The United States wants to impose cryptocurrency taxes, but internal opinions are divided

Recently, the U.S. Senate is working on a massive infrastructure spending bill. The draft bill includes a provision that will fundamentally modify crypto tax reporting requirements. The bill plans to raise about $28 billion through cryptocurrency taxation by applying new information reporting requirements to cryptocurrency exchanges and other parties.

Among other things, the bill includes a provision that includes updating brokerage reporting requirements for crypto transactions and requiring companies to disclose crypto transactions of more than $10,000. According to the draft bill, brokers who transfer any digital assets will need to submit a declaration form under the revised information reporting system. In practice, this means that crypto miners, validators of proof-of-stake networks, and perhaps even those active in decentralized financial markets (such as liquidators or governance token holders) must meet IRS reporting requirements and submit 1099 forms. These forms include customer data such as name, address, and tax identification number (for self-employed people, it can be a social security number).

Judging from the information leaked from the bill, the US government aims to pay for part of the cost of the massive infrastructure bill by taxing crypto companies. It is unclear whether the final bill will include provisions related to cryptocurrencies. Recently, the infrastructure bill was passed by 66 votes in favor and 28 votes against to start debate. Senators are still continuing to revise the proposed bill and may hold a final vote before the US Congress adjourns on August 9.

For a long time, the United States has been polarized in its views on cryptocurrencies and related fields, and there are always voices hoping that Congress can legislate to crush the U.S. crypto industry in one fell swoop. Now, a comprehensive policy targeting the crypto market has not yet been launched, only a major infrastructure bill has been passed in terms of taxation, hoping to raise $28 billion from crypto taxes to solve part of a recent $550 billion solution for road and bridge repairs in the United States, providing tax support.

There has been a huge debate in the United States over whether the new U.S. crypto tax regulations will be passed.

Opposition

Jake Chervinsky, general counsel at DeFi lending protocol Compound, tweeted: “It is simply impossible for non-custodial parties such as miners to obtain the information they need to fill out 1099 forms. In practice, this could mean a (de facto) ban on mining in the US.”

He added: "It is illogical to adopt a regulation that is impossible to comply with unless the goal is to kill the industry."

“This bill could make it impossible for people to maintain anonymity while transacting in cryptocurrency directly with others through open source code, such as smart contracts and decentralized exchanges,” said Marta Belcher, a cryptocurrency and civil liberties attorney.

“Policy changes that impact civil liberties, privacy and the future of the internet should be debated openly, not tacked on to must-pass infrastructure legislation at the last minute,” said Evan Greer, director of the digital rights group Fight for the Future.

U.S. Representative Warren Davidson said that the cryptocurrency taxes added to the Senate infrastructure bill are bad for the United States. He warned that "the United States is in danger of missing out on one of the most revolutionary technological advances in history and falling behind competitors in this important innovation."

"The U.S. led the industrial revolution, the advent of the automobile and the development of the internet, and now the U.S. is about to lose that leadership to this new technology," Davidson said.

Supporters

Brett Cotler, an attorney at the U.S. law firm Seward & Kissel LLP, said: Although exchanges and fintech companies that trade digital currencies may have to spend money to upgrade reporting and compliance systems, the new U.S. crypto tax rules will help improve customers' service experience and have a positive impact on the crypto industry.

Crypto trader Johnson said: The new crypto tax rules will help legitimize the crypto ecosystem and promote international growth. Although crypto assets have always been a means of transferring value outside the government's control track, the crypto field still needs regulation in order to be more widely adopted. From the overall reports of foreign media, there are more voices of opposition, which generally means that the legislation of the new US tax regulations bill has serious flaws and may not be enforced in practice.

Specifically, first of all, the rules written in the bill seem to define any participant in cryptocurrency transactions as a "broker." Under this definition model, it not only refers to retail investors or institutions participating in transactions, but also includes a series of so-called "participants" including miners and decentralized exchanges, and transaction reporting requirements, and the scope of taxation will be infinitely expanded.

Secondly, since crypto wallets do not track or report user transactions, and the anonymity and decentralization of cryptocurrencies make it impossible to implement and comply with the law even if the bill is passed.

Third, when the legislature is writing and discussing the bill, there should be at least two separate bills to establish basic definitions, jurisdiction, and standards for crypto regulation, rather than trying to rush through a poorly conceived tax. Only after these preparations are in place can the legislation be reasonable and implemented. This disconnect highlights the shaky foundation on which the United States is trying to tax or regulate cryptocurrencies and related areas.

Finally, in addition to the design flaws, if the new regulations are passed by Congress and implemented, they currently rely only on routine monitoring and automatic market reporting, rather than on a system that can proactively report, and it is almost impossible for law enforcement officers to conduct effective investigations and evidence collection in related investigations and law enforcement. If the bill is passed in a hurry, it is likely to become like the recently introduced European anti-money laundering rules, with various problems such as fraud and false reporting. The US regulatory authorities have recently suddenly increased their information on cryptocurrencies and related fields. Last week, the US Congress held three hearings on cryptocurrencies at the same time, namely the Senate Judiciary Committee held a hearing on ransomware, the Senate Banking Committee held a hearing on the use of cryptocurrencies, and the House Financial Services Committee held a hearing on central bank digital currencies.

The US regulators have held hearings on different aspects of the crypto industry in the short term. First of all, it is clear that the US regulators have begun to take the rapid development and rise of cryptocurrencies and related fields in the United States seriously. Judging from the information after the meeting, all three hearings have revealed a trend of tightening policies on cryptocurrencies. Soon after the meeting, new regulations on crypto taxation began to enter the agenda. This shows that the US regulators seem to be starting to take action on cryptocurrencies.