Senate Proposes Possibly Damaging Crypto Tax Bill
The Big Picture
The Senate is about to vote on a bill that would disrupt the crypto economy and introduce an amendment that could compel DeFi apps and proof-of-stake nodes to KYC users for tax reporting purposes, among many other possible changes.
The main issue the crypto community has with the bill is the definition of the term "broker" which could be fixed with an improved amendment introduced by Senators Wyden, Toomey, and Lummis.
What Led To This?
US regulators have been looking into crypto for quite some time. In late July they hinted at a possible stablecoin crackdown and now they are pushing for stricter rules on tax reporting.
The proposed bill would require entities identified as a broker to send reports of US-based customer activity to the IRS.
Why This is Important
As already mentioned, the language in the bill poses many problems for the crypto economy. FTX CEO Sam Bankman-Fried has pointed out many of them in a Twitter thread.
- The main goal is to require crypto exchanges to send info to the IRS so it knows if an American resident profited from trading crypto and can tax it.
- The term "Broker" applies to any person who provides services "effectuating transfers of digital assets" or gets paid for providing such services. This could apply to exchanges but also to mining, staking or almost any other form of activity on the blockchain that could potentially lead to profits.
- Those that are validating distributed ledger transactions, selling hardware or software for which the sole function is to permit a person to control private keys or developing digital assets or their corresponding protocols for use by other persons are not identified as brokers.
The Good News
The amendment introduced by Senators Wyden, Toomey, and Lummis has an aim to exclude developers, validators, and miners from the newly proposed tax law. There is still a chance this fairer admendment will be passed.
The proposed changes are a part of a broader Infrastructure Bill that would also need to pass in the House.
US voters can also contribute by calling their senators. Fight For The Future has provided all necessary details on how to do so here.
The debate around the proposed amendments should become finalized on Saturday.
Some influential voices from the crypto industry such as venture capital firm Andreessen Horowitz have issued warnings about the possible consequences of the proposed bill:
If the last-minute amendment to the Infrastructure Bill introduced by Senator Warner passes, it will be a stunning loss for America and our ability to remain the innovation epicenter of the world. The proposed amendment recklessly imposes an unworkable reporting requirement on the shoulders of software developers and proof-of-stake blockchain validators.