Infrastructure Bill’s Overlooked “Digital Assets” Tax Provision is a Disaster and an Attack on Privacy
The trillion-dollar infrastructure bill passed by the Senate and now pending in the House that has an overreaching definition of ‘broker’ also contains an overlooked “digital assets” provision.
If this bill becomes law, that would be a disaster, said Abraham Sutherland, an adjunct professor at the University of Virginia School of Law and an adviser to the Proof of Stake Alliance.
This overlooked provision is an amendment to tax code section 6050I in the infrastructure bill that could make receiving digital assets, whether cryptocurrency, an NFT, or any other digital asset, a felony if not reported correctly, Sutherland noted in his research report.
“Digital asset” in this provision is defined broadly as any “digital representation of value” using distributed ledger technology, including NFTs. And from miners, stakers, lenders to decentralized applications and marketplace users, traders, businesses, and individuals all are at risk of being subject to this reporting requirement.
This provision requires recipients of digital assets (incl. NFTs) to verify the sender’s personal info and record their Social Security number, nature of transaction, etc. Then, the recipient must sign under penalty of perjury and send a report to the government within 15 days.
— Abraham Sutherland (@abesutherland) September 17, 2021
Applied to all Americans, this provision would require “any person” who received more than $10,000 in digital assets to verify the sender’s personal information. Information includes Social Security number and sign which are to be then submitted to the government within 15 days.
Failure to comply results in mandatory fines and can be a felony — up to five years in prison, Sutherland said.
This proposal actually relies on a 1984 law written to discourage in-person cash transfers and to encourage the use of financial institutions for large transactions, added Sutherland.
“Typically we don’t object to equal treatment of cash and cryptocurrencies, but the §6050I reporting provision is a draconian surveillance rule that should have been ruled unconstitutional long ago. Extending it to cryptocurrency transactions would further erode the privacy of law-abiding Americans,” wrote Peter Van Valkenburgh, Research Director at CoinCenter.
In the context of cryptocurrency, this rule would be difficult to obey as in most situations, the person or entity receiving the funds is not even in the position to report the required information.
“The infrastructure bill remains in limbo, the broker provision is still a big problem, but our most difficult battles may be yet to come, including fighting the blatant denigration of our constitutional rights,” said Van Valkenburgh.