An updated version of the U.S. Senate’s bipartisan infrastructure bill narrows the definition of “broker” for the purposes of crypto tax collection but stops short of specifying that only companies that provide services for customers qualify.
The bill, which is being debated by the Senate, funds around $1 trillion in infrastructure improvements across the country, and would be paid for in part by about $28 billion in taxes generated from crypto transactions. An earlier version of the bill sought to do this by boosting information reporting requirements and broadening the definition of a “broker” for tax purposes to include any parties that might interact with crypto, including decentralized exchanges or other non-custodial service providers.
An updated version of the bill now specifies that only people who provide digital asset transfers would be treated as a broker, according to a copy of the draft bill obtained by CoinDesk and later posted online. In other words, the language now does not explicitly include decentralized exchanges, but it also doesn’t explicitly exclude miners, node operators, software developers or similar parties.
“Any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person” is now included in the definition, according to the bill.
Where an earlier draft also said the bill provided for an "expansion" of the definition of the term "broker," the current version provides for a "clarification" of the term.
At the heart of the issue is information reporting requirements. The initial version of the infrastructure bill did not propose new taxes on crypto transactions, but rather, proposed increasing the type of reporting that exchanges or other market participants must provide around transactions.
This means the bill would enforce existing tax rules on a broader set of transactions. It could be difficult for some types of exchanges – namely, decentralized exchanges – to comply, given there’s no clear operators that can provide this type of reporting.
Under the previous language of the infrastructure bill, other parties might also have gotten swept up in these rules, such as software developers, hardware manufacturers or miners who don’t send transactions to customers directly. However, Sen. Rob Portman (R-Ohio), one of the lawmakers working on the bipartisan bill and the lawmaker who may have drafted the language, does not intend to capture these types of entities. A spokesperson told CoinDesk that “non-brokers” would not have to comply with reporting requirements.
“This legislative language does not redefine digital assets or cryptocurrency as a ‘security’ for tax purposes, impugn on the privacy of individual crypto holders, or force non-brokers, such as software developers and crypto miners, to comply with [Internal Revenue Service] reporting obligations. It simply clarifies that any person or entity acting as a broker by facilitating trades for clients and receiving cash, must comply with a standard information reporting obligation,” spokesperson Drew Nirenberg told CoinDesk.
When asked if the senator intended to publish this statement in the Congressional Record, another spokesperson said the statement was only for press purposes.
Clarifying intent in legislative history is one way Portman or other lawmakers could specify that DEXs, miners and similar groups would not be defined as brokers. Now that the bill is introduced, other Senators can also offer amendments to modify or strike the provision.
UPDATE (August 2, 2021, 03:20 UTC): Adds that the bill was posted to the Senate's website.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.