How Taxing Crypto Got Changed by Biden’s Infrastructure Law
(Bloomberg) -- Embedded in the infrastructure spending package signed into law by U.S. President Joe Biden was language increasing the tax reporting requirements for cryptocurrency transactions. That change was heavily opposed by the digital currency industry, which has in its corner a bipartisan group of senators that still hopes to amend the law. Regardless, more struggles are ahead as Washington grapples with how Bitcoin and other cryptocurrencies should be regulated and taxed.
1. What did the law change?
Starting in 2023, cryptocurrency brokers such as Coinbase will be required to record transactions, tracking them for customers and the IRS, similar to the way stock and bond brokers currently do via tax form 1099-B. They’ll have to disclose the names, addresses and phone numbers of their customers, the gross proceeds from sales and any capital gains or losses. Also, businesses that receive payments of $10,000 or more in crypto must report the identity of the sender to the government, mirroring a similar anti-money laundering rule for cash transactions of that amount.
2. What does this mean for taxpayers?
Potentially, not much. The Internal Revenue Service already treated virtual currencies as property, so taxes are owed when it is sold or exchanged, similar to a stock or bond. (If the asset is sold for less than the original purchase price, it creates a capital loss that can offset other gains.) Similarly, someone paid in cryptocurrency owes income taxes it. And the IRS had already started cracking down on people not reporting their crypto transactions. It recently added a question to the individual tax return, Form 1040, prompting people to report any receipts, sales or exchanges of virtual currencies.
3. What’s the point of requiring more reporting?
It’s supposed to bring in more tax revenue -- about $28 billion over a decade, according to the Joint Committee on Taxation. It’s meant to address concerns about cryptocurrency transactions not being taxed because they occur outside the IRS’s view.
4. What’s controversial about the new requirements?
Crypto advocates say the language defining a crypto broker is far too broad, because it ropes in any entity that provides a service “effectuating” the transfer of digital assets. That language, they say, could mean that crypto miners -- who provide the massive computing power needed to validate transactions -- and software developers might be expected to report information that they can’t even access. Senator Cynthia Lummis, a Wyoming Republican, says she’s concerned this could stifle innovation.
5. How is Congress proposing to change the law?
Lummis and Senate Finance Committee Chairman Ron Wyden, an Oregon Democrat, have offered a bill that would narrow the definition of broker significantly. It would clarify that developers of blockchain technology (which enables verifying and recording transactions) and crypto wallet programs would not have to report transactions to the IRS. Senator Ted Cruz, a Texas Republican, has a bill that would repeal the crypto section from the infrastructure law entirely. These standalone bills come after several unsuccessful attempts to amend the legislation while it was being debated in the Senate.
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