Senate Finance Chair Ron Wyden, D-Ore., filed an amendment to the bipartisan infrastructure bill on Wednesday aimed at making clear that reporting rules for enforcing taxes on cryptocurrency transactions wouldn’t apply to intermediaries such as miners and firms that develop secure “wallets” for storing digital assets.
Wyden joined with Patrick J. Toomey of Pennsylvania, the Senate Banking panel’s top Republican and a Finance Committee member, and Cynthia Lummis, R-Wyo., on the proposal to tweak that portion of the package after industry groups scrambled to lighten the IRS reporting mandates, arguing that applying them too broadly could push businesses overseas.
More senators could sign onto the amendment, Wyden told reporters on Wednesday, describing the edits as “hopefully in the home stretch.”
The Joint Committee on Taxation estimated the original provisions would boost tax collections by $28 billion over a decade. The bipartisan amendment seeks to clarify that reporting obligations apply only to individuals conducting transactions on exchanges where digital assets are bought, sold and traded, not those who mine or validate cryptocurrency, or make wallets for holding the digital tokens.
Wyden had suggested the changes could come in a manager’s amendment, which includes adjustments senators have generally agreed to ahead of time.
The Finance Committee’s ranking Republican, Michael D. Crapo of Idaho, said on Tuesday that he would support adjusting the crypto provision and that several amendments were in the works. Sen. Ted Cruz, R-Texas, proposed an amendment that would scrap the provision entirely.
Senators slipped reporting requirements for transactions involving digital coins such as Bitcoin and Ethereum into the bill last week as it was finalized, covering some of its cost after other “pay-fors” were dropped. Increased IRS funding to crack down on tax avoidance by businesses and wealthy individuals was left out of the deal after Republicans soured on that offset.
Cryptocurrency reporting rules enjoyed support from the Biden administration and lead GOP negotiator for the deal, Sen. Rob Portman of Ohio, who had separately each proposed new crypto requirements aimed at addressing the “tax gap” earlier this year. IRS Commissioner Charles P. Rettig has estimated the difference between taxes owed and paid to the federal government is about $1 trillion per year.
The provision in the infrastructure bill would add those who regularly provide services for transferring digital assets on behalf of others to the definition of a “broker” required to provide certain information to the IRS. The rules, which currently apply to stock trades, require brokers to provide tax forms to the IRS and customers showing their name, address and gross proceeds for transactions. The new mandates would apply in 2024.
The bill would also require business transactions involving more than $10,000 in cryptocurrency to be reported to the IRS, adding digital coins to rules that apply now to large cash payments. That requirement has received less pushback.
Groups lobbying on the bill on behalf of blockchain networks, cryptocurrency investors and other parts of the industry have argued the definition of a broker in the bill could be interpreted to apply to intermediaries that play a role in transactions but don’t take control of digital assets or collect personal information on their owners. Wyden and Toomey have expressed similar concerns.
‘Here to stay’
Their amendment with Lummis would add text that specifies reporting obligations would not apply to anyone engaging in the business of validating cryptocurrency transactions; selling hardware or software to control private keys used to access digital coins, also known as wallets; or developing digital assets for others who aren’t customers.
“Digital assets are here to stay,” Lummis said in a statement. “While much more work needs to be done, this amendment is a responsible step toward fully incorporating digital assets into the U.S. financial sector. The digital asset and financial technology space is incredibly complicated, and we have spent long hours working in the Senate, with industry stakeholders, and with the administration to find a way to effectively integrate digital assets into our tax code without harming the technology or stifling innovation.”
Industry groups announced support for the senators’ amendment on Wednesday. The Blockchain Association; cryptocurrency exchange platform Coinbase; Coin Center, a think tank; venture capital firm Ribbit Capital; and digital payment company Square Inc., which is building a Bitcoin business, said in a joint statement that they share the lawmakers’ concerns with the current language and back their proposed changes.
“Clarifying the provision to address our concerns would not affect the reporting requirements on crypto exchanges that operate on behalf of customers,” the groups said. “We support sensible reporting requirements that are consistent with those that apply to traditional financial services.”
Portman has said the existing language does not apply to the industry players that Wyden, Toomey, Lummis and industry groups are concerned about. On Tuesday, he and Sen. Kyrsten Sinema of Arizona, the lead Democrat negotiating the deal, entered into the record a JCT explanation of the provision.
Portman said in a series of tweets on Tuesday that the provision would make it easier for people to pay their tax bills by standardizing the information crypto-brokers report.
“The legislation does not impose new reporting requirements on software developers, crypto miners, node operators or other non-brokers,” Portman said. “It simply says that brokers must comply with standard information reporting obligations. Which many already do!”
Lindsey McPherson contributed to this report.