On Senate Floor, Portman, Warner Conduct Colloquy Clarifying Cryptocurrency Provision in Infrastructure Investment & Jobs Act
WASHINGTON, DC – Today on the Senate floor, U.S. Senators Rob Portman (R-OH) and Mark Warner (D-VA) conducted a colloquy to clarify the scope and intent of a provision in the bipartisan Infrastructure Investment & Jobs Act regarding implementing information reporting requirements for cryptocurrency brokers. Portman and Warner discussed how under the bill, a broker is defined as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” For tax purposes this means a sale on behalf of someone else.
Portman and Warner noted how the Treasury Department, the nonpartisan Congressional Joint Committee on Taxation and others believe that the current language is clear that the reporting requirements only cover brokers, and would exclude people who are solely involved with validating distributed ledger transactions through proof of work, proof of stake, and other validation methods that will be developed and come to market as the technology evolves, as well as persons solely engaged in the business of selling hardware or software that allows people to access their private keys.
Portman and Warner closed by emphasizing the need to bring clarity and legitimacy for the cryptocurrency industry and to strike the appropriate balance between capturing the promised benefits, and guarding against the potential for serious abuse and creation of a shadow financial system beyond the reach of established rules to combat illicit finance and tax evasion.
A transcript of the colloquy can be found below and a video can be found here:
Senator Portman: “I rise today to clarify the provisions in the underlying bill text that we are working on this evening.
“As we know cryptocurrency is a digital asset that more and more people are investing in, and we should want that to continue in a healthy and sustainable way. I would like to discuss the provisions in the bill that address information reporting requirements for digital asset brokers.
“Under IRS rules, sales or exchanges of assets like digital assets give rise to gain or loss in the same manner as sales of securities. Taxpayers who sell stocks or other securities through a broker receive an information return, IRS Form 1099-B, that provides information on the gross proceeds and the basis of those sales. Those information returns are prepared by their brokers or custodians, or other agents involved in the effecting of the sales.
“Today there is a lack of clarity on how these reporting rules apply to digital asset transactions.
“The underlying bill has two simple provisions to address that.
“The cryptocurrency provision in the bill makes it clearer as to who counts as a broker within this market. Under the bill, a broker is defined as quote ‘any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.’ For tax purposes, this means a sale on behalf of someone else.
“The concern has been expressed that some in the cryptocurrency industry who are not brokers would be caught up in this definition. The Treasury Department, the nonpartisan Congressional Joint Committee on Taxation, and others believe that the current language is clear enough that the reporting requirements only cover brokers. The purpose of this discussion is to further clarify that is the actual intent of the underlying bill. I think that’s important. That’s the goal we had in our discussions over a compromise amendment, but unfortunately we have been unable to consider and adopt that amendment thus far in this debate.
“Some of us were on this floor today, including Senator Lummis, Senator Warner, Senator Toomey, and myself to try to get that amendment passed and we were not able to do so.
“The purpose of this provision is not to impose new reporting requirements on people who do not meet the definition of brokers. For example, if you are someone who is solely involved with validating distributed ledger transactions through proof of work – commonly known as miners – if you are solely mining, you will not be considered a broker. The same would be true for proof of stake validation, and other validation methods, now or in the future, associated with other consensus mechanisms that are developed and might come into the market as the technology evolves. If you’re solely staking your digital assets for the purpose of validating distributed ledger transactions, you will not be considered a broker.
“We want to be sure that miners and stakers and others who play a key role in validating transactions now or in the future, or hardware and software sellers for digital wallets will not be subject to the rules for those activities. Again, you will need to provide the information reporting only if you are functioning as a broker.
“It is my understanding that that is true. And I ask my fellow Finance Committee member and colleague from the bipartisan working group, Senator Warner, if this is his understanding as well.”
Senator Warner: “I thank my friend, the Senator from Ohio, who has been such a leader on the underlying bill and who I have been proud to work on this clarification with on this critical issue around cryptocurrencies.
