U.S House of Representatives Passes $1 Trillion Infrastructure Bill - Crypto Got Screwed

By kev_nag | kev_nag | 8 Nov 2021


***INTRODUCTION***

After a long day in session, late Friday night (November 5, 2021) the U.S. House of Representatives passed the Infrastructure Investment and Jobs Act (H.R. 3684) by a vote of 228 - 206. This vote included 13 Republicans voting in favor of the Bill, with 6 of the Liberal Progressive Squad (Omar, Bush, Bowman, Tlaib, Ocasio-Cortez, and Pressley) voting against it. This Bill had already passed the U.S. Senate on August 10, 2021, by a vote of 69 - 30.

On Saturday, November 5, 2021, President Biden remarked that passage of the Bill was a 'monumental' step forward and that he would sign the legislation into law next week [see, e.g. Sprunt, B. Biden says final passage of $1 trillion infrastructure plan is a big step forward. https://www.npr.org/2021/11/05/1050012853/the-house-has-passed-the-1-trillion-infrastructure-plan-sending-it-to-bidens-des. (Accessed November 7, 2021)]. "The roughly $1 trillion Infrastructure package includes $550 million in new spending and will fund improvements to roads/highways, bridges, public transit, clean water, the electric grid, broadband internet development, and cybersecurity. Division H of the legislation discusses how the new spending will be funded, including a section relating to digital assets (cryptocurrencies)" [Hsieh, N. New Crypto Tax Reporting Requirements in the 2021 Infrastructure Bill. https://www.voltequity.com/post/new-crypto-tax-reporting-requirements-in-the-2021-infrastructure-bill. (Accessed November 7, 2021)].

***HOW DOES THE INFRASTRUCTURE BILL AFFECT CRYPTO***

In years past, Exchanges were not mandated to report any gain or loss from cryptocurrency transactions. This is changing as a result of the Infrastructure Bill. "Section 80603 of the Infrastructure Investment and Jobs Act (H.R. 3684) clarifies reporting requirements, so that taxpayers do not unknowingly fail to report cryptocurrency gains." [Id.].

REGARDING REPORTING REQUIREMENTS FOR CRYPTOCURRENCY EXCHANGES

  • The legislation expands the definition of a 'broker' to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person” (H.R. 3684, p. 2420).
  • The legislation defines the term 'digital asset' as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary” (H.R. 3684, p. 2421).
  • The legislation provides clarity to the long debate on whether or not cryptocurrencies should be treated as securities. Specifically, the legislation makes clear that in terms of capital gains/losses, cryptocurrency is to be treated as a security. In essence, however, this distinction from a taxable standpoint makes no difference in that cryptocurrencies prior designation as property was likewise taxed as a capital gain/loss. The importance of this new designation lies in the fact that as a security, cryptocurrency is now subject to regulation by the U.S. Securities and Exchange Commission. But the legislation does not even mention the SEC so the future implications in this regard remain unknown.
  • Until this legislation is signed into law there currently are no reporting requirements for Cryptocurrency Exchanges. However, the new legislation requires the reporting of the following information to both the I.R.S. and the Exchange's customers: (1) name, address, and phone number of each customer; (2) the gross proceeds from any sale of digital assets; and (3) capital gains or losses and whether such capital gains or losses were short-term (held for one year or less) or long-term (held for more than one year).
  • Exchanges failing to report this information are subject to fine of $250 penalty per customer, up to a maximum $3 million penalty (U.S. Code, Title 26, §6722, “Failure to furnish correct payee statements”).

REGARDING DIGITAL ASSETS VALUED AT $10,000 OR MORE

The legislation makes changes to U.S. Code, Title 26, §6050I (“Returns relating to cash received in trade or business”). Any person engaging in a trade or business that receives more than $10,000 in cash must file IRS Form 8300 (“Report of Cash Payments Over $10,000 Received in a Trade or Business”).

According to the I.R.S., this information "helps law enforcement combat money laundering, tax evasion, drug dealing, terrorist financing and other criminal activities.” [I.R.S. Reporting cash transactions helps government combat criminal activities. https://www.irs.gov/newsroom/reporting-cash-transactions-helps-government-combat-criminal-activities. (Accessed November 7, 2021)]. The new Infrastructure Bill now classifies a digital asset with a value of $10,000 or more as 'cash' and is subject to the Form 8300 filing. Form 8300 requires disclosure to the I.R.S. the following information: (1) the name, address, and TIN of the person from whom 'cash' was received; (2) the amount of 'cash' received; and (3) the date and nature of the transaction.

