US Infrastructure Bill Passes House: Crypto Industry Braces for New Tax Reporting Rules

The digital currency realm is buzzing as the U.S. House of Representatives greenlights a massive $1.2 trillion infrastructure bill. While aimed at revitalizing America’s infrastructure, this bill carries significant implications for the crypto industry, primarily through a contentious provision concerning tax regulations. Let’s dive into what this means for crypto enthusiasts and businesses.

What Just Happened? Infrastructure Bill & Crypto: A Quick Recap

In a vote of 228-206, the infrastructure bill sailed through the House and is now headed to President Biden for his signature. But what’s the crypto angle? Tucked within this extensive legislation is a clause that has the crypto community on high alert. This clause seeks to broaden the definition of a “broker” within the tax code, potentially casting a wide net over various players in the digital asset space.

Here’s the crux of the matter:

• Expanded “Broker” Definition: The bill aims to include “any person who (for consideration) is responsible for regularly providing any service… effectuating transfers of digital assets on behalf of another person.”
• Reporting to IRS: Starting in 2024, this change could compel crypto exchange platforms to meticulously record and report digital asset transfers to the Internal Revenue Service (IRS).
• Mirroring Traditional Finance: This move essentially seeks to bring crypto reporting in line with the established practices of traditional stock exchanges.

Why Is the Crypto Industry Concerned? Decoding the “Broker” Definition

The crypto community’s apprehension stems from the ambiguity surrounding the term “broker.” Who exactly falls under this expanded definition?

Back in August, Representative Tom Emmer voiced these very concerns. He pointed out that the language in the bill could inadvertently encompass key crypto ecosystem participants who don’t fit the traditional financial “broker” mold. Think about:

• Software Developers: Are they now brokers if their software facilitates digital asset transfers?
• Validators: What about those who validate transactions on blockchains? Are they also considered brokers?

The worry is that this broad definition could impose cumbersome reporting obligations on entities that don’t traditionally handle customer funds like conventional brokers do.

Expert Opinion: What Are Crypto Legal Experts Saying?

Adding to the discourse, D.C.-based crypto legal expert Jake Chervinsky has weighed in, offering a sobering perspective. While some details are still pending, his initial assessment is clear:

“Yes, the crypto provisions are just as bad as they were months ago… Yes, the impact of Section 6050I has been underexplored… No, you don’t need to call your reps. The political reality is: it’s out of our hands now.”

Chervinsky’s words paint a picture of a provision that remains problematic and perhaps not fully understood in its implications. However, it’s not all doom and gloom for the immediate future.

Timeline & What’s Next: Breathing Room Before 2024

Here’s a crucial takeaway from Chervinsky’s analysis – there’s a window of opportunity.

“Importantly, nothing will happen right away. The crypto provisions don’t go into effect until 2024 (for FY2023 reporting). We can try to get them repealed or amended before then.”

This timeline provides a crucial buffer for the crypto industry. It’s not a done deal yet. There’s still room for action:

• Potential Repeal or Amendment: The industry and its advocates have time to lobby for a repeal or amendment of the crypto provisions before they take effect.
• Rulemaking by Treasury: The Treasury Department will need to define the scope of these provisions through rulemaking. This process offers another avenue for input and shaping the final regulations.

Key Takeaways: Navigating the New Crypto Tax Landscape

So, what should you remember from all of this?

• Infrastructure Bill Impact: The U.S. House passed a $1.2 trillion infrastructure bill that includes crypto tax provisions.
• Expanded Broker Definition: The bill broadens the definition of “broker” for crypto, potentially impacting various industry participants.
• IRS Reporting: Crypto exchanges may face mandatory reporting of digital asset transfers to the IRS starting in 2024.
• Industry Concerns: Ambiguity in the “broker” definition raises concerns about overreach and unintended consequences for developers and validators.
• Time for Action: The crypto industry has time to advocate for changes through legislative amendments and participation in Treasury rulemaking.

The passage of this infrastructure bill marks a significant moment for the crypto industry in the U.S. While the immediate impact isn’t set to unfold until 2024, the coming months will be critical. The focus now shifts to navigating the rulemaking process and potentially pushing for amendments to ensure that crypto regulations are clear, fair, and don’t stifle innovation. Stay tuned as this story develops – the conversation around crypto and regulation is far from over!

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