Congress Treats Bitcoin Like Stacks of Cash

[ad_1]

Photo: ozan kose/Agence France-Presse/Getty Images

Without fanfare or debate, Congress recently determined that economically meaningful transfers of digital assets should be as rare, time-consuming, and criminally suspect as brick-of-the-money transactions. An eight-word amendment to the U.S. tax code in the Infrastructure Spending Bill, which took effect Nov. 15, defines digital assets as cash for the first time — a small change with bad consequences for American innovation.

Passed in 1984, Section 6050I of the tax code mandates onerous reporting when businesses receive more than $10,000 in physical currency. This discourages the use of cash and encourages the use of banks, which since 1970 have been responsible for monitoring and reporting Americans’ transactions for tax enforcement and other crime-fighting purposes.

But section 6050I is obscure for a reason: in 1984, cash was already obsolete for economically meaningful and law-abiding use in the modern economy. So no one but the criminals cared that Congress created yet another reason to use banks instead of cash.

But Bitcoin and digital assets are not obsolete. The November amendment will thwart the development of this new technology and effectively ban many uses of digital assets. It will push innovation out of the United States and strengthen existing financial institutions and big tech while forcing Americans to report each other or face felony charges.

The new law also creates inconsistencies with other federal laws. Section 6050I interacts with provisions of the Bank Secrecy Act in nuanced ways that the amendment did not take into account. These should have been understood before Congress legislated such an important technology.

The provision is also constitutionally suspect. Section 6050I requires companies to collect, verify, and report customers’ names, addresses, social security numbers, and other personal information without a warrant. This is a significant imposition on privacy rights and will rightly be challenged under the Fourth Amendment.

Unfortunately, there’s no quick fix thanks to shrewd Treasury Department regulations. The law limits the discretion of regulators and the law itself establishes monitoring and reporting requirements.

Some members of Congress understand that this is important, and bills were immediately introduced to repeal the hasty and never-debated amendment.

One, introduced by Reps. Patrick McHenry (R., NC) and Tim Ryan (D., Ohio), has a dozen bipartisan co-sponsors and, among other fixes, would replace Amendment 6050I with a study and a report to Congress.

This is the right approach. Section 6050I was originally written for face-to-face transfers of untraceable physical objects occurring on US soil. But digital assets are not just digital cash. Unlike physical money, digital assets are highly traceable. And digital assets are not obsolete.

After years of silence, Congress’ first major foray into digital asset legislation came on the sly and without consideration of the consequences. For those who do not understand 6050I or digital assets, the serious consequences of the new law are not obvious, but they are real. The error can be rectified. Congress should repeal the Section 6050I amendment and start over.

Mr. Sutherland is a Fellow of the Coin Center and an adjunct professor at the University of Virginia School of Law.

Journal editorial report: The best and worst of the week from Kim Strassel, Kyle Peterson and Dan Henninger. Images: Getty Images/University of Maryland School of Medicine/ZUMA Press Composite: Mark Kelly

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the print edition of January 18, 2022 under the title “Congress Treats Bitcoin Like Bricks of Silver”.

[ad_2]