It’s somewhat ironic that cryptocurrencies took a dive because of the potential for more arduous reporting requirements for taxation in the U.S. while at the same time often themselves allegedly being used for tax avoidance.
Since the U.S. President Joe Biden signed the landmark infrastructure bill into law, concern in the cryptocurrency community is growing around tighter regulations and more onerous declaration requirements for tax purposes.
Yet the selloff may be somewhat premature, after all, Washington is a place of drama with its myriad twists and turns.
They don’t call it politics for nothing as a bipartisan team of U.S. senators is introducing a bill to narrow some cryptocurrency tax reporting rules that were laid out in the infrastructure legislation.
The new bill would seek to override a provision in the infrastructure legislation that cryptocurrency investors have long rued as being overly broad and stifle innovation in the digital asset sector.
In a statement, Oregon Democratic Senator Ron Wyden wrote,
“Our bill makes clear that the new reporting requirements do not apply to individuals developing blockchain technology and wallets.”
“This will protect American innovation while at the same time ensuring those who buy and sell cryptocurrency pay the taxes they already owe.”
The proposed tweaks to the infrastructure legislation would address new reporting requirements for cryptocurrencies that could force some cryptocurrency companies that provide a service “effectuating” the transfer of digital assets to report information on their users as other financial firms are required to do, to enforce tax compliance.
Wyoming Republican Senator Cynthia Lummis wrote in a separate statement,
“Digital assets are here to stay in our financial system and the decisions we make now will have impacts far into the future. We need to be fostering innovation, not stifling it.”
The bipartisan move by senior senators reflects the growing influence of the cryptocurrency industry in Washington.
Along with the increase in wealth from the unprecedented run up in cryptocurrencies, cryptocurrency industry stakeholders have been pouring money into lobbyists to ensure that their interests are heard as well.
If left alone, Biden’s infrastructure bill contains language that could be interpreted by tax authorities as requiring cryptocurrency miners and software developers to report tax data to the Internal Revenue Service that they couldn’t access.
Although blockchain transactions are transparent, attribution of those transactions is a specialized, analytically expensive endeavor that is undertaken by specialist firms like Merkle Science, Elliptic and Chainalysis, whose services have grown increasingly in demand.
While it is as yet unclear whether the cryptocurrency reporting bill that would curtail some of the excesses of the infrastructure bill could come up for vote, it could be included with other yearend legislative packages in the coming weeks and slip through.
The bill includes a provision that would make it retroactive to the infrastructure bill’s signing as well, to ensure complete coverage.