Posted 10 months ago | by Catoshi Nakamoto

U.S. lawmakers are looking to tax American citizen’s crypto holdings to help fund infrastructure projects. But the text of the new bill that has been voted to advance to the House, would enforce stringent almost impossible KYC standards in the crypto space in order to do so.

AdobeStock 111163197 U.S. Senate Advances Crypto Tax To Build Transportation And Electricity Infrastructure

UPDATE – 8/02/21: According to Jake Chervinsky legal counsel for Compound, some progress has been made on the infrastructure bill’s language. However, he said that it’s still unacceptable. The next steps Chervinsky said is to advocate for an amendment on the Senate floor or to take the fight to the House.

A bipartisan infrastructure bill currently in the hands of the United States Senate has been supplemented to include several new stipulations which would expand crypto-related taxation and reporting obligations to the Internal Revenue Service (IRS) for businesses and users alike.

According to the document, the U.S. Senate is looking to raise an additional $28 billion through the taxation of digital assets. The legislation in question included last-minute additions referencing cryptocurrency taxes before being presented to the Senate.

The taxation of crypto assets would make up a vital part of the $550 billion total investment into the country’s transportation and electricity infrastructure.

The proposed legislation aims to tighten transaction reporting rules for crypto brokers as well as force businesses to report all transfers of digital assets that are worth $10,000 or more to the Internal Revenue Service (IRS.)

“The provision includes updating the definition of broker to reflect the realities of how digital assets are acquired and traded. The provision further makes clear that broker-to-broker reporting applies to all transfers of covered securities within the meaning of section 6045(g)(3), including digital assets,” the document reads.

The bill has passed its first hurdle in the United States Senate, with Senators on Wednesday voting 67-32 to advance the bipartisan infrastructure bill to the House. It must be stressed that the bill will now move into a process to debate and amend the proposal before it goes to the House floor for a final vote, where it will eventually be signed by U.S. President Joe Biden into law or fail to pass. Biden could also choose to veto the bill, although that scenario is unlikely as an overwhelming majority of 50 Democrats voted yes compared to just 17 Republicans who helped seal the vote.

According to Forbes, it has a strong chance at becoming law, but “it will still need to pass the House, where progressives are demanding it be tied to a USD 3.5trn spending package.”

Both Jerry Brito the Executive Director at Washington-based crypto lobbyist Coin Center and Kristin Smith, executive director of the Washington-based trade group Blockchain Association who testified as witnesses just this week in one of three congressional meetings commented about the bill.

Brito emphasized that in the drafts he has seen, “the category of persons who would be obligated to report is so broad that it potentially covers persons who only provide software or hardware to customers and who have no visibility whatsoever into users’ transactions.”

Smith called the US Senate’s deal “hugely problematic.” Bloomberg quoted her stating that the provision could push a lot of American blockchain companies overseas. “We’re pushing every lever right now to change it,” added Smith.

The bill’s original draft language of “broker” means everything from crypto miners, validators on proof-of-stake networks and protocols. All will be forced to meet IRS reporting requirements and file 1099 forms. These forms include customer data such as name, address, and tax identification number. In the words of, Jake Chervinsky, general counsel at DeFi lending protocol Compound, “It’s literally impossible for non-custodial actors like miners to get the information they need to do Form 1099s. In practice, this could mean a de facto ban on mining in the USA.”

 

This comes as Congress and U.S. agencies are both starting to focus on cryptocurrency regulation here in America, having hosted three different meetings discussing digital assets earlier this week. In addition, on Tuesday, right after the meetings Senator Elizabeth Warren (Queen FUD) wrote a letter to Secretary of U.S. Treasury Janet Yellen calling for cryptocurrency regulation and investor protections.

One of the points that Queen FUD argued in the letter was that DEFI developers were mostly anonymous and this could present “severe” risks to the country’s financial stability.

“Given that participants and project developers may remain anonymous, DeFi could present particularly severe financial stability risks. According to a 2019 Financial Stability Board report, decentralized financial technologies may raise new forms of concentration risks, unclear allocation of liability, and recovery and resolution challenges.”

