Congress

Tax Reporting Proposal Creates a Defining Moment for the Crypto Industry

Nicolas Economou | NurPhoto | Getty Images
  • A small section of the $1 trillion infrastructure bill that would place new tax reporting requirements on the cryptocurrency industry has generated a wave of lobbying.
  • Calls from constituents supporting the industry have grabbed lawmakers' attention.
  • The crypto industry and allies hope to still change the law before it takes affect.

A small section of the $1 trillion infrastructure bill has generated a flurry of lobbying from the cryptocurrency industry, creating a defining moment for the sector's presence in Washington.

Though industry players failed to change what they see as problematic language in a new tax reporting requirement for cryptocurrency brokers in the Senate version of the bill, they remain hopeful that House lawmakers can take steps to answer their concerns. That optimism is fueled, in part, by the outpouring of support the industry has seen from citizens who called their senators' offices, urging them to change the language.

Industry proponents say the definition of a broker in the Senate version of the bill is too broad and would require software developers who don't have the customer information needed to comply with the law to report such data for tax purposes.

Because of the decentralized nature of cryptocurrency, these types of workers couldn't access such customer info even if they wanted to. That means some businesses would have to operate in a gray area or take their work outside of the U.S.

While the Treasury Department could still define the term more narrowly, some fear that leaves too much up to chance from one administration to the next. Industry advocates say they support appropriate taxation and want tax reporting guidance, but also say the current language misses the mark.

Though the provision has been an unwelcome wake-up call for the industry, it has also crystallized its influence in Congress. Digital rights organization Fight for the Future said it saw more than 40,000 calls to Congress ahead of the Senate infrastructure vote.

"Even though this language has been negative for the industry, it's been a positive in that it really has brought everyone together and shown that crypto knows how to apply some level of influence in Washington," said Kristin Smith, executive director of the Blockchain Association, an industry group. "I think it's the first time that lawmakers have taken crypto seriously on a broad scale, so we're able to have a different level of conversation than we've been able to have in the past because they know that so many of their constituents care."

Evan Greer, director of Fight for the Future, called the influx of messages to the Senate "the biggest outpouring of grassroots energy that I have seen in my entire career as a digital rights activist other than net neutrality and the SOPA strike," referring to the protest of the Stop Online Piracy Act in 2011.

And lawmakers took notice.

"I was getting notes from Senate offices just like, 'what is this all about? We're flooded with phone calls,'" Greer said.

Now, in the House, bipartisan leaders of the Blockchain Caucus are trying to determine how to move forward as it's become clear House leadership intends to pass the infrastructure package without amendments.

Rep. Darren Soto, D-Fla., a co-chair of the Blockchain Caucus, said in an interview he would introduce two bills echoing the proposed amendments in the Senate that aimed to alter the broker definition. Those amendments didn't get a vote in the Senate and since there will likely not be a chance for amendments in the House, Soto hopes to pass the bills through the reconciliation process. House Speaker Nancy Pelosi has said she wants the chamber to vote on the infrastructure package by Sept. 27.

Compared with the Senate, the House has the benefit of a robust, long-standing Blockchain Caucus that is established in the chamber and has about 30 members.

Some blockchain players have stepped up lobbying spending in recent quarters, though disclosures for the most recent quarter that would include the infrastructure vote period are not yet available. But second quarter disclosures show the Blockchain Association increased its spending from the previous quarter by 23% to $160,000. The Chamber of Digital Commerce, which represents a mix of tech and finance companies, ramped up its lobbying spend by more than 100% from the first to second quarter, spending $62,000 in Q2.

Soto said the sheer amount of attention the cryptocurrency provision has generated in Congress shows how far the industry has come.

"It shows from a market point of view, it's arrived," he said. "Now you have senators and powerful House members grappling over how to best do the provision. It's not an afterthought anymore, it's not an obscure technology. It's one of the main debates right now as we draft our infrastructure proposals."

"For a long time, this technology and this community has just been dismissed as like a hobbyist industry or 'crypto's just a speculative asset, there's no real use case,' and I think that has changed," said Perianne Boring, president of the Chamber of Digital Commerce. "And I think more people are starting to understand how important this technology is going to be for the future of our economy and they're taking it more seriously."

Subscribe to CNBC on YouTube.

WATCH: Why does bitcoin use so much energy?

Copyright CNBCs - CNBC
Contact Us