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The Infrastructure Investment and Jobs Act’s Attack on Crypto

Cato Institute | Nicholas Anthony | Nov 15, 2021

Infrastructure Jobs Acts impact on Crypto regulation - The Infrastructure Investment and Jobs Act’s Attack on CryptoThe Infrastructure Investment and Jobs Act’s Attack on Crypto: Questioning the Rationale for the Cryptocurrency Provisions

The Infrastructure Investment and Jobs Act has finally reached President Joe Biden’s desk and has been signed into law. However, its ratification, with the cryptocurrency provisions in Section 80603 intact, signals the beginning of an attack on the cryptocurrency industry. If Congress does not wish to see the cryptocurrency industry leave the country just as the United States is becoming a global leader in cryptocurrency mining, Congress should amend the provisions that have set a de facto ban on legal cryptocurrency mining and exposed over 60 million Americans to new felony crimes.1 Failure to do so will likely result in numerous legal challenges from the industry—especially if said provisions continue to rest on such a weak foundation.

The Amendments to Sections 6045(c)(1) and 6050I(d) of the Internal Revenue Code

The law addresses the cryptocurrency industry in Section 80603.6 It is here that two provisions amend the Internal Revenue Code (IRC) in a way that amounts to a de facto ban on legal cryptocurrency mining in the United States. Worse yet, it also requires an unjust level of surveillance that is enforced by threat of felony charges.7

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The amendment to 6045(c)(1), commonly referred to as the “broker provision,” redefines the term “broker” in the IRC so that it includes “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”8 In doing so, Congress has categorized not just traditional exchanges (e.g., Coinbase, Kraken, etc., that are licensed and regulated at the state level) as brokers but also individual miners and even software developers. This provision thus requires exchanges, miners, and developers to report the name and address of each “customer.”9 Yet this is information that many who will be newly defined as brokers in the IRC simply do not have access to.

Therefore, by mandating that they report what they cannot possibly offer, Congress is effectively banning legal mining in the United States.

The amendment to Section 6050I(d) of the IRC might even be worse for the industry than the previous provision.10 Currently, Section 6050I(d) requires anyone engaged in a business transaction of $10,000 or more in cash to report the transaction to the IRS. The report must include the name and address of the payer, as well as their taxpayer identification number, the amount paid, the date, and the nature of the transaction. The law expands this requirement to also require reporting on business transactions involving $10,000 or more in digital assets.11

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Failure to comply with Section 6050I(d) can result in severe repercussions. For example, if someone spends over $10,000 in cryptocurrency on a piece of art, the seller must file IRS Form 8300 within 15 days.12 Failure to file, incorrect information, or missing information may result in a $25,000 fine or five years in prison.13 Such a consequence should not be the result of any law that has not been properly debated or heard by the public.

Unjust Surveillance

The design of these provisions makes it difficult to understand what Congress is seeking to achieve. There’s a big difference between paying taxes on the income earned through mining (i.e., the coins one is rewarded with) and reporting the transactions that one mines. And there’s an even bigger difference between requiring those that “effectuate transfers” to report information and requiring any business that receives a payment to do so. So, while one might make a case for the cryptocurrency industry to pay its “fair share” of taxes, the amendments to Sections 6045(c)(1) and 6050I(d) are clearly designed for surveillance purposes.

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NCFA Jan 2018 resize - The Infrastructure Investment and Jobs Act’s Attack on Crypto The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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