A bipartisan bill recently released looking to create a regulatory regime for cryptocurrencies would limit who counts as a broker responsible for IRS disclosure requirements, following criticism that current rules could impose onerous reporting obligations on the wrong players.

The Responsible Financial Innovation Act, introduced by Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wyo., would narrow who counts as a broker for tax reporting purposes, carving out exemptions for miners and developers. Last year's infrastructure bill created those Internal Revenue Service reporting obligations for brokers, but the law was criticized for being overly broad by possibly including in its sweep miners and digital wallet providers. 

The legislation would also allow people to use up to $200 worth of digital currencies without triggering tax on the gains or losses from the disposition of the assets. The amount would be adjusted for inflation.

Last week’s proposal would broadly address cryptocurrency regulation and compliance issues and would largely define such digital assets as commodities under the purview of the Commodity Futures Trading Commission. In a statement, Lummis claimed that the bill "integrates digital assets into our existing tax and banking laws." 

In a statement, Kristin Smith, executive director of the Blockchain Association industry organization, hailed the legislation as a "milestone moment for crypto policy and a major step forward for the crypto industry in Washington," and said it addressed tax reporting questions "left unanswered by the bipartisan infrastructure bill."

"Good policy is the result of good debate and good discussion, and the Blockchain Association and our more than 90 member companies look forward to our continued dialogue to ensure the U.S. remains a global crypto leader," Smith said in the statement.

The Infrastructure Investment and Jobs Act, which President Joe Biden signed into law last November, created the reporting requirements for cryptocurrency brokers as a means of collecting more revenue and paying for some of the bill's expenses. The legislation proposed last Tuesday would narrow the definition of "broker" in language mimicking that of a bill proposed last year by Reps. Patrick McHenry, R-N.C., and Tim Ryan, D-Ohio.

For federal tax purposes, the definition of "broker" would be "any person who (for consideration) stands ready in the ordinary course of a trade or business to effect sales of digital assets at the direction of their customers," the bill said.

The legislation would make other changes to the taxation of cryptocurrency, including requiring that the IRS issue guidance on the treatment of cryptocurrency or blockchain events called "forks" and "airdrops." It would also allow for charitable donations of cryptocurrency exceeding $5,000 in value without requiring an appraisal, according to the bill.

Published on June 14, 2022