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Crypto lobbyists in US concerned about Biden’s infrastructure bill; here’s why

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The legislation expands the definition of a cryptocurrency broker, which are mainly exchange, for revenue purposes. Brokers are now required to issue a 1099-B form notifying the revenue department of all its customers and their transactions.

Crypto lobbyists in US concerned about Biden’s infrastructure bill; here’s why
US President Joe Biden has signed the $1.2 trillion bipartisan infrastructure bill into law, which includes tax reporting provisions on digital assets such as cryptocurrency and nonfungible tokens, or NFTs.
The legislation expands the definition of a cryptocurrency broker, which are mainly exchange, for revenue purposes. Brokers are now required to issue a 1099-B form notifying the revenue department of all its customers and their transactions.
How will it work?
Under the new tax code, exchanges will have to report receipts of $10,000 in cryptocurrency each time.
“The bill will signify the end of hiding many gains for many crypto investors,” Grant Maddox, an independent CFP from South Carolina, told NextAdvisor, adding that the law may, however, give rise to tax reporting challenges for crypto investors.
Critics worry that the definition of a broker is too wide and requires more clarity. The current language could include entities such as miners who do not facilitate transactions or those entities that do not have the information needed to comply.
In August, however, the US treasury department had clarified that the bill would not target non-brokers such as miners, hardware developers and others.
The impact
According to Shehan Chandrasekera, head of the tax strategy at CoinTracker, the provision would still impact cryptocurrency investors.
Form 1099-B will be issued to both the Internal Revenue Service (IRS) and the customer by the broker. The customer will use the form to calculate their preliminary gains and losses to report their own tax return.
“These 1099s are going to be inaccurate for the most part, because these exchanges don’t have visibility into what you have in your self-custody wallet or what you’re doing in decentralised finance, or DeFi, applications,” Chandrasekera told CNBC.
Some customers also operate their self-custody wallets with private keys and do not take the help of a third party such as an exchange. Hence, for customers with both self-custody wallets and exchange wallets, these tax legislations could be tricky.
For instance, if an investor sells $100,000 worth of Bitcoin after shifting it from their self-custody wallet to their Coinbase wallet, Coinbase would issue the 1099 form reporting the transaction. However, Coinbase would not have information about the initial amount paid by the investor for the Bitcoin as it didn’t happen on the exchange. With the exchange not knowing the investor’s cost basis, 1099 may be overstated, Chandrasekera said.
New tax code
Another tax provision brings digital assets under the US tax code called 6050I. Under Section 6050I, people receiving more than $10,000 in cash and equivalents are required to verify the sender’s personal information such as name and social security numbers with the IRS. Under the new tax code, businesses and exchanges are now required to do so when they receive more than $10,000 in cryptocurrency.
Industry proponents like non-profit CoinCenter believe this surveillance rule is “unworkable and arguably unconstitutional”.
“Crypto people are privacy-conscious. Why would they want to give all their information to these businesses?” Chandrasekera said.
Meanwhile, a bipartisan team of US senators - Senate finance committee chairman Ron Wyden and Senator Cynthia Lummis – is working on a separate bill to narrow some cryptocurrency clauses laid out in the infrastructure legislation.
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