The US Treasury Department is set to clarify that only bonafide cryptocurrency brokers - not developers, equipment providers, or miners - will need to comply with proposed IRS reporting requirements contained in the $1.2 trillion infrastructure bill, as long as they don't act as brokers.
In a statement to Bloomberg, an unnamed Treasury official said that the guidance won't grant blanket exemptions based on how firms identify - but would rather focus on the IRS's opinion of whether a firm's activities constitute brokerage activity under the tax code.
The guidance, which could be made public as soon as next week, is an attempt to address concerns in the cryptocurrency industry that the $550 billion infrastructure bill would require a host of companies with ties to digital assets to report data to the Internal Revenue Service that they don’t have. The tax provision, estimated to raise $28 billion over a decade, was included in the legislation as a way to help pay for new investments in roads and bridges.
The Treasury’s directive is crucial because lawmakers who want to revise the bill’s language in the House are unlikely to succeed, since altering the crypto section could open up the whole legislation to additional revisions. House Speaker Nancy Pelosi has said she’ll bring up the bill for a vote when President Joe Biden’s $3.5 trillion social spending and tax plan is also ready for consideration, which could be months from now. -Bloomberg
Ohio GOP Sen. Rob Portman, who drafted the cryptocurrency portion of the bill passed earlier this week by the Senate, said that he thinks the legislation is clear - and that miners, transaction validators, and software developers for digital wallets should be exempt from the new tax rules.
Crypto traders who rode out the last several weeks may beg to differ with Portman, as industry players and advocates slammed the legislation for overly-broad language that could subject anyone "regularly providing any service effectuating transfers of digital assets" to reporting requirements.
In an 11th hour attempt to provide clarity, a bipartisan group of senators brought an ill-fated amendment to the bill, but it was blocked via procedural moves. According to the Treasury official, some of the concerns over the broad language were valid, however much of the lobbying was aimed at limiting the Treasury's collection of legitimate tax information. Instead, the IRS isn't going to pursue businesses that don't actually transact cryptos.
According to the report, the upcoming guidance will clarify how the definition of 'broker' applies to entities which transfer digital assets on behalf of another person, which - along with however aggressive the IRS is on enforcement - will ultimately determine the number of companies required to comply with the new requirements.
The effort is also part of a broader push by the Treasury Department to crack down on tax cheats. IRS Commissioner Chuck Rettig has said tax evasion through the use of virtual currency is a key contributor to the growing gap between what’s owed in taxes and what the IRS actually collects.
In addition, more regulation is likely coming for the cryptocurrency community with prominent lawmakers, including Senator Elizabeth Warren, and regulators like Securities and Exchange Commission Chairman Gary Gensler both eager to address the emerging technology. -Bloomberg
"I don’t think people will notice much. Did everything die in crypto in the U.S. when Coinbase began 1099s a few years ago?" said William Quigley, the co-founder of stablecoin Tether and blockchain platform WAX. "Those worries, though, I think have started to settle down a bit," he added.
"I think the IRS is going to take note of what the intent was that was expressed by these senators."
Assuming the infrastructure bill is finally passed and signed into law, the new reporting rules won't go into effect until 2023, which will give ample time for crypto companies to adapt to the new requirements.