Has the Senate debate on the declaration of the crypto tax caused much ado about nothing?

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PARIS, FRANCE – DECEMBER 22: A visual representation of digital cryptocurrency, … [+] Cryptocurrencies, notably Bitcoin, Ethereum, and Lightcoin, experienced unprecedented growth in 2017, although they remained extremely volatile. (Photo by Chesnot / Getty Images)

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When Congress debates major legislation, the public often focuses on a single narrow issue and often unrelated to the main point of the bill. This happened when the Senate debated the $ 1,000 billion infrastructure measure last month: many paid disproportionate attention to the tax filing for the cryptocurrency, a proposal that would have funded less than 3 % of the public works bill.

But what if much of the crypto tax effort was nothing more than political theater? What if the Treasury Department already had the power to require reports for major players in the crypto industry, whether or not Congress passes new legislation?

Treasury task list

It appears to be the case. Last week, my guest on the Tax Policy Center The Prescription webcast, Washington tax lawyer and former Treasury employee Lisa Zarlenga said the Treasury probably already has the power to require virtual currency brokers to report capital gains to investors and to the IRS. Indeed, the Treasury has put guidelines to clarify disclosure requirements on its 2019 to-do list.

The Treasury ruled in 2014 that cryptocurrency is an asset, not money. Thus, sales or trades are treated as earnings. It can be argued that under section of code 6045A, crypto brokers, just like stock or commodity brokers, must already file Form 1099 with their client and the IRS.

The Treasury has worked on guidance to clarify these requirements. And it would be very useful for him to finish his work. But there doesn’t seem to be much controversy over whether the Treasury has the power to demand reports from crypto brokers, centralized exchanges, and any entity that can be viewed as an intermediary between crypto buyers and sellers. -cash.

Speak

The provision added to the Senate infrastructure bill initially seemed to do more than that. This requires that any company that provides services that facilitate crypto transactions must also report the transactions.

This set off alarm bells for many industry players, who argued that the measure would require reports from players such as miners and software and hardware developers, who clearly provide services to the crypto market. but who have little or no knowledge of specific transactions.

But the main sponsor of the measure, Senator Rob Portman, spoke in the Senate to say that it was never his intention. Its purpose, he said, was to limit the reporting requirement to brokers. Treasury officials have since said that was their goal as well. Portman and others have been barred from fixing the Senate Prosecutor’s Bill, and it is not clear whether it will be reviewed in the House. But their intention seems clear. Not that different from what the Treasury already does.

Hunting for income

So why has Congress felt the need to reaffirm what the Treasury can already do? Simple: Income. The White House and a bipartisan group of senators, including Portman, agreed to a $ 1 trillion infrastructure bill as long as they could claim it was paid without raising anyone’s taxes.

Thus, the bill is filled with revenue streams that mirror government initiatives that have been going on, sometimes for years, such as the sale of Strategy Petroleum Reserve oil and broadcast spectrum. Crypto reports are a regulatory version of the same thing: Congress takes credit (and receives a revenue score) for something that’s already happening.

How did the Joint Committee on Taxation give the Senate a score of $ 28 billion for something that is already legal? Likely because of the expansive language of Portman’s original measure, one could interpret much more than the mere requirement to report brokers. The sponsors of the bills interpreted the proposal more narrowly, but after getting the score they wanted.

Query: Considering everything going on in the Senate, will the JCT change the score before the House vote?

May be. But the Senate must have its revenue cake and eat it. He got $ 28 billion in credit without actually expanding the authority of the Treasury to demand a lot of cryptocurrency reporting.

Legislation can provide valuable safeguards for the Treasury as it tries to navigate a rapidly changing technological environment. But will it generate $ 28 billion more in tax revenue? It seems unlikely.

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