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A section of the bipartisan infrastructure spending bill now snaking its way through Congress would require cryptocurrency investors and brokers to give more details about their deals to the U.S Internal Revenue Service (IRS).
The goal is twofold.
First, the provision would give regulators a window into a blacked-out sector of the economy that critics say is a hideout for money launderers and other financial criminals.
Second, granting the IRS access to those details would make it possible for Congress to tax profitable crypto deals as capital gains.
Some crypto brokers report their dealings to the IRS; most do not because the tax code is unclear about whether they are required to, according to the New York Times.
Taxing crypto could bring in $28 billion over 10 years, according to Congress’s Joint Committee on Taxation, which has run numbers on the proposal.
Such a crypto tax would supply barely 5 percent of the $550 billion the current infrastructure proposal would cost.
However, the crypto tax is one of the few new sources of money that Congress can find to contribute to the plan, the NYT noted.
“Make no mistake,” warned analyst Owen Tedford at Beacon Policy Advisors in a 30 July note to clients quoted by the NYT. “Regulation is coming for the industry.”
“Lawmakers and regulators are taking cryptocurrency concerns seriously and seem poised to make sustained efforts on multiple fronts to bring it out of the shadows,” he wrote.
Giving the IRS power to scrutinize crypto transactions was one of several revenue-raising proposals president Joe Biden’s administration presented to Congress earlier this year.
Under the plan, taxpayers buying crypto from one broker who transferred it to another would have to report the transaction, a scheme that the U.S. treasury department said would glean a “negligible” amount of revenue.
Other than holding hearings, Congress has taken no action on the measure. (See “CRYPTOCURRENCY: SPECIAL REPORT,” Trends Journal, 25 May 2021.)
Now the Senate’s version of the infrastructure bill broadens the definition of “broker” to include anyone who helps transfer digital assets.
The broader definition of “broker” could make the law apply to everyone from miners to brokers to crypto’s creators and investors, according to Perrianne Boring, president of the Chamber of Digital Commerce, the crypto industry’s lobbying group.
Crypto brokers are hiring lobbyists to wage war on the new proposal, the NYT said.