The massive $1 trillion U.S. infrastructure bill put severe roadblocks for crypto companies operating in America. The bill involves a crypto provision with additional taxes for payments done in cryptocurrencies.
The lawmakers in the U.S. Senate are looking for an additional $28 billion in revenue with crypto transactions. However, the laws are unclear as of now a wide range of participants in the crypto space. As a result, it could potentially lead to an existential crisis for small crypto firms and miners.
Forbes contributor Hailey Lennon notes that regulators should have a “clear understanding” of the crypto industry to propose “reasonable regulations” in this space. The 200-page document of the U.S. infrastructure bill has a subtly-mentioned tax-reporting requirement for crypto transactions.
Thus, any broker or firm involved in dealing with crypto transactions must report them to the IRS. Forbes contributor Lennon along with other industry players points out potential flaws with the bill. She wrote:
“First, the IRS has not shown that tax evasion in cryptocurrency is a major issue or that increase surveillance would improve any issue with tax evasion. More importantly, the bill casts an overly broad and ambiguous net over the industry that threatens to strangle it just as it is starting to mature”.
While there have been some revisions in the bill’s language, some Senators are yet confused as to how crypto miners and DeFi platforms will be impacted.
The consequences of the Infrastructure bill
The bill includes a provision with the title “Enhancement of Information Reporting for Brokers and Digital Assets” which can lead to some unintended consequences for crypto users and the overall crypto industry.
Under section 6045(c)(1) of the IRS, the bill expands the definition of “broker” to include any person responsible for providing services involving the transfer of digital assets. This confused several market participants as the definition are overly broad and lead to confusion about whom to consider.
Furthermore, entities falling in this broad definition might not have the legal ability to satisfy the new requirement. this includes players like miners, DeFi, liquidators and governance token holders.
The blockchain Association explains that if crypto wallet software engineers also fall under the category of “broker”, they have no means of reporting the transactions since they have no role beyond offering the software support.
Leading Senator Pat Toomey (R-PA) of the Senate Banking Committee has come out in the support of the crypto industry players. He has urged Congress not to pass the new crypto reporting in the infrastructure bill. Toomey stated:
“Congress should not rush forward with this hastily-designed tax reporting regime for cryptocurrency, especially without a full understanding of the consequences.”