Two competing amendments to the Senate's infrastructure bill that would affect cryptocurrency tax rules have provoked concern within the crypto community.
Initially, lawmakers proposed a provision that would impose stricter rules on how "digital assets" are taxed to help fund the $1 trillion bipartisan infrastructure bill. The provision would require brokers to report gains in a type of 1099 form, in addition to reporting transactions of more than $10,000 to the Internal Revenue Service (IRS), which is already mandated. But the provision was met with backlash, as crypto advocates pushed for lawmakers to clarify the definition of a "broker."
Currently, the bill defines a broker as "any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person," which advocates say is too broad.
In an effort to change the definition, Sens. Ron Wyden, D-Ore., Pat Toomey, R-Pa. and Cynthia Lummis, R-Wyo., introduced an amendment on Wednesday that explicitly excludes miners and developers. Their amendment has strong support from the crypto community.
But on Thursday, Sens. Rob Portman, R-Ohio, Mark Warner, D-Va. and Kyrsten Sinema, D-Ariz., submitted their own amendment. It reportedly changes the "broker" definition slightly, but not to the extent deemed necessary by those within the crypto space.
While the vote on both amendments is still underway, here's what each could mean for the crypto industry and investors in the U.S. if passed.
On Wednesday, Sens. Wyden, Toomey and Lummis proposed an amendment to narrow the definition of a broker as used in the initial bipartisan infrastructure bill.
What it says
The amendment explicitly excludes miners and validators, hardware and software makers, and protocol developers from the definition of a "broker."
"Our amendment will ensure non-financial intermediaries like miners, network validators and other service providers — many of whom don't even have the personal-identifying information needed to file a 1099 with the IRS — are not subject to the reporting requirements specified in the bipartisan infrastructure package," Toomey said in a statement shared with CNBC on Wednesday.
What it would mean
This amendment would exclude entities that don't broker digital assets, and in turn, don't have customers whose information needs to be reported to the IRS. Because miners, developers and stakers typically do not have customers, they wouldn't have access to the information needed to comply.
While the original definition wouldn't have impacted investors directly, the language previously could've pushed crypto business and trading overseas. That would have impacted the overall crypto market, indirectly affecting individual investors.
On Thursday, Sens. Portman, Warner and Sinema submitted their own, competing amendment to the infrastructure bill. The amendment received formal support from the White House, but crypto advocates are strongly against it. Many have called it "worse than useless" and "disastrous."
What it says
This amendment changes the "broker" definition slightly, reports The Washington Post. (CNBC does not have a copy of the proposed amendment.) However, the changes are not to the extent deemed necessary by many within the crypto space.
The amendment reportedly only protects proof of work (PoW) miners from the newly proposed reporting requirements, leaving others open to them.
What it would mean
Cryptocurrencies like bitcoin operate on a PoW model, where miners must compete to solve complex puzzles in order to validate transactions. However, other cryptocurrencies use or are pursuing use of different models, like the proof of stake (PoS) model, where a person can mine or validate transactions according to how many coins they hold. Supporters of the PoS model say it is more efficient and uses less energy.
The amendment reportedly does not protect PoS software developers, operators, validators or liquidity providers, to name a few, from the newly proposed reporting requirements.
Removing protections for these groups could also potentially force many developers out of the U.S., Blockchain Association executive director Kristin Smith wrote in a statement. That could, in turn, roil the crypto markets and impact investors with stake in the industry.
The Senate is adjourned until Saturday. Then, lawmakers will vote on the amendments and the overall infrastructure bill.
If the bill passes, it will be voted on by the House, and throughout, there will be continued opportunities to alter any provisions, including the one on crypto tax.