The bipartisan $1.2 trillion infrastructure bill set to be signed by President Joe Biden Monday includes a new IRS reporting requirement for cryptocurrency transactions, a move that has caused an outcry in the industry.
The provision applies to “cryptocurrency brokers,” a broad category which could include miners, hardware manufacturers and software developers. It is anticipated to raise $28 billion over ten years.
Crypto proponents have argued that the new tax is too broad and will sweep up parties who don’t actually facilitate transactions. Two attempts to modify the language in the legislation died in the Senate before the chamber approved the infrastructure measure back in August.
In addition to the reporting requirement, a second provision in the bill could have an even bigger impact on the emerging crypto industry — even making the receipt of some digital assets like NFTs a felony if not reported correctly.
The legislation amends part of an existing tax code passed in 1984 to crackdown on money laundering, to apply to cryptocurrency transactions.
That law states that any person engaged in a “trade or business transaction” who received more than $10,000 in cash must report personal information about the sender, such as name and address, to the IRS. Once Biden signs the infrastructure bill, the law would also apply to digital asset transactions. Violations result in mandatory fines and the possibility of up to five years in prison.
Proof of Stake Alliance, a lobbying group that supports decentralized technology, argued in a September report that in most situations, the person receiving the digital asset isn’t in a position to report the personal information of the seller due to the anonymous nature of digital asset transactions.
A report by Abraham Sutherland, an adviser to Proof of Stake Alliance and an adjunct professor at the University of Virginia School of Law, charged that the 1984 law “is such a mismatch with still-nascent 21st century digital asset technology that it is difficult to catalog its consequences or even to list the scenarios that might give rise to a duty to report financial information to the government.”
“I also leave to others the important task of assessing this surveillance and reporting regime against every American’s 4th amendment right ‘to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures,’” Sutherland added ominously.
The infrastructure bill passed the House last week by a vote of 228-206, with 13 Republicans joining 215 Democrats to vote in favor.