Crypto tax amendment fails to pass unanimously in Senate

The U.S. Senate on Monday rejected a tax amendment backed by the cryptocurrency industry that would have exempted non-custodial cryptocurrency participants from crypto tax reporting requirements in an infrastructure bill.

Senators behind two amendments to the broker definition quickly reached a compromise early Monday. With Treasury's support, senators hope the compromise amendments will make it into the final bill, but time is running out.

Sen. Pat Toomey proposed what's called a unanimous consent amendment, meaning a single objection could kill the proposal.

However, an unexpected event occurred. Senators Richard Shelby (R-AL) and Bernie Sanders (I-Vt.) from Alabama opposed the amendment due to the dispute over military spending. Shelby said that if a proposal to increase military spending by about $50 billion was added to the amendment, he would retain his opposition, but Sanders rejected Shelby's proposal on the grounds of climate change concerns. Therefore, the last-minute efforts of the crypto people were ultimately in vain.

What's next?

The Senate is expected to vote tomorrow on the final bill, which will then need to pass the House.

According to CoinCenter’s Jerry Brito, while the fight in the Senate is over, the crypto lobby will now allocate its resources to the House, where he said: “The bad news is that the amendment did not receive unanimous consent, so it will not be included in the bill. The good news is that we are not giving up. The next stop is the House, where we can try to craft a brand new amendment from scratch that addresses all of our concerns.”

However, the House is unlikely to make any changes to the text of the bill, which is expected to be passed on Tuesday morning, U.today reported.

Important Background

"We came together to provide a clearer framework for the legal definition of a broker," Toomey said of the compromise bill.

The infrastructure bill, in an effort to raise more money, expanded the tax scope by codifying new requirements for certain cryptocurrency operators to report transactions to the Internal Revenue Service as brokers. The problem was that the initial version of the definition of a broker was vague. The definition included "any person (or entity) who is responsible for regularly performing any service to effectuate the transfer of digital assets on behalf of another person (or entity)."

Last week, pro-crypto senators introduced two different amendments, both aimed at narrowing the definition of "broker." The amendment proposed by Ron Wyden (D-Ore.), Lummis, and Toomey would exempt non-broker-type entities from the legislation. The amendment by Senators Ron Portman (R-Ohio), Mark Warner (D-Va.), and Kyrsten Sinema (D-Ariz.) would only exempt validators in proof-of-work or proof-of-stake networks.

Toomey said at a news conference Monday that all six senators support the new compromise, saying, “We’re not proposing anything sweeping or radical — [the compromise agreement] makes it clear that brokers are only those who facilitate transactions where consumers buy, sell and trade digital assets… None of us think it’s an absolutely perfect solution, but it’s much better than the underlying text.”

“This is already a remarkable performance for the cryptocurrency industry and its growing momentum in Washington, D.C. Regardless of the outcome, we are doing something very positive for people in the cryptocurrency and digital asset space,” said Cynthia Lummis.

Ted Cruz (R-TX) was one of the highest-profile senators to defend the cryptocurrency industry during the debate on the bill itself. On Saturday, he said the Senate was “on the verge of passing legislation that would be bad for crypto.”

Those in favor of the Warner-Sinema-Portman amendment argue that the bill does not place any special burdens on the nascent cryptocurrency industry. Senator Elizabeth Warren (D-MA) said the bill "is not a direct tax on cryptocurrency, it's just a reporting requirement that exists everywhere else. It's theoretically the right thing to do."