This week, Rep. Patrick McHenry (R-N.C.), ranking member of the House Committee on Financial Services, introduced the Keep Innovation in America Act (H.R. 6006) a bill that would both protect the privacy of investors in digital assets, and mitigate burdensome reporting requirements for crypto miners; validators; and software, hardware, and protocol developers.
“I am proud to support Ranking Member McHenry’s bill that will significantly improve the digital asset reporting requirements recently enacted in President Biden’s infrastructure package. The Infrastructure Investment and Jobs Act imposed burdensome reporting requirements on virtually every participant within the cryptocurrency ecosystem, including miners and software developers, and impinged on consumers’ privacy. McHenry’s bill, the Keep Innovation in America Act, strengthens privacy protections, and limits which individuals would be required to submit tax return information to the IRS. This bipartisan legislation will significantly improve the status quo and should be swiftly passed into law to preserve the United States’ position as a global leader in the innovation of digital assets and blockchain technology,” said Grover Norquist, President of Americans for Tax Reform.
President Biden’s infrastructure bill, also known as the Infrastructure Investment and Jobs Act (P.L. 117-58), included a provision that would require enhanced reporting requirements for participants within the cryptocurrency ecosystem. The language enacted into law would require a broad swath of participants in the cryptocurrency ecosystem to file tax returns to the Internal Revenue Service (IRS), including individuals who have no access to the personally identifiable information (PII) of crypto investors.
Biden’s Treasury Secretary, Janet Yellen, was the primary supporter of the heavy-handed language. Ostensibly, the provision was included to crack down on digital asset tax avoidance and to close the “tax gap.” However, the reporting provisions in Biden’s bill were nothing more than a desperate attempt to rake in revenue to the federal government to justify future irresponsible spending.
McHenry’s bill addresses the issues in Biden’s infrastructure package by:
- Removing the obligation of network participants, such as miners and software developers, who don’t have—and shouldn’t have—access to customer information to report tax information to the IRS. It does so without affecting the reporting obligations placed on brokers and traders of digital assets.
- Requiring that any information reported to the IRS must have been submitted to brokers voluntarily by investors.
- Improving the definition of “digital asset”
- Giving brokers an additional 2 years, until 2026, before any returns need to be reported to the IRS.
- Requesting the Secretary of the Treasury to conduct a study and submit a report to Congress and lists Congressional findings on the importance of digital asset innovation.
- Deleting an egregious provision from statute that would require any digital asset transactions above $10,000 in a single day to be reported to the IRS.
On balance, Rep. McHenry has delivered a commonsense, bipartisan bill that will protect investors’ privacy, and is in line with convention by ensuring that tax return reporting is limited to the entities that would have access to the proper information.
Lawmakers should support the Keep Innovation in America Act. The text of the bill can be read here.