Earlier this week, the Senators Ron Wyden (FROM WHERE), Cynthia Lummis (R-WY), and Pat Toomey (R-PA) proposed an amendment to the Senate bipartite infrastructure agreement that proposes a revised tax reporting requirement for cryptocurrency and digital asset transactions that would exclude non-custodial actors like miners and software developers of the revised definition of broker. Such a designation would free them from the obligation to provide 1,099 tax forms, which in many cases would be unobservable given the pseudonymous nature of blockchain transactions.
For a full breakdown of the issues surrounding the crypto provision in the Infrastructure Bill, please see my detailed report.
Specifically, the amendment would exclude the following from the reporting requirements: (A) validate distributed ledger transactions (B) sell hardware or software whose sole function is to allow a person to control the private keys that are used to access digital assets on a ledger, or (C) develop digital assets or their corresponding protocols by other people, provided that those other people are not clients of staff developing those assets or protocols.
A vote on this amendment was due to take place yesterday and appeared to be a viable solution to the legitimate issues raised by the cryptocurrency industry and pro-crypto senators.
However, Senator Portman (R-OH), who was the chief negotiator for the original provision and appeared to support the First Amendment, unexpectedly proposed his own competing amendment, along with Senator Warner (D-VA), making it bipartite.
To industry surprise and disappointment, the Portman-Warner Amendment only excludes proof-of-work mining and some portfolio projects. The amendment does not provide exemptions for software developers, proof-of-stake validators, or decentralized liquidity providers, many of whom are not technologically capable of complying with the law. Portman-Warner Amendment Excludes (A) Posting Distributed Ledger Transactions by proof of work (mines) (B) sell hardware or software whose sole function is to allow a person to control private keys (used to access digital assets on a distributed ledger).
The fact that the Portman-Warner Amendment appears to have White House support adds to the challenges facing the Wyden-Lummis-Toomey Amendment. In a statement, the Biden administration said that “the amendment proposed by Senators Warner, Portman and Sinema strikes the right balance and takes an important step forward in promoting tax compliance,” and Treasury Secretary Janet L. Yellen reportedly spoke to lawmakers on Thursday to lobby. against the Wyden amendment.
Senator Pat Toomey was quick to question this competing amendment, tweeting: “While I appreciate that my colleagues and the White House have acknowledged that their original crypto tax had flaws, the Warner-Portman Amendment chooses the winners and the losers depending on the type of technology used. It’s horrible for innovation. . . The Warner-Portman plan exempts bitcoin miners, but not other transaction validators or software developers who create these platforms. What does that mean? Two identical services could receive radically different regulatory treatment depending on the technology used. “
Michelle Bond, CEO of the Association for Digital Asset Markets, a non-profit trade association committed to promoting best practices and fair and orderly markets told me: “The Wyden-Lummis-Toomey is the only amendment that supports a future for digital assets. Not only is the Portman-Warner amendment misguided, it fails to address the fundamental issues that our industry has raised. Rushed policies of this magnitude without considering the contribution of major market players will have lasting negative impacts on digital asset markets. “
The two competing bills will be voted on tomorrow. Regardless of which amendment prevails, the entire infrastructure bill will likely be passed and voted on in the House. The U.S. cryptocurrency industry will look rather gloomy if the Portman-Warner Amendment wins, but it won’t come into effect until 2023 and there would still be plenty of room for improvement. After a busy week of news on the subject, the industry remains cautiously optimistic.