Senators Ron Wyden (D-Ore.), Cynthia Lummis (R-Wyo.) and Pat Toomey (R-Penn.) want to ensure miners, node operators, developers and other non-custodial crypto industry participants are exempt from a crypto tax reporting provision in the U.S.’ infrastructure bill.
The bill, which seeks to fund $1 trillion in infrastructure improvements at least in part through widened tax enforcement on crypto entities, sparked backlash from the crypto community due to the possibility that it might broaden the definition of a broker to include non-custodial entities that don’t have customers nor provide those types of services. Wyden and Lummis’ amendment, proposed Thursday, seeks to limit this definition specifically to trading platforms and similar types of entities.
The amendment said:
“Nothing in this section … shall be construed to create any inference that a person described in [the bill] includes any person solely engaged in the business of (A) validating distributed ledger transactions, (B) selling hardware or software for which the sole function is to permit a person to control private keys … or (C) developing digital assets or their corresponding protocols for use by other persons, such that such other persons are not customers of the person developing such assets or protocols.”
The amendment also includes a provision that the section on crypto brokers will not modify the Securities Act of 1933 or Securities Exchange Act of 1934, two major laws overseeing the federal securities markets.
The Senate is currently debating and voting on a number of possible amendments to the bill, which has bipartisan support in the upper house of the U.S. Congress. Another of these amendments, introduced by Sen. Ted Cruz (R-Texas) seeks to “strike” the provision, although the text of that amendment was not immediately available.
In a statement, Lummis said that the amendment is a first step to integrating crypto with the current U.S. economy, though “much more work needs to be done.”
“The digital asset and financial technology space is incredibly complicated, and we have spent long hours working in the Senate, with industry stakeholders, and with the Administration to find a way to effectively integrate digital assets into our tax code without harming the technology or stifling innovation. I look forward to continuing this bipartisan work to bring our financial industry into the 21st Century,” she said.
Wyden said that investors “failing to pay tax” through cryptocurrencies “is a real problem” and that he supports the overall thrust of the provision in requiring third-party reporting.
“Our amendment makes clear that reporting does not apply to individuals developing block chain 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,” he said in a statement.
Sen. Rob Portman (R-Ohio), who likely introduced the original provision into the tax bill, defended the phrasing in a Twitter thread late Tuesday.
Meanwhile, in a joint statement, the Blockchain Association, Coinbase, Coin Center, Ribbit Capital and Square expressed support for the amendment, pointing to the original broad definition of “broker.”
“Clarifying the provision to address our concerns would not affect the reporting requirements on crypto exchanges that operate on behalf of customers. We support sensible reporting requirements that are consistent with those that apply to traditional financial services,” the statement said.
Blockchain and cybersecurity
Separately, Lummis filed another amendment with Sen. Marsha Blackburn (R-Tenn.) that would task federal regulators with evaluating different tools to track illegal transactions made using cryptocurrencies.
The amendment would apply to a section on cybersecurity within the infrastructure bill.
If the amendment is adopted and the bill is passed, these federal agency heads, which include the Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC) and FBI, as well as the Secretary of Homeland Security and Attorney General, would have 180 days to develop a joint agreement on what digital asset analytics tools can and can’t do, as well as possible improvements.
The agencies would also have to provide any recommendations on how they can mitigate any illegal activity occurring through the use of cryptocurrencies.
Lummis said cryptocurrencies could be used for both good and bad purposes, just as cash can.
“We need to ensure that agencies of jurisdiction have the strategies and resources to harness that built-in security to combat money laundering and other nefarious activity. This amendment will do just that, and I’m grateful to Senator Blackburn for working with me to make this happen,” she said in a statement.
The amendments still need to be voted on, and the Senate is expected to discuss these issues through the rest of the week. At the end of the amendment period, lawmakers will vote to actually advance the bill.
However, the overall process of passing the infrastructure bill into law is likely to take months. After the Senate completes its work, the bill will go to the House of Representatives, which will also discuss the bill before voting on it.
UPDATE (Aug. 4, 2021, 18:55 UTC): Updated with link to amendment and statements from associated parties.