Earlier this week Senators Ron Wyden (D-OR), Cynthia Lummis (R-WY), and Pat Toomey (R-PA) proposed an amendment to the Senate’s bipartisan infrastructure deal which offers a revised tax-reporting requirement for cryptocurrency and digital-asset transactions that would exclude non-custodial actors like miners and software developers from covered by the revised broker definition. Such a designation would free them from the obligation of providing 1099 tax forms, which in many cases would be impossible to comply with given the pseudonymous nature of blockchain transactions.
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Specifically, the amendment would exclude the following from reporting requirements: (A) validating distributed ledger transactions (B) selling hardware or software for which the sole function is to permit a person to control private keys which are used for accessing digital assets on a distributed ledger, or (C) developing digital assets or their corresponding protocols by other persons, provided that such other persons are not customers of the personal developing such assets or protocols.
A vote on this amendment was set to occur yesterday and appeared to be a viable solution to the legitimate issues raised by the cryptocurrency industry and pro-crypto senators alike.
However, Senator Portman (R-OH), who was lead negotiator on the original provision and appeared to support the first amendment, unexpectedly proposed his own competing amendment, along with Senator Warner (D-VA), making it bipartisan.
To the industry’s surprise and disappointment, the Portman-Warner amendment only excludes proof-of-work mining and some wallet projects. The amendment does not offer exemptions to software developers, proof of stake validators, or decentralized liquidity providers, many of whom are not technologically able to comply with the law. The Portman-Warner amendment excludes (A) validating distributed ledger transactions through proof of work (mining) (B) selling hardware or software the sole function of which is to permit a person to control private keys (used for accessing digital assets on a distributed ledger).
Adding to the challenges facing the Wyden-Lummis-Toomey amendment is the fact that the Portman-Warner amendment appears to have the support of the White House. In a statement the the Biden administration said “amendment put forward by Senators Warner, Portman, and Sinema strikes the right balance and makes an important step forward in promoting tax compliance,” and Treasury Secretary Janet L. Yellen reportedly spoke with lawmakers Thursday to lobby against the Wyden amendment.
Senator Pat Toomey was quick to question this competing amendment tweeting, “While I appreciate that my colleagues and the White House have acknowledged their original crypto tax had flaws, the Warner-Portman amendment picks winners and losers based on the type of technology employed. That’s horrible for innovation . . . The Warner-Portman plan exempts bitcoin miners, but not other transaction validators or software developers who create these platforms. What does that mean? Two identical services could receive dramatically different regulatory treatment depending on the technology used.”
Michelle Bond, CEO of the Association for Digital Asset Markets, a nonprofit trade association committed to promoting best practices and fair, orderly markets told me, “The Wyden-Lummis-Toomey is the only amendment that supports a future for digital assets. Not only is the Portman-Warner amendment misguided but it fails to address the core issues our industry has raised. Rushing policies of this magnitude while disregarding the input of key market participants will have long-lasting negative impacts on digital asset markets.”
The two competing bills will be up for a vote tomorrow. Regardless of which amendment prevails, the infrastructure bill as a whole will likely pass and go to the House for a vote. The US cryptocurrency industry will look rather bleak if the Portman-Warner amendment prevails, but it would not go into effect until 2023 and there would still be many opportunities to improve. After a busy week of news on the topic, the industry is still cautiously optimistic.
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