As Democrats and Republicans debate President Joe Biden’s first infrastructure bill in an attempt to get to a weekend bipartisan vote, one of the amendments to the bill could prove “disastrous” to the cryptocurrency industry. Another amendment introduced to counter the first created a showdown inside the more significant infrastructure battle of great interest to crypto proponents.
The first amendment proposed a provision that creates stricter tax rules for “digital assets” to help fund the $1 trillion bill. The amendment would require financial brokers to report gains to the IRS on transactions involving digital assets. Cryptocurrency advocates quickly spoke out against the amendment because of the vague definition of “broker.”
The bill as proposed defines a broker as someone responsible for “regularly providing any service effectuating transfers of digital assets on behalf of another person” Crypto supporters argue that this definition is far too broad.
To narrow the definition, the crypto community asked for an amendment. Sens. Ron Wyden (D-OR), Pat Toomey (R-PA), and Cynthia Lummis (R-WY) responded by introducing an amendment on August 4 that expressly excludes cryptocurrency miners and software developers.
The following day, a competing amendment was introduced by Sens. Rob Portman (R-OH), Mark Warner (D-VA), and Kyrsten Sinema (D-AZ), which changes the definition of “broker” somewhat, but not in a way that the crypto community favors.
The Wyden-Toomey-Lummis amendment excludes miners, validators, and hardware, software, and protocol developers from the definition of “broker.” Toomey said in a statement that the amendment would ensure that ordinary intermediaries are not subject to IRS reporting requirements.
The amendment would exclude non-financial entities that do not have actual broker assets and have the confidential customer information needed to make reports to the IRS. Without the modification, the general reporting requirement would likely push cryptocurrency development and trading overseas.
The Portman-Warner-Sinema amendment received explicit support from the Biden administration. Crypto advocates strongly oppose the amendment, calling it “disastrous” to the industry.
This amendment only protects “proof of work” miners from the reporting requirements while leaving other non-financial persons subjected to them. Cryptocurrency currency works on a proof of work model, where miners must solve complicated problems to validate transactions. The industry is likely moving into a “proof of stake” model based on coin ownership. Advocates say that the proof of stake model is much more energy-efficient and environmentally friendly than the current model.
The Senate will vote on the law after the dispute between the two amendments is concluded and the other dozens of proposed amendments to the 2,700-page bill. If a version of the bill is passed, it will be sent to the House, where the struggle over the definition of “broker” will be fought once more.