Robbing Bitcoin to Pay for Bridges?

Slowing progress in passing the Senate’s $2 trillion infrastructure bill is a digital currency taxation provision included to fund it. 

The provision is eliciting widespread dissent from the digital currency community for its potential consumer privacy implications and specifically how it defines a ‘broker.’ 

Till now, digital currencies have benefited from significant tax benefits due to the anonymity they offer and the lack of federal government regulation. The amendment would establish a digital currency reporting system that would allow the IRS to collect taxes.

The current language of the provision stipulates anyone “responsible for and regularly providing any service effectuating transfers of digital assets on behalf of another person” is a ‘broker’ and as such subject to tax reporting requirements.  

The concern around this definition of ‘brokers’ is that the broad language could be interpreted to include ‘miners,’ who regularly solve algorithms in exchange for currency but do not technically have any customers. Bipartisan groups of senators are working on two amendments resolve the issue.

There are also ethical concerns over how the provision will impact consumer digital privacy. The proposed IRS reporting requirements would essentially mandate almost every company— even those tangentially related to cryptocurrency— to collect and report the names, addresses, and transactions of their customers. 

The Biden Administration is fighting the concerns over the amendment, claiming that the industry is using “scare tactics” to avoid taxation.