- The Biden administration’s infrastructure bill wants to raise $28 billion in tax from crypto over a decade. It wants crypto brokers to help report those who hold crypto.
- One amendment, which the crypto industry supports, wants only custodial entities like cryptocurrency exchanges to have the reporting obligation.
- Another amendment, which Biden supports, wants to extend that obligation to proof-of-stake entities like validators and protocol developers.
Congress is expected to vote on an eleventh-hour amendment to the U.S. Senate’s $1 trillion infrastructure bill at around noon on Saturday. America’s crypto leaders argue that voting the wrong way could push the industry out of the country.
The American Jobs Plan overhauls things as diverse as highways and clean drinking water. To help cover the costs, the landmark bill hopes to raise $28 billion from crypto over the next decade. But controversy over who has to hand over customer information to the U.S. tax office has held up the bill since Thursday.
The bill says that all crypto “brokers” have to pass over customer information to the IRS. But the bill was originally so broad that miners and non-custodial wallets counted as brokers, even if they don’t have “customers” in the same way that traditional brokers like Coinbase do. This week, two wildly different amendments sprung up to add clarity to the gap.
The first, proposed by three crypto-friendly senators, proposed to exempt non-custodial actors, like Bitcoin miners and Ethereum wallets. The second proposed to exempt only those that help run proof-of-work networks, like Bitcoin miners, but would oblige proof-of-stake validators, nodes and protocol developers, like Ethereum 2.0. validators, to hand over customer information to the IRS.
America’s leading crypto voices want the first, proposed by Senators Ron Wyden (D-OR), Cynthia Lummis (R-WY), and Pat Toomey (R-PA) on Wednesday, to pass, and slammed the second, filed by Senators Mark Warner (D-VA) and Rob Portman (R-OH) on Thursday, as unworkable.
Cryptocurrency exchange Coinbase CEO Brian Armstrong said Wednesday that including miners, validators, smart contractors and open-source developers among brokers ”makes no sense.”
“Smart contracts, for instance, are not companies, and cannot be modified to collect KYC info or issue [tax forms]. They are simply software running on the blockchain that anyone can use,” he tweeted.
Armstrong supports the earlier amendment, which only considers entities traditionally regarded as brokers, like Coinbase, to foot the costs. He said Coinbase is happy to comply.
Last night, Elon Musk, Tesla and SpaceX CEO, agreed with Armstrong, tweeting, “This is not the time to pick technology winners or losers in cryptocurrency technology. There is no crisis that compels hasty legislation.”
Kathryn Haun, general partner at crypto-friendly venture capital firm Andreessen Horowitz, urged Congress to reject the amendment that pinned the tax reporting obligations on proof-of-stake entities.
Forcing proof-of-stake networks to report information to the IRS “would do little to accomplish its stated goal of tax compliance and would ultimately lower U.S. tax revenues” by driving crypto out of America, she said.
Others raised concerns that it would be difficult for non-custodial crypto services to comply with the tax reporting obligations laid out in the second amendment.
Cameron Winklevoss, co-founder of crypto exchange Gemini co-founder, tweeted last night, “Software developers, node operators, miners, and others [...] can not practically comply with crypto tax reporting obligations because they don’t have the requisite information to do so.”
Blockchains are pseudonymous and non-custodial, and the rules imposed on the traditional finance sector are often at odds with the technologies and practices underpinning crypto.
As Jerry Brito, executive director of crypto think tank Coin Center said, the first amendment would “limit the definition of ‘broker’ to, you know, people who actually broker.”