The United States Senate recently passed an infrastructure bill, H. R. 3684, which contains new regulations regarding the reporting of digital assets for cryptocurrency miners and software developers.
The regulations in the bill, entitled “Information Reporting for Brokers and Digital Assets” aims to extend cryptocurrency tax reporting requirements, which could raise money to help offset some infrastructure development. At issue is an addition to the definition of the term broker in Section 6045(c)(1) of the Internal Revenue Code of 1986. Currently, the bill would insert a new subparagraph which makes the definition include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” H. R. 3684, at 2434 (as of 8/11/2021). Such a literal addition would cause not only the intended effect of encouraging reporting from crypto exchanges, but also require that anyone who is involved with any service that involves cryptocurrency transfers be required to report their transactions, as a broker is required to do. This could include crypto miners, software developers, and others involved in crypto exchanges who cannot know who their “customers” are because of the anonymous nature of crypto mining, and are therefore incapable of reporting the necessary information that a broker is required to report by law.
The definition amendment was the source of public backlash and concern that the cryptocurrency sector could potentially be outsourced outside of the United States as a result of this legislation. A bipartisan compromise to the amendment was drafted in an attempt to correct the over-broad language of the bill. However, this amendment was blocked by the Senate on Monday, August 9th, 2021. The following day, the Senate and passed the bill in its original form without additional amendments. It is still possible for the bill to be changed in reconciliation, as it has yet to reach the floor of the House of Representatives for a vote. In addition, the IRS may further narrow the definition (should the bill be passed and signed into law) when adding the amendment to the definition of broker in the Internal Revenue Code.
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