[co-author: Kyle Perel]
As the 117th Congress enters 2022, cryptocurrency and digital assets will continue to be an area of focus and intense discussion for Democrats and Republicans alike. Member interest continues to grow in this space, with the number of bills and hearings related to blockchain technology, crypto regulation, stablecoins and central bank digital currency weekly growth. In addition to general bipartisan concerns about any new regulations that would stifle innovation in this space, Congress has been particularly focused lately on issues related to cryptocurrency transaction reporting and cryptocurrency mining. cash. In addition to the aforementioned congressional activity on these issues, the provisions of the recently released law America COMPETES Act related to digital assets have sparked debates on both sides of the aisle.
Taxation – Cryptocurrency Reports
As the Senate crafted its bipartisan infrastructure legislation through the spring and summer of 2021, efforts to fund new infrastructure investments led members to consider tax administration and digital assets. . Language regarding “brokers” and digital asset reporting was eventually included by the Senate in the Infrastructure Investment and Employment Act (IIJA) and eventually enacted into law PL No. 117-58 ). Section 80603 of the Act—Information reports for brokers and digital assets— defined a broker as “any person who (for compensation) is commissioned to regularly provide any service performing transfers of digital assets on behalf of another person”. Congressional crypto advocates on both sides of the aisle and in both houses have expressed concern over the breadth of the definition, arguing that it could potentially capture customers, miners, hardware vendors/ software and others in the crypto-ecosystem who do not have the information they would be required by law to provide to the Internal Revenue Service (IRS). Legislation has already been introduced to address these perceived shortcomings. Although the tax treatment and reporting obligations regarding virtual currency have been part of the Treasury and IRS priority policy plan for 2019the upcoming guidelines on the definition of “broker” could have major ramifications in the crypto landscape and are being watched closely from both sides of the aisle.
On December 14, 2021, the senses. Rob Portman (R-OH) and Mark Warner (D-VA) led a bipartisan letter to Treasury Secretary Janet Yellen urging her to define the term “broker” as adopted in the IIJA by “rulemaking under the Administrative Procedure Act (APA) in an expeditious manner” . The letter further urged the Treasury, “due to the need for certainty and the time required for rulemaking under the APA… [to] provide information or informal advice as soon as possible” on the definition of broker. The lawmakers also made it clear that they were “ready to propose legislation to further clarify” the intent of the definition. Join Sens. Portman and Warner on the letter were Sens. Mike Crapo (R-ID), Kyrsten Sinema (D-AZ), Pat Toomey (R-PA) and Cynthia Lummis (R-WY). Prior to this letter, on November 15, 2021, Senator Ted Cruz (R-TX) introduced a bill, S.3206, to repeal the cryptography provisions of the IIJA. In a similar vein, three days later, Senate Finance Committee Chairman Ron Wyden (D-OR) and Senator Lummis introduced a bill to revise the rules of interpretation applicable to the requirements of declaration of information imposed on brokers in terms of digital assets (S.3249). The senator’s bill would clarify that the definition of “broker” excludes minors as well as wallet providers and developers, and would ensure that only digital asset intermediaries who actually have access to material customer information are required to do so. report to the IRS.
In the House of Representatives, one bill that has notably garnered bipartisan support is Rep. Patrick McHenry’s (R-NC) Keep Innovation in America Act (HR 6006). In response to the confusion arising from the provisions of the IIJA, “this bill would expand the definition of a broker, for tax reporting purposes, to include any person who (for a fee) stands ready in the course normal for a transaction or company to make sales of digital assets at the direction of their customers. It also provides reporting requirements for digital assets (i.e. any digital representation of value recorded on a cryptographically secured distributed ledger). Additionally, the bill requires the Secretary of the Treasury to conduct a study and provide a report to Congress on the treatment of digital cash assets for purposes of reporting requirements for cash payments over $10,000. Introduced on November 17, 2021, the bill won all-party support with a total of 17 co-sponsors (twelve Republicans and five Democrats). Most recently, on Jan. 27, 2022, Reps. McHenry and Tim Ryan (D-OH), along with nine other lawmakers, urged Treasury Secretary Janet Yellen to set a narrow target when determining which digital asset companies will will be subject to new IRS reports. rules. In the letter, the lawmakers focus on the IIJA’s provision that requires brokers who facilitate transfers of digital assets to report their activities for tax purposes by asking it “to provide further clarification to American innovators and entrepreneurs.” . The bipartisan letter was also signed by the original co-sponsors of HR 6006: Reps. Kevin Brady (R-TX), Ted Budd (R-NC), Warren Davidson (R-OH), Tom Emmer (R-MN), Anthony González. (R-OH), French Hill (R-AR), Ro Khanna (D-CA), Eric Swalwell (D-CA) and Darren Soto (D-FL).
