Reporting requirements for cryptocurrency should be repealed
In the final days of 2022, the Internal Revenue Service (IRS) announced that the Infrastructure Investment and Jobs Act’s infamous cryptocurrency reporting requirements were being put on hold. While this sudden change is far more welcome than when Congress wrote the law seemingly overnight in late 2021, the temporary pause shouldn’t distract from the fact that the reporting requirements should be repealed entirely.
A Quick Refresher on the Infrastructure Act
As the name suggests, the Infrastructure Investment and Jobs Act was primarily written with the supposed intention of rebuilding roads, bridges, railways, ports, and the like. Yet to do so, the sprawling 1,039-page bill needed pay‐for provisions to offset the spending. Therefore, in the Fall of 2021, Congress slipped in a provision with two amendments targeting the cryptocurrency market. The Joint Committee on Taxation initially estimated that this change would drum up some $28 billion in tax revenue—a number later revised down to just $2 billion.
The first amendment changed 26 U.S. Code § 6045 (the “broker definition”) to label not just traditional exchanges (e.g., Coinbase, Robinhood, etc.) as brokers but also cryptocurrency miners and even software developers. In doing so, the amendment requires said brokers to report the name and address of each person, or “customer,” they interact with. However, an immediate problem with this requirement is that miners simply do not have access to that information. Therefore, by mandating that they report what they cannot possibly offer, the amendment effectively bans cryptocurrency mining in the United States.
The second amendment changed 26 U.S. Code § 6050I to require anyone engaged in a business transaction of $10,000 or more in cryptocurrency to report the transaction to the IRS. The report must include the name and address of the payer, as well as their taxpayer identification number, the amount paid, the date, and the nature of the transaction. Failure to file a report within 15 days, reporting incorrect information, or missing information may result in a $25,000 fine or five years in prison. Unfortunately, the IRS failed to address this section in its announcement.
The Blockchain Association, Coin Center, Proof of Stake Alliance, Electronic Frontier Foundation, and many others raised the alarm when the cryptocurrency reporting requirements were first slipped into the Infrastructure Investment and Jobs Act. Across the board, these critiques have made it clear that this law should never have been written in the first place. Put simply, the reporting requirements are unjustified and unconstitutional.
Solutions on the Table
While the law should not have been enacted and it should not have survived this long, many solutions have emerged over the past 17 months. Representatives Patrick McHenry (R‑NC) and Tim Ryan (D‑OH), and Senators Ted Cruz (R‑TX), Cynthia Lummis (R‑WY), and Ron Wyden (D‑OR) have all introduced different pieces of legislation to address the problem. Now that the 118th Congress is getting ready to get off the ground, it should take this time to move forward before the IRS does.
Originally published by the Cato Institute. Republished with permission under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
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