The Infrastructure Bill
Implications for the Crypto Community
BLUF: The newly-signed infrastructure bill contains tax implications that may become onerous for the crypto community, however legislators introduced a bipartisan amendment to provide relief.
On Monday the President signed the Infrastructure Investment and Jobs Act into law. The legislation contains several implications for the future of the crypto industry. Many of the legal changes will come to fruition in 2023 or 2024, however we can expect to see businesses, organizations, and institutions begin to implement new requirements as we ramp up to the potential changeover.
“Broker” becomes the most significant term in the crypto lexicon.
The Act calls for all crypto “brokers” to follow the IRS 1099 reporting requirements currently in use by stock exchanges. The tax code has always required brokers to track cost basis, and report transactional gains and losses accordingly.
Traditional IRS liturgy defines a broker as a party that conducts sales on behalf of customers - the activities of stock exchange or crypto exchange. The Act expands the term to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
Alarmingly, since blockchain is a decentralized, consensus mechanism, this expanded definition of broker includes all of us: miners, validators, stakers, node operators, whatever. The problem here is that none of us have access to transactional information regarding our “customers;” miners have zero knowledge as to the nature of the many transactions we’re “effectuating.”
Crypto will be considered “cash” for transactions above $10K.
If you remember cashing your paychecks and saving up for an engagement ring (or a used Camaro), when you handed that cash over to the seller you likely filled out an IRS form reporting the large cash transaction. Crypto transactions above $10K will now require the same kind of paperwork. This requirement does not apply to financial institutions or peer-to-peer transactions that ride credit card networks such as Paypal and Venmo.
Again, while this reporting requirement will come into effect in 2024, the crypto community should expect to see increased reporting requirements transactions as we ramp up to the mandate. Any transfer of crypto over $10K (other than on an exchange or a credit card network) will require a reporting form.
A bipartisan bill seeks to amend the new crypto reporting requirements.
Obviously these two new reporting requirements will stifle innovation in a new US industry that’s barely left the runway. If unamended, the reporting requirements of this definition could trigger a second Great Hashrate Migration.
Given the chance to mature, a smartly-regulated future US crypto industry could provide tax revenues far beyond those of today. Several savvy legislators have introduced a new bill, H.R.6006, which limits the definition of broker to exchanges that buy and sell on behalf of customers. The bill also strikes the requirement for cash-like reporting of transactions.
What can we do?
While it’s going to sound like the most establishment, least-punk rock, non-crypto course of action, call your congressman and tell them to pass HR 6006. Seriously. Do it. We’d hate to have to ship all those shiny S19s to Kazakhstan.
-Andy Howell is a retired military officer, beltway bandit, gamer dad, and co-owner of Green Heron Strategy, LLC
