Key Points
- The recently-passed Infrastructure bill had new regulations for crypto currency.
- The last-minute provision requires all crypto trades over $10,000 be reported to the IRS.
- This will violate the privacy of Americans and stifle the growth of crypto as an emerging technology.
Buried deep within the $1.2 trillion dollar infrastructure boondoggle is a provision, added at the 11th hour, that may have a significant impact on crypto currencies. The short of it: people who transact large amounts of cash ($10K+) are required to pass along the personal information of the sender to the IRS, including names, social security numbers, and more.
That’s Section 6050I of the tax code —and now it applies to crypto currencies thanks to a provision in the Infrastructure Bill (yep, crypto provisions in a “roads and bridges” bill).
Abe Sutherland, an adjunct at the University of Virginia School of Law and a fellow at the Coin Center, calls the provision “severe.”
“All other tax code reporting violations are misdemeanors, but violation of 6050I can be a felony (up to five years in prison),” Sutherland said on Twitter. “The law’s relative clarity and limited applicability in the case of old-fashioned cash does not translate to digital assets. Compliance can be impossible.”
6050I was passed in 1984 when $10,000 transactions were less commonplace than they are now; monitoring cash transactions of that size supposedly helped identify potential criminals. Today, that’s no longer the case and this new provision could hobble crypto by involving undesirable intermediaries who will gain access to personal information.
“[6050I] encourages people to use banks…the government loves banks for their reporting obligations…The recently passed amendment to section 6050I is similarly aimed at discouraging a certain technology. And this time, it’s a new technology, not an obsolete one, and it’s one that some Americans are excited about,” Sutherlands says.
So while the new provision doesn’t ban crypto outright, it does take the sheen off of this emerging technology. China banned it because it’s too hard to regulate; the CCP doesn’t like things it can’t control. Will the United States follow suit? Maybe not.
Shortly after the infrastructure bill was signed into law, congressmen Patrick McHenry (R-NC) and Tim Ryan (D-OH) introduced the Keep Innovation in America Act (H.R. 6006). The bill instructs the Treasury Department to “repeal and study” the effects that section 6050I may have when applied to crypto currencies —particularly how it impacts privacy and innovation.
“American innovation has reached an inflection point,” says Rep. Patrick McHenry (R-NC). “On the one hand, we have the Infrastructure Investment and Jobs Act that President Biden signed into law on Monday. It includes digital asset reporting requirements that threaten to push innovators and entrepreneurs overseas. This would leave the U.S. as a passive observer of a rapidly evolving industry. On the other hand, we can fix these poorly constructed standards and ensure they are compatible with how this new technology actually works. The Keep Innovation in America Act will address these issues and provide additional clarity on the scope of these requirements. This would signal to innovators and entrepreneurs that we are committed to growing the next generation of the internet here at home.”
Crypto may not die from suffocating regulations after all.
