that the tax reporting requirement, if broadly interpreted, could require miners and validators to file tax forms on behalf of those whose transactions they validated, not to mention crypto protocol developers and wallet providers. According to organizations such as the Blockchain Association and Coin Center, obtaining this tax information would be nearly impossible and could put a damper on the industry.
Over the next week, crypto advocates worked with lawmakers to amend the bill, but their efforts were ultimately futile when Senator Richard Shelby of Alabama blocked a last-ditch effort to explicitly exempt miners, validators, and others from the reporting requirement.
The bill is now on its way to the House, where Speaker Nancy Pelosi has stated that it will not be voted on until Senate Democrats muster the 50 votes required to pass a separate $3.5 trillion spending bill. Changes to the bill in the House are possible, but not guaranteed.
Today’s report, which cited an anonymous official, corresponds with Victoria Guida’s reporting for Politico. According to Guida, the administration “says the notion that they’d apply third-party tax reporting rules to entities like miners that aren’t actually brokers is ridiculous.”
According to Guida’s source, the provision instead served other purposes for the administration. For starters, it increased the IRS’s authority over cryptocurrency taxation. Furthermore, the bill’s broad language allows the Treasury to regulate technology as it evolves; the exclusions in the failed amendments could have complicated that.
“Who knows what types of entities might become brokers in the future that isn’t now?” Guida put pen to paper.
According to Blockchain Association Executive Director Kristin Smith, the report “only validates industry concerns: the crypto provision in the infrastructure bill includes hastily-drafted language that requires clarification.”
“Rather than clarifying language that isn’t even law,” Smith said, “We encourage the House to reject the crypto provision entirely and work with industry to craft language that keeps the United States a crypto innovation leader.”