“I thank the Senator, who is correct in his understanding. I would also like to add some additional clarifications. The bill ensures that digital asset market players who provide a platform to facilitate digital asset trades by taxpayers will be considered brokers required to report information to the IRS and taxpayers about those transactions. Reporting entities may be digital asset exchanges or hosted wallet providers, often called custodians, or other agents involved in effectuating digital asset transactions.
“The bill recognizes that digital assets are different from stocks and bonds. For example, some taxpayers regularly transfer digital assets between digital asset exchanges, or to an off-exchange wallet and then back to an exchange. Those taxpayers need information returns that link the steps in those chains so they have the complete information they need to prepare their tax returns.
“This bill treats digital asset businesses that (for consideration) regularly effect transfers of digital assets as brokers, and provides for reporting of digital asset transfers to or by a broker, including in cases where a transfer is not directly from one broker to another.
“Senator Portman, do you have anything further to add on this item?”
Senator Portman: “Well first of all, I appreciate the clarification, to my colleague from Virginia. And Senator Warner, you are correct in your understanding.
“I would also ask Senator Warner to clarify the intent of proposal with respect to the application of the bill to persons solely engaged in the business of validating distributed ledger transactions through proof of work, often called miners. Am I correct that under our provisions it is our understanding that Treasury and the IRS will not treat these miners as brokers?”
Senator Warner: “The Senator is entirely correct in his analysis of the application of the bill, and further, I believe, and the Treasury has indicated, that this would also be true for individuals engaged in staking their digital assets for the purpose of validating distributed ledger transactions – proof of stake – which we know to be much more environmentally sustainable. It would also be true for other validation methods associated with other consensus mechanisms, some of which are just coming to market, while others are still in developmental stage. People who solely act to validate transactions will not be treated as brokers for those validation activities.”
Senator Portman: “I would ask Senator Warner to clarify the intent of the Senate in this legislation with respect to persons solely engaged in the business of selling hardware or software that allows people to access their private keys. Am I correct that these persons would not be treated as brokers under the underlying legislation?”
Senator Warner: “I think the Senator has asked a question that has been queried by a number of folks in the media and elsewhere. The Senator is entirely correct in his analysis of the application of the bill. Those persons who do not effectuate transfers of digital assets and therefore would not be treated as brokers. If you are selling hardware or software for which the only function is to permit persons to control private keys which are used for accessing digital assets on a distributed ledger, you will not be considered to be in the business of being a broker.
“I also want to say a word about the bipartisan amendment that I worked on with Senators Portman, Sinema, Toomey, and Lummis. I am pleased that we were able to file it today, and I would have hoped that we would have gotten a vote. But I thank them for their diligence and hard work to clarify, in concert with the Treasury Department, this critical section of the bill.
“We want to ensure that taxes legitimately owed are paid, and full and accurate transaction reporting is a proven way to make that happen. We don’t, however, want to place reporting requirements on individuals who shouldn’t have them.
“The amendment memorializes the common understanding that the requirements are to apply only to persons who regularly, and for consideration, effectuate transfers of digital assets. Persons solely engaged in validating distributed ledger transactions will not be covered for those activities, whether they use proof-of-work, proof-of-stake, or some other new consensus mechanisms. Nor will they apply to persons solely engaged in selling hardware or software with the sole function of permitting someone to control private keys used to access digital assets.
“Of course, if these entities provide additional services for consideration that would qualify as brokerage, the rules would apply to them as any other broker.
“This is exciting new technology that in theory could help bring services to the underserved and reduce costs for everyone. We need, however, to strike the appropriate balance between capturing the promised benefits, and guarding against the potential for serious abuse and creation of a shadow financial system beyond the reach of established rules to combat illicit finance and tax evasion.”
Senator Portman: “I thank my friend and colleague from Virginia for those comments. Our provisions are designed to bring more clarity and legitimacy to the cryptocurrency industry by more closely aligning the reporting requirements with those of more traditional financial services. And we believe it does just that, and in doing so will help provide more certainty for people looking to invest in digital assets.
“I thank my colleague Senator Warner for coming to the floor to discuss this important provision.”