The Senate’s bipartisan infrastructure deal includes new tax-reporting requirements on cryptocurrency and digital-asset transactions, and the industry’s supporters in Washington are warning of the severe impact it could have on the nascent industry.
According to a draft copy of the deal reviewed by MarketWatch, the bill would require any person who regularly provides a service that executes transfers of digital assets to report those transactions to the IRS, like securities brokers must do for stock and bond trades today. It would also require businesses to report digital-asset transactions of more than $10,000.
These requirements would enable the IRS to collect money already owed by law, but which often go untaxed because the government doesn’t know about these transactions. According to a summary of the plan by the Joint Committee on Taxation, the changes would raise $28 billion over ten years.
“Crypto has been around since 2008. For over ten years, the space has had zero regulatory clarity, but it took the Senate all of a few days to use crypto taxes as pay-fors for a bloated infrastructure deal,” Rep. Warren Davidson, a vocal crypto supporter, told MarketWatch in an email. The Ohio Republican also questioned whether the move was “skillfully crafted or maliciously ignorant.”
Kristin Smith, executive director of the industry group Blockchain Association, called the bill “hastily drafted” and argued in a statement that while “improvements to our nation’s infrastructure are important,” the provision would subject companies, like those who manufacture hardware for storing digital assets, to IRS reporting requirements they may not be able to comply with, because they don’t have visibility into their customers’ transactions.
“Instead of rushing through an untested provision with vast unintended consequences, we encourage Congress to work with industry to find language that works for all stakeholders, keeping America at the forefront of crypto innovation,” she said.
Jerry Brito, executive director of the think tank Coin Center, said on Twitter that his organization is “engaged” with congressional staffers and is trying to “fix” the bill to mitigate its impact on crypto firms.
Supporters of the move argue that the language simply levels the playing field between traditional financial assets and digital assets, while the $10,000 reporting requirement applies the same rules to cryptocurrencies that are applied to cash.
In April, IRS Commissioner Charles Rettig told the Senate Finance Committee the absence of crypto-transaction reporting requirements contributed to the upwards of $1 trillion every year in unpaid taxes due to the federal government, and asked Congress to pass a law to fix the problem.
“I think we need congressional authority,” he said. “We get challenged frequently, and to have a clear dictate from Congress on the authority for us to collect that information is critical,” Rettig said, adding that “most crypto virtual currencies are designed to stay off the radar screen.”