Here’s How the US’s Infrastructure Bill Crypto Tax Provision Might Be Implemented

The House of Representatives will vote on the infrastructure bill at the end of the month.

AccessTimeIconSep 8, 2021 at 8:34 p.m. UTC
Updated May 11, 2023 at 4:28 p.m. UTC
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As the U.S. House of Representatives prepares to vote on the Senate’s $1 trillion bipartisan infrastructure bill, tax lawyers are waiting for the federal Treasury Department to issue guidance on the proposed crypto reporting provision it includes.

In August, the crypto industry came together in an intense effort to amend the provision in the sweeping bill, which appeared to broaden the definition of “broker” beyond cryptocurrency exchanges and similar types of trading platforms to potentially include miners, node validators and developers, among other types of entities that don’t facilitate transactions for customers.

Despite bipartisan calls to amend the bill, it passed the Senate in its original form on Aug. 11, and the House is now set to vote on the unamended bill on Sept. 27.

Legal experts warn that if the bill is implemented as it appears, there may be no way for some industry participants to comply.

For instance, according to Nathan Giesselman, a partner at Skadden, Arps, Slate, Meagher & Flom LLP, the provision in its original form runs the risk of capturing someone who is not in a position to have the same customer information that a traditional broker might have, putting these individuals in a place where they cannot comply with the required reporting.

“They’d either have to cease their activities or accept non-compliance and run the risk of the associated penalties,” Giesselman said.

Alex Muresianu and Garrett Watson, policy analysts at the independent tax policy analysis group Tax Foundation, said the reporting requirements, as written, are “potentially unworkable.”

However, reports indicating the Treasury Dept. plans to clarify the definition of “broker” surfaced earlier this month. In one report from Bloomberg, an unnamed Treasury official said the department will stick to the definition of “broker” laid out in the Internal Revenue Code (IRC), and not target entities that do not fall under it. The IRC defines “broker” as “(A) a dealer, (B) a barter exchange, and (C) any other person who (for a consideration) regularly acts as a middleman with respect to property or services” but excludes persons “with respect to activities consisting of managing a farm on behalf of another person.”

Although the industry’s hopes will soon hinge on Treasury’s own guidance on the provision, some U.S. tax attorneys are not completely convinced that the Treasury will follow through with narrowing the definition of broker, if the bill itself remains unamended.

“It sounds like good news but it’s not clear if what they say now is what they’ll actually do in practice,” said David Zaslowsky, partner at Baker & McKenzie and editor of the law firm’s blockchain blog.

‘You never know’

Earlier this year, Zaslowsky co-authored a report on how the Internal Revenue Service (IRS) is “aggressively pursuing” taxes on crypto transactions in an attempt to increase tax revenue. According to Zaslowsky, the IRS’s intention was made clear by the very placement of a question about crypto transactions at the top of the individual tax return form.

With the new provision expected to help raise $28 billion within 10 years, the intention of the IRS to raise more revenue and combat tax evasion remains the same.

“It is definitely the view of the Treasury that not everyone is reporting to them that should be,” Zaslowsky said.

Under the proposed provision, crypto exchanges will be required to continue issuing 1099 forms for non-employment income, Giesselman said, adding that he is unsure how many exchanges are currently reporting in a manner that complies with the proposed rules.

The uproar, however, was not over having trading platforms and exchanges that might not have been reporting properly be subject to new reporting requirements but over a broad definition that captured entities like miners, who don’t have the information being sought, Zaslowsky said. He added that by using something close to the existing definition of broker, the former group would be captured but not the latter, and there would then be increased revenue to the Treasury.

“But is that really going to happen? That’s the concern, isn’t it? You never know,” Zaslowsky said.

What about NFTs and DeFi?

Giesselman predicts that, in practice, crypto exchanges will be the main focus of the new reporting requirement.

Shehan Chandrasekera, head of tax strategy at CoinTracker, agrees.

“I think that the Treasury is going to apply the broker rules strictly for cryptocurrency exchanges. That involves centralized exchanges like Coinbase, and could also involve decentralized exchanges like Uniswap,” Chandrasekera said.

Although the reporting requirement will cover exchanges, Giesselman also said that the scope of how far regulators go beyond these trading platforms remains uncertain.

“Is this going to pick up an enterprise that decides to mint its own stablecoin, mint its own cryptocurrency, their own [non-fungible tokens] and sell those in the market? Will these be caught?” Giesselman said.

Erin Fennimore, global head of information reporting at crypto tax software provider TaxBit, said that under the current infrastructure bill both NFTs and decentralized finance (DeFi) would be covered as “brokers.” Joe Guagliardo, technology and blockchain partner at Troutman Pepper, agreed with Fennimore, saying the inclusion of NFTs in the definition is not up for debate.


The law, as currently drafted, will not take effect until after 2023.

“So all of that is down the road. But the problem comes back to the fact that if the definition is broad enough to cover parties who, because of the way they operate, do not have the information that they are required to report, you’ve got a problem,” Zaslowsky said.

Giesselman feels the enforcement of the law will play out similar to that of the Foreign Account Tax Compliance Act (FATCA), which came into effect back in 2010. FATCA sought to combat tax evasion by U.S. persons holding assets and bank accounts offshore, and required financial assets held abroad to be reported to the IRS.

But the initial FATCA requirements were notoriously complicated where everyone decided there was a problem here with a lack of information that needed to be fixed, Giesselman explained.

“Exactly how the [FATCA rules] should be written in an administrable way in the real world took a couple of years to get right. And there were rounds and rounds of comments. I think the Treasury tried very hard to listen to the input that was coming in,” Giesselman said.

According to Giesselman, if the bill becomes law, the Treasury could go in one or two directions when it comes to the crypto tax provision. In one scenario, the Treasury could release proposed guidelines for compliance (which do not have legal effect until finalized), and open it up for public comments. Then the Treasury will consider the comments received, and maybe amend or clarify the proposed regulations before releasing final regulations.

In the other scenario, the Treasury could release proposed and temporary regulations (which are generally identical). But in this instance, the temporary regulations are legally effective immediately, Giesselman explained. Then, there will be a comment period, and the final regulations are issued, perhaps in amended form.

Given the 2023 proposed effective date, Giesselman says we could see the initial rollout taking either route, and it would depend on how long it takes the Treasury to get the guidelines ready.

“If that took until late 2022, we might expect the second pathway to be used (so that the temporary regulations are effective by the time the law goes into effect), whereas if they could get out proposed regulations early in 2022, we might expect the former route,” Giesselman said in an email.

In yet another scenario, the Treasury might also take a similar approach it used for certain provisions of the Tax Cuts and Jobs Act of 2017 which sought to reduce tax rates for businesses and individuals, Giesselman said. The Treasury might issue a Notice that describes in detail certain key rules that regulations will contain when issued, and allow taxpayers to rely on these rules until regulations are finalized.

“If, for example, there was a strong desire to limit the scope of who is viewed as a broker, that might well be done via a Notice while the overall package of guidance proceeds at a slower pace,” Giesselman said.

Regardless of how the Treasury interprets the term “broker,” Fennimore indicated that change is inevitable.

“While this is a procedural shift, it is not ‘unworkable.’ It involves implementing processes and procedures, along with technology, to facilitate the collection of the required information to report forward to the IRS. The best advice would be to start preparing sooner rather than later,” Fennimore said.


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Sandali Handagama

Sandali Handagama is CoinDesk's deputy managing editor for policy and regulations, EMEA. She does not own any crypto.

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