Congress must clarify how the infrastructure bill will impact cryptocurrency – TechCrunch

The $1 trillion US infrastructure bill, which was signed into law by President Joe Biden last week, contains provisions that would tax cryptocurrency trades and generate about $2.8 billion annually for the US government.

This is, frankly, not a lot of money.

The problem is that the crypto tax component of the law is not clearly written, and the government risks crushing a booming part of the economy.

The Infrastructure Bill states that “brokering” needs to keep track of these things. But you can enter into a smart contract without a middleman, who is responsible for reporting in this case? Is a miner considered a brokerage?

There is no doubt that the government, at some level, deserves the taxes owed from cryptocurrency trading like any other investment gain – usually at the time of a person’s liquidation, or like a transfer of ownership. But the ambiguity of the law threatens either trading platforms with revoking access to US citizens or simply preventing smaller crypto investors from joining or staying in the market.

We’ve seen this before. The Foreign Account Tax Compliance Act (FATCA) has caused some financial institutions to prevent US citizens from using their services because compliance rules were too onerous for the potential risks and benefits.

Here are some scenarios – some simple, others – to think about:

  • If you buy a car using bitcoin, the time you use bitcoin to buy a car will be the time you are taxed. This is easy enough.
  • If you go to a crypto exchange and use the dollars to buy Ether, it’s easy to learn how to get taxed. This is also a straightforward bargain.
  • If you turn your crypto into a smart contract that you use to hold the NFT that other people buy, things quickly get messy, exposing individuals to the risks of dealing with taxes that complicate the company’s transaction.

The minimum is $10,000 – which is what carried over from the Bank Secrecy Act. Transactions under this amount are not taxed, but $10,000 is a relatively low amount of money to deal with a complex tax situation.

Tax reporting for trading platforms and investors can be stressful enough to discourage further investment, which could ultimately make the tax worthless, or at least generate much less revenue than expected.

And for the IRS, this can be a complicated tax to scrutinize. They will need a way to associate identities with these transactions. This is already done on trading platforms such as Coinbase, but individual miners do not.

What is somewhat noteworthy about this particular law is that while tax laws will always be problematic at first, they usually clear up over time. This infrastructure bill appears to be going in the opposite direction. Congress started with the impact figure ($1.1 trillion) — and then tried to find ways to generate enough taxes to match the figure.

This is unusual in a few ways, but it probably indicates our current political climate. Politicians used to start with the specific programs they wanted to fund, and then tried to keep the cost as low as possible. This time, both parties were fighting for the promise of a larger number when their party was in power. (Trump, after all, worked on a $2 trillion infrastructure bill, even though it wasn’t signed into law.)

It’s a bit of a strange time in the US politically, as mayors from Miami to New York and across the political spectrum are offering to take their paychecks in cryptocurrency. Meanwhile, at the national level, there is no clear guidance on the long-term plans of the federal government.

Ultimately, cryptocurrency is here to stay in one form or another, and the federal government needs to get serious about its approach by talking to experts like economists, academics, and cryptocurrency platform developers.

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