A group of three lawmakers is trying to change a provision in the bipartisan infrastructure package that industry advocates say could create problems for blockchain software developers, cryptocurrency miners, and other parties.
Democratic Sen. Ron Wyden of Oregon and Republican Sens. Pat Toomey of Pennsylvania and Cynthia Lummis of Wyoming introduced an amendment to the spending package on Wednesday that seeks to alleviate some anxieties in the cryptocurrency industry.
The revenue-raising provision would apply new IRS reporting requirements to cryptocurrency brokers, which lawmakers predict would bring about $28 billion in revenue. Crypto proponents feared the original proposal was overly broad and could be interpreted to include not only centralized exchanges but also node operators, developers, and miners.
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The new amendment clarifies the definition of brokers does not include any person engaged in the business of validating distributed ledger transactions, those who sell hardware or software that allows a person to control private keys used for accessing cryptocurrencies on a distributed ledger, or those who develop digital assets or their corresponding protocols for use by other persons if the other people are not customers.
“By clarifying the definition of broker, our amendment will ensure nonfinancial intermediaries like miners, network validators, and other service providers — many of whom don’t even have the personal-identifying information needed to file a 1099 with the IRS — are not subject to the reporting requirements specified in the bipartisan infrastructure package,” Toomey said on Wednesday.
Wyden said in a statement that investors failing to pay taxes on cryptocurrencies is a real problem and said he strongly supports third-party reporting from exchanges. Still, his amendment clarifies reporting doesn’t apply to those developing blockchain technology and wallets.
The cryptocurrency industry will likely react favorably, as it had been lobbying for the bill’s language to be honed to avoid the government interpreting the provision too broadly.
Greg Zerzan, a shareholder at Jordan Ramis and former acting assistant secretary of the Treasury, told the Washington Examiner the amendment narrows the original language so that the provision isn’t used “to justify a new, wholesale regulatory regime for the crypto industry.”
“The Toomey/Wyden amendment should limit the danger that the IRS will attempt to subject miners, service providers, and others critical to maintaining the integrity of crypto networks to new reporting requirements,” he said.
Eloisa Marchesoni, an angel investor and cryptocurrency consultant, told the Washington Examiner that the original version of the provision was tantamount to government surveillance of the cryptocurrency industry and hailed the amendment.
“This amendment will ensure that the provision does not dramatically expand financial surveillance, harm innovation, or undermine human rights. Policies that impact basic freedom and the future of the internet should be debated carefully and should never be attached to must-pass bills,” she said in a statement.
The news comes as lawmakers and the Biden administration weigh how best to regulate the burgeoning cryptocurrency industry. This week, Securities and Exchange Commission Chairman Gary Gensler asserted Congress should give his agency more regulatory power over digital assets.
“We need additional congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks,” he said. “We also need more resources to protect investors in this growing and volatile sector. We stand ready to work closely with Congress, the administration, our fellow regulators, and our partners around the world to close some of these gaps.”
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Cryptocurrencies are highly reactive to any whiff of new regulation. After Gensler’s comments, many of the digital assets with the highest market caps were in the red, although they pared some of those losses on Wednesday as Bitcoin rose about 3.5% to $39,500, Ethereum leaped 8.2%, and Ripple climbed 3.4%.