What Warren fails to realize is the uncertainty around crypto and the lack of any oversight or comments about what token is and isn’t a security, is what breeds this dangerous landscape for investors.

In the letter, Warren further urged Yellen who also serves as the Chair of the Financial Stability Oversight Council (FSOC) to “act with urgency” and adopt an appropriate policy to address the risks posed by cryptocurrencies. “The longer that the United States waits to adapt the proper regulatory regime for these assets, the more likely they will become so intertwined in our financial system that there could be potentially serious consequences if this market comes under stress.”

The senator from Massachusetts added:

“I have become increasingly concerned about the dangers cryptocurrencies pose to investors, consumers, and the environment in the absence of sufficient regulation in the United States.”

As Bitboy Crypto previously reported, the U.S. government looks to be getting ready for a massive regulation push with the appointment of the Financial Crimes Enforcement Network (FinCEN’s) first-ever Chief Digital Currency Advisor and discussions by both the SEC and U.S. Treasury Department about making crypto more easily traceable.

As Bitboy Crypto first reported last year under the Trump administration, both FinCEN and the FATF are seeking to control unhosted or non-custodial wallets. FATF and FinCEN have both expressed in their view transactions using unhosted wallets increase AML/CTF risks. For those new to crypto, an “unhosted” wallet is a software where you generate your keys and you are in control of your funds. This embodies the entire ethos of cryptocurrency, stemming from the phrase, NOT YOUR KEYS, NOT YOUR CRYPTO.

If the cryptocurrency regulations in the U.S. do go into effect, as Bitboy Crypto warned from two insider sources in September of last year, it would mean crypto businesses would be forced to know every person their users’ crypto transacts with, keeping logs, and verifying identities (KYC) even before a transfer can go through for sending crypto.

In December 2020, FinCEN issued a proposal of guidance called “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets,”

According to the proposal, if a single transaction or combined transactions exceed $10,000 within a 24-hour period, the bank, MSB, or Virtual Asset Service Providers (VASPs) will have to file a report with FinCEN and include information in relation to the transaction, the counterparty if applicable including their name and physical address as well as verification of the identity of its customer. In addition, If a transaction exceeds $3,000, banks and MBSs will be required to keep records of the transaction as well as verify the identity of the customer.

It’s also worth mentioning that just last month, the IRS asked Congress for more power and authority to collect cryptocurrency transactions.

A report from the U.S. Treasury Department as recently as May, stated the administration wants to put new provisions in place that would make it easier for the government to see money moving around, including digital currencies. As CNBC noted the report stated that cryptocurrencies pose a “significant detection problem,” allowing people to dodge or evade taxes. This same report noted that there should be mandatory reporting requirements for $10,000 to the IRS.

This latest bill echoes many of the same points that U.S. agencies have referenced like making KYC mandatory in the crypto space. The only thing missing is the banning of non-custodial wallets. On the flip side, the U.S. government would be recognizing cryptocurrency and solidifying it as a legitimate industry finally offering some clarity, which would bring in more money from hedge fund investors causing new capital to flood into the crypto space. However, it won’t be the same and there will be restrictions on open source technology which is a large negative prospect for crypto’s future.

Bitcoin is currently trading at [FIAT: $39,742.50] DOWN -1.1% in the last 24 hours according to Coingecko at the time of this report.

About Catoshi Nakamoto

c6ea0c3794492f30883e516d39b2597a?s=90&d=blank&r=g U.S. Senate Advances Crypto Tax To Build Transportation And Electricity InfrastructureActivist/Journalist, former writer - We Are Change, The Mind Unleashed, Coinivore, others. Currently writing for - Activist Post and Bitboy Crypto. Not Right or Left Apolitical. I Care About Truths (CATS.) Cryptocurrency enthusiast, I mined and lost 100+ BTC in 2010-2011. I work with - Bitboy, SoMee, CEEK, Presearch, and W3BT aka FMW Media Group. Friend of mostly everyone who isn't a dick. Just A Cool Cat.