They see the new reporting requirements as potentially damaging the economic viability of cryptocurrency markets, which have seen rapid expansion in the number of new users during the pandemic.
Given the new tax revenue that could be at stake and the progress being made on the bill, many doubt the language will be scrapped, so they are focusing on efforts to make what they see as improvements.
Industry groups, including the Blockchain Association, the Coin Center, and the Association for Digital Asset Markets, expressed opposition to the requirements in statements on Thursday, taking particular note of provisions in the draft that could lead to targeting individual users.
Perianne Boring, founder and president of the Digital Chamber of Commerce, said in an interview on Friday that her group was proposing to change the wording of the bill to “tighten up the definition” of what constitutes a brokerage business to exclude cryptocurrency miners and operators of decentralized financial platforms.
“The idea of inserting this into a mandate from Congress or as a revenue generator for something completely independent, is not the preferred way or the right way to get the best policy,” Boring said, noting that ADAM and others have repeatedly asked for more advice from the IRS on how to apply existing laws.
ADAM CEO Michelle Bond said “It is extremely important that the industry is at the table to provide technical assistance to proposals of this magnitude.”
Tax compliance is seen as a major issue with cryptocurrencies, and lawmakers are hungry for the $ 28 billion their proposals are expected to raise to help fund their onerous spending plans.
The issue is complex and can affect banking and securities law. It also crosses congressional jurisdictions, from tax commissions to banking panels.
The move to tighten cryptocurrency reporting requirements comes after Republicans halted a plan to strengthen IRS enforcement by significantly increasing the agency’s budget – something Democrats should address. ‘attack in a separate fiscal reconciliation package.
IRS Commissioner Charles Rettig has repeatedly called on lawmakers for more power to improve tax compliance in the cryptocurrency industry, where many market participants are either unaware of their obligations or outright cheating.
While industry officials are committed to fighting the proposals, they will likely face an uphill battle.
The plan is heading for a quick Senate vote, and lawmakers will be reluctant to dig a hole in the infrastructure proposal after struggling for weeks on how to cover the cost of the plan.
The fact that few lawmakers understand cryptocurrencies and their relationship to taxes means that any lobbying effort will require a major educational campaign. The most expert member of Congress on the matter, Senator Rob Portman (R-Ohio), happens to be one of the main authors of the larger infrastructure package.
Portman spokesman Drew Nirenberg said in a statement: “This legislative language does not redefine digital assets or cryptocurrency as ‘security’ for tax purposes, does not attack the privacy of holders individual crypto or does not require non-brokers, such as software developers and crypto miners, to comply with IRS reporting obligations. It simply clarifies that any person or entity acting as a broker by facilitating transactions for clients and receiving cash must comply with a standard information reporting requirement. ”
Much of the proposal is designed to replicate the reporting regime imposed when people sell shares in companies like Apple or Ford.
Brokers would be required to report the so-called people base, or the price at which they bought cryptocurrencies, as well as their gross proceeds, which would make it much easier to calculate their tax bills. Studies have long shown that when people know that someone else is independently reporting their income to the IRS, they are much less likely to bypass tax obligations.
Lawmakers also want include anti-money laundering provisions sought by the Treasury Department that would require that transactions valued over $ 10,000 be reported to the government.
Behind the scenes, lawmakers debated language that would broaden the definition of broker to include decentralized exchanges, without traditional middlemen, and peer-to-peer transactions, although some say the language of the proposal is broad enough. to encompass others such as cryptocurrency. minors.
“The extension of the definition of ‘broker’ is a surprise,” said Lisa Zarlenga, a partner at Steptoe & Johnson LLP who works on tax issues related to cryptocurrencies.
Another source of contention: provisions that could potentially go beyond cryptocurrencies to other types of digital assets like non-fungible tokens.
The Treasury Department had previously worked on rules to tighten the reporting requirements of brokers like Coinbase, but having Congressional Imprimatur would help avoid any potential legal challenge to the agency’s authority to issue. new regulations.
Industry officials promise to fight back.
Blockchain Association executive director Kristin Smith expressed frustration at the last-minute rush to draft the legislation, saying it could place new demands on “all kinds of different players in the ecosystem.”
“We believe that would have the effect of potentially driving a lot of these players, companies and individuals involved in crypto overseas and really stifling innovation in this space here in the United States,” she said. declared.
While the plan is supposed to raise $ 28 billion, it’s highly uncertain and the estimate immediately raised eyebrows.
While congressional budget forecasters can confidently predict the cost of tax changes similar to those lawmakers have made before – like the expansion of the child tax credit – they invariably find it harder for more policy proposals. innovative.
Cryptocurrencies present a particularly difficult challenge because their valuations can fluctuate wildly, it’s difficult to know how many people are buying and selling assets, and forecasters have to make estimates on the tax rates they are likely paying.