Biden’s infrastructure tax would hogtie miners and developers, industry warns
A provision in the bipartisan infrastructure proposal could create problems for blockchain software developers, cryptocurrency miners, and other parties, industry advocates warn.
The provision would apply new IRS reporting requirements to cryptocurrency brokers, which lawmakers predict would bring in about $28 billion in revenue — although how it defines "broker" has caused some trepidation.
The draft iteration of the bill included language that would broaden reporting requirements to include any parties that might interact with cryptocurrencies. After pressure from the industry, the legislation introduced Sunday night defines brokers as anyone "responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person."
Some say it is broad enough to include node operators, developers, and miners. Crypto advocates are pointing out the language doesn’t explicitly exclude certain parties that could be forced into reporting requirements if the language is interpreted by the Treasury Department more broadly.
Alan Konevsky, chief legal officer of blockchain company tZERO, told the Washington Examiner the updated text of the bill is “better” for the cryptocurrency industry because it narrows the definition but said he and others in the field still think there is room for improvement.
“The concern is in particular that the definition doesn’t specifically exclude parties like miners, and software developers, and node operators, and other participants,” he said.
Sen. Pat Toomey, ranking member of the powerful Banking Committee, has objected to the language and announced on Monday he would offer an amendment to the legislation.
The Pennsylvania Republican described the text as “unworkable” and said if the definition of a broker were to expand to include non-financial intermediaries, they would not even have the information to file a 1099 with the IRS.
“Congress should not rush forward with this hastily-designed tax reporting regime for cryptocurrency, especially without a full understanding of the consequences,” Toomey said in a statement. “By including an overly broad definition of broker, the current provision sweeps in non-financial intermediaries like miners, network validators, and other service providers.”
Greg Zerzan, a shareholder at Jordan Ramis and former acting assistant secretary of the Treasury, told the Washington Examiner the provision in the legislation represents the federal government’s “ongoing attempt to get its head around crypto.” If passed as written, he said the legislation could provide the government with more information about who is trading cryptocurrencies and how much is out there.
“It’s possible that in implementing this provision, the Treasury would sweep in people that Congress did not intend to be included,” Zerzan said.
Zerzan said the bigger impact on the cryptocurrency markets might not be the language of the provision itself but rather what it represents: an attempt to understand the cryptocurrency market through regulation.
“That approach could, in the long term, have very negative effects on crypto,” he said.
Toomey’s colleague Sen. Ron Wyden, the chairman of the Finance Committee, also wants to alter the text of the provision. The Oregon Democrat hopes to ensure the new reporting rules don't apply to blockchain technology developers, which would have trouble complying with the edict. An aide told Roll Call Wyden thinks the language isn’t clear.
“Americans avoiding paying the taxes they owe through cryptocurrency is a real problem that deserves a real solution,” Wyden said of the provision on Twitter. “The Republican provision in the bipartisan infrastructure framework isn’t close to being that solution. It’s an attempt to apply brick and mortar rules to the internet and fails to understand how the technology works.”
Republican Sen. Rob Portman of Ohio has been involved in the bipartisan infrastructure plan, and his spokesman clarified to CoinDesk the bill did not intend to apply reporting requirements to entities such as miners or software developers.
“This legislative language does not redefine digital assets or cryptocurrency as a ‘security’ for tax purposes, impugn on the privacy of individual crypto holders, or force non-brokers, such as software developers and crypto miners, to comply with [IRS] reporting obligations,” said Drew Nirenberg.
Aside from concerns about how the language of the provision might be interpreted, some are dubious about the estimates for how much revenue the new reporting regime could raise.
Zerzan said he thinks it is probably “overly optimistic” for the government to collect revenue to the tune of $28 billion by changing reporting requirements.
“There would have to be an awful lot of tax dodgers out there to get anywhere close to $28 billion,” he said.
Much of the cryptocurrency market was in the red on Monday following news of the provision. As of Monday evening, Bitcoin was down 5.75%, Ethereum sunk about 3%, and Ripple fell more than 3.2%.