Lawmakers hid a sneaky crypto reporting provision in the infrastructure bill

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Imagine a crypto trader who makes hundreds or thousands of transactions per day. What if he was legally required to collect personal data about every person he does business with? Think how painful that would be.

Or rather: think how painful it will be. Under a provision slipped into the new infrastructure bill, it is the law.

Section 6050I is a “long forgotten law” in the tax code, says Abe Sutherland, an assistant at the University of Virginia law school and a member of the Coin Center. It requires people who transact large sums of money (over $ 10,000) to file reports with the IRS detailing the names of senders and Social Security numbers. The new law changes the rule to make it applicable to cryptocurrency transactions.

It’s “much more serious” than just adding friction, he says.

“All other tax code violations are misdemeanors, but the violation of 6050I can be a felony (up to five years in prison),” Sutherland notes on Twitter. “The relative clarity of the law and its limited applicability in the case of old-fashioned cash does not translate into digital assets. Compliance may be impossible.”

If the infra passes: a little story

Any US business: we received your payment of 0.243 bitcoin, thank you for your business! One last thing: give us your SSN, address, DDN, profession, copy of passport or DL, and this other information that the Trésor Sec’y Yellen wants from you …

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– Abraham Sutherland (abesutherland) September 29, 2021

Congress passed 6050I in 1984, when virtually the only people who used huge sums of money for transactions were criminals. These days, large wads over $ 10,000 are rare, but transactions of this size involving bitcoin, ether, solana, or other cryptocurrencies are not. Forcing the rule on them could hamper the widespread adoption of crypto by making it incredibly difficult to do business with it.

“Because it’s technically a whistleblowing provision, which allows people to say ‘Oh, well, that doesn’t forbid it,'” but it misses a lot of the basics, says Sutherland. The original provision was “designed to prevent people from using cash,” so they would use banks instead. This provision could also force crypto users to turn to the very financial institutions they are trying to break free from. After all, part of the appeal of crypto is due to the freedom that users get from middlemen.

Perhaps more importantly, there are serious concerns as to whether the reporting provision is even constitutional. When applied to cryptography, Section 6050I arguably constitutes an unreasonable search and seizure. This is the warrantless surveillance of an individual, who must now collect the social security number of another individual. Several sources in the crypto world tell Reason they are ready to challenge it in court.

The move to Section 6050I has largely gone under the radar, as much of the cryptocurrency community has been distracted by yet another measure of the same bill. This provision redefines the broker to include “any person who (for a fee) is responsible for regularly providing any service that transfers digital assets on behalf of another person”. As Will Wilkinson writes in Model Citizen, “This definition is so vague and broad that miners / validators, node operators or even Axie breeders – none of whom are a broker in a recognizable sense – could presumably fit into. its scope, which would subject them to the absurd and potentially ruinous tax reporting requirements of brokers. “

Fortunately, the amendment to section 6050I will not come into effect until January 1, 2024, which “gives us a little time to try to modify it, to have it repealed,” said Jerry Brito, executive director of the Coin Center.

Brito is opposed not only to the rule change, but also to the way it was adopted. Language was added at the last minute to a $ 1.2 trillion infrastructure bill without normal and separate hearings, debates and votes. “There is a whole process whereby issues are expressed and unintended consequences are understood, and then members can knowledgeable vote,” Brito said. But that did not happen. Many lawmakers may not even have realized that the change was included in the bill.

“I don’t think people quite realize the importance yet,” Brito says.

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