The 2,700-page bipartisan infrastructure package includes a cryptocurrency provision as a pay-for sparking intense activity to get this language corrected. The current language on cryptocurrency and digital asset reporting requirements would undermine the entire ecosystem and jeopardize the privacy of millions of Americans with its overly broad and vague reporting requirements on cryptocurrency and digital assets.
As written, cryptocurrency brokers and individuals involved in crypto transactions will be required to file tax returns if they receive more than $10,000 in a transaction. Such a threshold opens the door to fishing expeditions into taxpayers. Proponents argue this a way to generate more tax revenue. The Joint Committee on Taxation claims that this proposal will raise approximately $28 billion in revenue to offset some $550 billion in spending, but that figure is contrived. The extreme volatility of the of crypto markets raises skepticism of how they arrived at that figure.
While not generating any real revenue, the new requirement would impose a real cost on users from the time and labor it takes to collect and identify all the information needed to file tax returns to the IRS. Cryptocurrency brokers, much like stockbrokers, would have to notify cryptocurrency traders of their obligation to report personally identifiable information (PII) for a tax return on any digital asset. The broker will be required to collect the name, address, and phone number of the trader. Brokers will also be required to file returns identifying information on the individuals involved in the transactions.
But the overly broad language as to who is considered a “broker” for crypto and digital assets implicates far too many aspects of the blockchain ecosystem. Fortunately, Senators Pat Toomey (R-PA) and Ron Wyden (D-OR) have echoed the same criticisms, agreeing that the provision would pull in “non-financial intermediaries like miners, network validators, and other service providers,” calling it “unworkable” and saying they would offer an amendment.
IRS reporting requirements remain onerous no matter who has to comply. Least of all should Congress require those who have no insight in to financial aspects of individual or broker accounts to comply with IRS reporting obligations.
In the first half of 2021, the amount of global crypto users doubled to 200 million. This immense growth will be stunted in the face of rushed, ill-conceived regulation.
Congress should attempt to encourage the growth of privately developed and operated digital currencies instead of subjecting them to additional tax requirements, which is more than likely to alienate certain cryptocurrency users and encroach on the privacy of individual cryptocurrency holders.