The IRS’ Reporting Requirements For Brokers Won’t Affect Crypto Miners & Stakers
The infamous Infrastructure Bill put the IRS in a difficult situation. The bill gave the organization incredible fund tracking superpowers. The thing is, the measurements were impossible to enforce. Now, Bloomberg informs us about a letter that a group of senators received on Friday. It basically says that cryptocurrency miners, stakers, “as well as software and hardware providers” won’t be considered “brokers” anymore.
The Infrastructure Bill required “digital-asset brokers turn over information on their clients’ transactions to the IRS.” The problem was, “miners and stakers, don’t have access to that kind of information, making compliance difficult — if not impossible.” The task of clarifying “the reporting requirements has shifted to Treasury, which is tasked with interpreting the law through regulations.”
Apparently, they saw the light and will pass legislation that eliminates crypto miners and stakers from the “brokers” list. The article quotes Jonathan Davidson, Treasury Assistant Secretary for Legislative Affairs, who puts in clear language:
“Ancillary parties who cannot get access to information that is useful to the IRS are not intended to be captured by the reporting requirements for brokers.”
Not only that, according to Davidson, Treasury is at the moment taking into consideration:
“The extent to which other parties in the digital asset market, such as centralized exchanges and those often described as decentralized exchanges and peer-to-peer exchanges, should be treated as brokers.”
So, legal clarity is on the horizon.
.@SenToomey in a statement says he's "encouraged by Treasury’s acknowledgement that non-financial intermediaries like miners, network validators, and other service providers—including software developers—are not brokers." But still wants Congress to pass legislation.
— Ally Versprille (@allyversprille) February 11, 2022
The Curious Story Of Reporting Requirements
The most interesting tidbit from the Bloomberg article was the Infrastructure Bill’s origin story:
“Several senators, including Warner and Portman, pushed to change the broker provision during the legislative process. An amendment seemed imminent when they reached a last-minute deal with the Biden administration, but the effort ultimately failed because it required the support of all 100 senators and Alabama Republican Richard Shelby objected due to an unrelated dispute over military spending.”
That bump in the road delayed the operation, but, nowadays, legal clarity is on the horizon.
ETH price chart for 02/12/2022 on Coinbase | Source: ETH/USD on TradingView.com
The IRS And Crypto, A Love Story
The news that the IRS would not tax unsold staked cryptocurrencies as income came mixed with a lawsuit. Joshua and Jessica Jerrett asked the US District Court for the Middle District of Tennessee for a refund on their taxes related to staking. Bitcoinist expanded the story:
“The Jerretts contended that tokens obtained through proof-of-stake protocols are taxpayer-created property that should not be taxed until they are sold or exchanged. According to the complaint, there is no provision in US law or IRS rules and regulations that authorizes taxpayer-created property to be taxed as income.”
This is a big case all around. “The ruling could have far-reaching repercussions for the future taxation of proof-of-stake miners and stakers.” And it seems like the result will be favorable. However, the IRS also announced that it sees “tax evasion, money laundering, and market manipulation” in crypto and NFTs. Our report:
“Criminal investigators from the U.S. Internal Revenue Service (IRS) are seeing “mountains and mountains of fraud” allegedly related to crypto and non-fungible tokens (NFTs). Illegal activities include tax evasion, money laundering, and market manipulation.
Special Agent Ryan Korner with the IRS’s criminal investigation division of the Los Angeles area made these affirmations on an event from the USC Gould School of Law.”
I've seen the letter and this is correct. Just as significant, the Department also states it 'usually announces in a notice of proposed rulemaking when it intends to modify existing regulations'. Important they do so here. All good news. https://t.co/62BL34PIxv
— Jerry Brito (@jerrybrito) February 11, 2022
Conclusions And Predictions
As Coincenter’s Jerry Brito said, “The Department also states it ‘usually announces in a notice of proposed rulemaking when it intends to modify existing regulations.’ Important they do so here.” This seems like it’s pretty much a done deal.
However, the phrase “Ancillary parties who cannot get access to information that is useful to the IRS” is vague enough. It could mean anything.
In any case, the exception makes sense on a technical level. Miners and stakers just don’t have the information the US government will require. Clear rules benefit everyone. The clearer the rules, the higher the fun.
Featured Image by Kelly Sikkema on Unsplash | Charts by TradingView
OhNoCryptocurrency via https://www.ohnocrypto.com/ @Eduardo Próspero, @Khareem Sudlow