Wyden, Toomey team up on cryptocurrency tax fixes
Bipartisan momentum growing to spare some corners of digital asset marketplace from IRS reporting language in infrastructure package
Sens. Ron Wyden of Oregon and Patrick J. Toomey of Pennsylvania are working together on an amendment to the bipartisan infrastructure bill intended to address concerns that new reporting rules for cryptocurrency transactions could apply to intermediaries unable to comply.
Wyden, a Democrat and Finance Committee chair, and Toomey, the Banking panel’s top Republican, have raised concerns that the proposed new requirements for transfers of digital assets such as Bitcoin and Ethereum could create mandates for cryptocurrency miners, wallets and other service providers that play a part in transactions but don’t collect the information they’d be expected to send the Internal Revenue Service.
Wyden said the changes could become part of a manager’s amendment, which typically consists of edits senators have agreed to ahead of time.
“We’re working with both sides on this,” Wyden told reporters on Tuesday. “There is a sense that there are some opportunities that really provide a window for addressing what this technology is all about. The text of the bill originally didn’t do that.”
Wyden said he’s working to achieve the consensus needed to get changes in a manager’s amendment. Toomey, also a Finance Committee member, said Tuesday that Wyden has been constructive working on the issue and that adjustments will generally apply to how the text defines a “broker” under reporting rules.
Other senators share an interest in adjusting that language. Wyoming’s Cynthia Lummis, a Republican, is also involved in the effort. She tweeted Tuesday night that she’s working with Wyden on an amendment to “responsibly address digital assets” in the infrastructure bill.
The top Republican on the Senate Finance Committee, Michael D. Crapo of Idaho, said Tuesday afternoon that several amendments to the cryptocurrency enforcement section of the bill are in the works, but that the current provision is a good baseline.
“I believe that they’ve got a good start on what they’re trying to do,” he said, “but it can be improved upon and I’m going to support those amendments.”
Definition of ‘broker’
The infrastructure package would add businesses facilitating cryptocurrency transactions to the definition of a broker that must provide certain reporting to the IRS, rules that already apply to stock trades. Under the bill’s current language, anyone who regularly provides services for transferring digital assets on behalf of others would be added as a broker starting in 2024. They’d have to provide tax forms to the IRS and customers for transactions showing their name, address and gross proceeds.
The bill would also require business transactions involving more than $10,000 in cryptocurrency to be reported to the IRS, a rule that already applies to large cash payments. That requirement has generated less pushback and appears to be the main revenue-raiser of the proposed rules, according to earlier Treasury Department estimates of similar proposals.
The cryptocurrency reporting rules would generate almost $28 billion over a decade by improving compliance with tax obligations. That would offset some of the bill’s $550 billion in new spending, according to the Joint Committee on Taxation.
The language has already been tweaked from earlier draft versions of the bill that circulated late last week. Groups representing crypto business including blockchain networks, trading platforms and investors are pressing for more extensive changes, saying the adjustments didn’t provide enough clarity on who will be required to provide information as a broker.
Wyden and Toomey have each echoed similar concerns.
Wyden supports reporting rules for cryptocurrency exchanges but is concerned the language lacks clarity and could apply to blockchain technology developers that don’t have information on people making transfers, according to an aide.
Toomey said in a statement on Monday that the bill included “an overly broad definition of broker” that would include nonfinancial intermediaries such as miners and network validators that don’t have control of digital assets or related personal information. He’s also concerned it would allow the Treasury secretary to define a digital asset with broad discretion, according to an aide.
The Biden administration and the lead Republican negotiator of the bipartisan infrastructure deal, Sen. Rob Portman of Ohio, had each previously suggested reporting rules to help enforce payments of taxes owed on digital coins. The requirements aim to get at the “tax gap,” the difference between taxes owed and paid to the federal government. IRS Commissioner Charles P. Rettig has estimated that gap could be $1 trillion per year.
Portman is planning remarks on the Senate floor at some point during the infrastructure bill debate in which he’ll argue the rules for brokers wouldn’t apply to nonfinancial players, such as cryptocurrency miners.
“The legislation does not impose new reporting requirements on software developers, crypto miners, node operators, or other non-brokers,” Portman spokesman Drew Nirenberg said in a statement. “It simply clarifies that any person or entity acting as a broker — including crypto exchanges — must comply with IRS reporting requirements. This is a standard practice identical to the well-established, universally accepted tax reporting rules for stock and commodity trades.”
‘This is the way’
While it’s clear senators aren’t intending to require IRS reporting from these sorts of intermediaries, businesses would prefer the text be amended for clarity, said Chamber of Digital Commerce President Perianne Boring.
Jack Dorsey, co-founder and CEO of digital payments company Square Inc., which is entering the Bitcoin business, called for just that on Tuesday.
Dorsey, who also co-founded Twitter Inc., expressed support for Toomey and Wyden’s effort to amend the bill, tweeting that its language on reporting would “put unworkable requirements” on nonfinancial intermediaries like developers and miners.
In forms filed with the Senate, Square reported lobbying on cryptocurrency as a tax issue this year. The San Francisco-based company is building a decentralized finance business using Bitcoin, CNBC reported in July.
“This is the way,” Dorsey wrote of Toomey’s statement critiquing the provisions, using a term made famous in the hit Disney+ TV series “The Mandalorian.”
Lindsey McPherson and Mary Ellen McIntire contributed to this report.