This new reporting requirement imposed by the Infrastructure Bill does not take effect until January 1, 2023, and accordingly will have no affects until the 2024 tax filings. 2021 and 2022 are specifically exempt from this reporting.

***INHERENT PROBLEMS WITH THE BILL'S CRYPTO PROVISIONS AND NEED FOR GOVERNMENTAL CLARIFICATION***

In addressing his original opposition to the Infrastructure Bill, Senator Pat Toomey stated:

There is a need to expand and maintain our nation’s real, physical infrastructure, which is why the federal government spends billions on these projects every year. But this legislation is too expensive, too expansive, too unpaid for, and too threatening to the innovative cryptocurrency economy...If those features were not bad enough, this legislation imposes a badly flawed, and in some cases unworkable, cryptocurrency tax reporting mandate that threatens future technological innovation.

[Toomey, P. Toomey Opposes ‘Too Expensive, Too Expansive, and Too Unpaid For’ Infrastructure Proposal. https://www.toomey.senate.gov/newsroom/press-releases/toomey-opposes-too-expensive-too-expansive-and-too-unpaid-for-infrastructure-proposal. (Accessed November 7, 2021).

The reporting requirements of the Bill would be simple for Cryptocurrency Exchanges to comply with provided the Exchange handled both the purchase and the sale of the subject digital currency. Under this circumstance the Exchange would possess the cost basis of the digital asset making it easy to calculate the applicable capital gain/loss.

However, Exchanges will face an undaunted task in reporting where the Exchange is involved solely with the selling of crypto currency. If only handling the sale of a digital asset for a customer, how is the Exchange to know the cost basis of the asset? Likewise, digital assets can and are acquired in other ways than by fiat. How is the cost basis to be calculated on non-fiat acquisitions and where is the required information to come from? What if a seller acquired the cryptocurrency as salary? Is this seller now taxed twice - once as income then as a capital gain? A great deal of clarification is necessary if these requirements must be made to work.

***CONCLUSION***

While the Washington politicians would attempt to have the public believe the legislation on cryptocurrency is a necessary tax to raise money to pay for the infrastructure, we are not falling for their line of bull. These provisions concerning digital assets in H.R. 3684 are nothing more than veiled requirements made to regulate, impede, and ultimately destroy the cryptocurrency industry.

Abraham Sutherland, a lecturer from University of Virginia School of Law voiced his concerns over the Bill's blanket term crypto sub-communities inclusion as brokers as follows:

It’s bad for all users of digital assets, but it’s especially bad for decentralized finance. The statute would not ban DeFi outright. Instead, it imposes reporting requirements that, given the way DeFi works, would make it impossible to comply.

[Kirova, D. Infrastructure Bill crypto amendment is “dangerous” and “bad for all digital asset users”. https://www.banklesstimes.com/2021/11/05/infrastructure-bill-crypto-amendment-is-dangerous-and-bad-for-all-digital-asset-users/. (Accessed November 7, 2021)].

Failure by companies or ordinary people to report under Section 60501 of the Tax Code if applied to cryptocurrency would be a felony. However, traditional financial institutions are exempt from this reporting requirement. Sutherland concluded:

The amendment to section 6050I is an affront to the rule of law and to the norms of democratic lawmaking. It was slipped quietly into a 2,700 page spending bill, allegedly as a tax measure to defray the bill’s trillion-dollar price tag even though section 6050I is in fact a costly criminal enforcement provision.

[Id.].

AUTHOR'S NOTE: This article was previously published on Leo Finance and several other tribes on the HIVE Blockchain.

How do you rate this article?


16

0

kev_nag
kev_nag

Just an ordinary casual crypto investor.


kev_nag
kev_nag

Retired, finally. I enjoy learning about crypto and sharing my discoveries. Also, I follow the News closely and enjoy discussing current events. I have no political agenda, but advance views based in reality with a slant toward real world consequences.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.