Americans for Tax Reform continues to support legislative efforts to fix the overly-broad definition of a digital asset broker as passed in President Biden’s Infrastructure Investment and Jobs Act (P.L. 117-58). That is why ATR strongly urges lawmakers to support Rep. Patrick McHenry’s (R-N.C.) bipartisan Keep Innovation in America Act (H.R. 1414).
If enacted, the bill will ensure that crypto miners, validators, and software developers are not compelled to report transaction information to the Internal Revenue Service (IRS). Another provision of the bill removes a requirement that would mandate crypto transactions above $10,000 be reported to the IRS. Instead, the bill requires the Treasury Department to conduct a study on treating digital assets like cash.
Cosponsors of the bill include Reps. Ritchie Torres (D-N.Y.), Warren Davidson (R-Ohio), Ro Khanna (D-Calif.), Darren Soto (D-Fla.), Tom Emmer (R-Minn.), French Hill (R-Ark.), Eric Swalwell (D-Calif.), and David Schweikert (R-Ariz.).
Although the Treasury Department indicated that “ancillary parties” are not intended to report transaction information to the IRS, new leadership at Treasury could easily reverse course. The only surefire solution is to explicitly codify that non-brokers are not required to report transaction information to the IRS.
The reporting requirements, as enacted in Biden’s infrastructure bill, apply an incongruent framework to digital assets. The requirements are so broad that they would rope in validators, miners, and software developers because they are “effectuating transfers” of digital assets. Although individuals should pay the taxes that they owe, the new approach “attempts to apply the existing cost basis reporting framework used for stocks and securities to digital assets, despite the fact that there are significant differences between the digital asset ecosystem and the stock and securities markets.”
Individuals could be required to report “the name and address of the parties” and a transaction’s “gross proceeds” even if they are not brokers and do not possess this information. This is especially true for peer-to-peer transactions along decentralized finance protocols.
Both political parties are concerned with the possibility that America will be sidelined in the coming age of digital asset innovation. The flaws in the infrastructure bill are so broad that it will force entrepreneurs and innovators to take their investments and expertise overseas and render the United States a passive observer, rather than the key facilitator of new technologies. Already firms such as Nexo are leaving the U.S. market because of regulators’ obstinance toward the digital asset industry.
Former Rep. Kevin Brady (R-Texas) explained the situation best by noting that Rep. McHenry’s bill will ensure that the cryptocurrency reporting requirements are “meaningful and effective,” rather than just rendering the whole industry vulnerable to the IRS now wielding “untested, blunt instruments.”
Members of Congress should act swiftly and pass Rep. McHenry’s bill to alleviate IRS compliance burdens on the various players in the digital asset industry.