Energy/Environment – Cryptocurrency mining
In addition to the ongoing fight against crypto reports resulting from the IIJA’s passage, the House Oversight and Investigations Subcommittee on Energy and Commerce recently hosted a first of its kind audience on the energy/environmental impact of crypto-mining. Democrats hurry Bitcoin mining companies to reduce their dependence on electricity generated by fossil fuels, even crypto-friendly lawmakers warn that this change would be essential for the future of the industry. The hearing made it clear that crypto climate policy will be of heightened importance to lawmakers as they seek to navigate the ever-changing digital asset landscape. As Democrats focused on concerns about rising power bills and climate change, Republicans took the opportunity to warn against overly burdensome regulation that could stifle innovation in the industry. Industry representatives who testified insisted they were “a force for good”, pointing out “that their energy needs could spur investment in wind and solar power projects and provide demand for essential energy that would have been wasted”.
On January 20, 2022, following the House Energy and Commerce Subcommittee hearing, Senator Elizabeth Warren (D-MA) led the bicameral letters to several of the largest national cryptocurrency miners (Riot Blockchain, Marathon Digital Holdings, Stronghold Digital Mining, Bitdeer, Bitfury, and Bit Digital) demanding more information about their energy consumption and environmental impact. Signatories include Sens. Sheldon Whitehouse (D-RI), Jeff Merkley (D-OR), Maggie Hassan (D-NH) and Ed Markey (D-MA), along with Reps. Katie Porter (D-CA), Rashida Tlaib (D-MI ) and Jared Huffman (D-CA).
Financial Services – Chinese Legislation
More recently in the House, Rep. Jim Himes (D-CT) drafted a provision for the America COMPETES Act that would have expanded the Treasury’s power to monitor and freeze accounts at financial institutions. The provision was intended to combat the use of digital assets in ransomware attacks, money laundering and other illegal activities. However, after being pushed back by industry leaders, Rep. Himes proposed that the House narrow the financial crimes provision. The proposed change would have directed the Treasury to seek public comment when implementing the measure. Critics argued that the provision would give the Treasury absolute power to stop transactions and ultimately compromise privacy. Not only did Rep. Himes’ disposition draw resistance from industry, but members of Congress also attempted to counter his efforts. Prior to House consideration of the America COMPETES Act, Representatives Ted Budd (R-NC), Nancy Mace (R-SC), and Ro Khanna (D-CA) all filed amendments to eliminate the provision. Prior to the bill’s eventual passage, lawmakers agreed to delete the article.
We expect an executive order to be issued by the White House later this month to coordinate the crypto agenda across the executive branch. According to For those familiar with the matter, “senior administration officials have held several meetings on the plan, which is being drafted as an executive order.” The executive order would detail the economic, regulatory and national security challenges posed by cryptocurrencies and call for reports from various agencies expected in the second half of 2022. A key report is expected to come from the Financial Stability Oversight Council (FSOC) , whose role is to monitor risks to the US financial system. Another critical report is expected to examine the risks posed by the use of cryptocurrencies to facilitate various illegal activities. Additionally, the executive order is expected to assign specific roles to a wide range of federal departments and agencies in developing a comprehensive U.S. digital asset strategy. These departments and agencies range from the US Department of State to the US Department of Commerce. It seems that the general posture of the Biden administration remains one of crypto-skepticism, at the same time as a bipartisan consensus is emerging in Congress to maintain a light regulatory approach to the industry.