Crypto Industry Fights Against Controversial Part of U.S. $1 Trillion Infrastructure Bill that Would Extend Tax Reporting Requirements for PoS Validators and More

Key highlights:

• The proposed $1 billion infrastructure bill currently being discussed in the U.S. Senate is raising controversy in the crypto industry
• The bill seeks to raise $28 billion by introducing stricter tax reporting requirements for cryptocurrency brokers
• However, the proposed bill's definition of a broker is extremely broad, and would also include crypto developers, validators and DeFi protocols

$1 trillion bill's controversial definition of "broker" sparks resistance from U.S. cryptocurrency industry

The U.S. cryptocurrency industry is currently fighting against against the details of a tax provision in the mammoth $1 billion infrastructure bill that’s currently being discussed in the U.S. Senate. 

According to the bill, it would raise $28 billion by introducing stricter tax reporting requirements for cryptocurrency brokers. This in itself isn’t the most controversial part – rather, it’s the uncertain language that the bill uses to expand the definition of “broker”. The language used would expand the definition of “broker” to also include:

‘‘any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.’’

This would introduce tax reporting requirements to people who would not be able to realistically meet them. For example, if the developer of a non-custodial wallet were to be defined as a broker, they couldn’t fulfill their tax reporting obligations – the developer cannot know who the people using the wallet are, as the Bitcoin network only deals with pseudonyms (addresses).

Coinbase CEO Brian Armstrong is one of the prominent industry participants criticizing this portion of the bill, and used an example from the Ethereum blockchain to illustrate his point:

“This makes no sense. Smart contracts, for instance, are not companies, and cannot be modified to collect KYC info or issue 1099s. They are simply software running on the blockchain that anyone can use.”

However, a group of senators is looking to amend the section to reduce the bill’s impact on the cryptocurrency industry.

Now, there’s two competing amendments to the bill – the Wyden-Lummis-Toomey amendment, and the Warner-Portman-Sinema amendment. The two amendments are being proposed by Ron Wyden, Pat Toomey and Cynthia Lummis on the one side, and Rob Portman, Mark Warner and Kyrsten Sinema on the other. 

The Wyden-Lummis-Toomey amendment proposes that persons solely engaged in validating blockchain transactions, selling hardware and software cryptocurrency wallets, or developing cryptocurrency protocols, should be excluded from the definition of “broker”.

The competing Warner-Portman-Sinema amendment, the full text of which currently isn’t available publicly, only explicitly excludes Proof-of-Work miners and sellers of hardware and software cryptocurrency wallets. This way, Proof-of-Stake validators and cryptocurrency software developers would be considered as brokers, and would have to adhere to the new tax reporting requirements. 

Per a report from CNBC, Joe Biden’s White House has put its support behind the Warner-Portman-Sinema amendment, which is deeply unpopular in the cryptocurrency industry.