INVEST in America Act (the “Infrastructure Bill”), a major bipartisan infrastructure proposal, includes provisions requiring enhanced cryptocurrency transaction reporting to the IRS. The enhanced reporting is intended to generate increased tax revenue to help pay for infrastructure projects.
Industry participants expressed concern that the enhanced cryptocurrency transaction reporting as initially proposed was overly broad. The reporting requirement would apply to a “broker” involved in cryptocurrency transactions. The initial draft of the infrastructure bill defined broker broadly as “any person who (for consideration) regularly provides any service responsible for effectuating transfers of digital assets, including any decentralized exchange or peer-to-peer marketplace.” Under this broad definition, wallet developers, miners and other services that stake digital assets would have been required to track and report crypto transactions to the IRS by classifying such crypto entities as brokers.
Lawmakers narrowed the definition of “broker” in the latest version of the Infrastructure Bill by amending it to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” This narrower definition is intended to exclude node operators, miners and validators from the scope because they do not affect transfers of cryptocurrency themselves. It appears that lawmakers may be willing to confirm the narrower scope of “broker” in the Infrastructure Bill’s legislative history. In our view, however, the definition should state the categories of entities that are excluded from its scope.
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Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking. This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.