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US proposes tracking digital cash and taxing it to pay for, you know, roads and stuff
Uncle Sam wants digital asset brokers to log customer info but didn't clarify who counts as a broker or not
US senators revised a section of the bipartisan infrastructure bill on Thursday to ensure cryptocurrency miners, hardware vendors, and software developers are exempt from collecting user data required to report taxes.
Congress is stepping up its efforts to prevent crypto investors evade their taxes whenever they buy or sell Bitcoin and the like. The new legislation focuses on “brokers,” requiring everyone involved in handling digital financial transactions to record the payer and payee’s names, addresses, and other forms of data logged in the 1099 tax forms for the Internal Revenue Service.
But the definition of who is a broker or not was too broad, according to experts. Now, the bill has been altered to make it clear that cryptocurrency miners, blockchain engineers, or vendors selling hardware to run hashing algorithms to mint digital coins are exempt from the new rules. They will not have to collect personal data of everyone using their services or chips.
“Investors failing to pay tax they owe through cryptocurrency is a real problem, and I strongly support third-party reporting by exchanges where cryptocurrency is bought, sold and traded,” Senate Finance Committee Chair Ron Wyden (D-Or), who helped amend [PDF] the bill, said in a statement.
“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 confirmed.
Instead, the bill targets cryptoexchanges, who will have to report their customer’s information. Investors and traders buying and selling cryptocurrencies through these exchanges will be taxed accordingly. Digital cash is pretty much treated like property assets, people have to report the profits and losses made when it is exchanged for real money, traded for another type of cryptocurrency, or used to pay for goods, according to Coindesk.
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Congress is hoping that recording the details of the payer and payee in each financial transaction will reduce the chance cryptotraders can get away with not paying their dues. That cash will then go into funding the $1.2trn infrastructure changes outlined in the legislation [PDF]. But requiring miners and engineers, who don’t manage cryptocurrencies on behalf of traders, to collect this information is potentially harmful, the Electronic Frontier Foundation reckoned.
“The mandate to collect names, addresses, and transactions of customers means almost every company even tangentially related to cryptocurrency may suddenly be forced to surveil their users,” it previously said. The increased surveillance could lead to “honeypots of private information about cryptocurrency users that could attract malicious actors.”
Thankfully, the bill has now been updated and the definition of a broker has been narrowed down. The European Commission proposed similar rules to prevent money laundering using digital currencies, last month, whereas China is taking a more hardcore approach. ®