Bill to limit new IRS reporting requirements to enter Congress later today

Later today, Representatives Patrick McHenry (R-NC) and Tim Ryan (D-OH) will introduce a new bill to restrict the IRS definition of digital asset broker, a contentious point within the newly passed infrastructure bill.

The bill — called The Keep Innovation in America Act — aims to rewrite new definitions for a broker in the infrastructure bill that President Biden signed into law on Monday. Those definitions were part of a late-stage legislative brawl in the Senate. Truncated proceedings on the infrastructure bill limited normal debate. 

"We can fix these poorly constructed standards and ensure they are compatible with how this new technology actually works," said McHenry when announcing the bill.

The current infrastructure 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." 

The new bill would change that definition to "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." 

For the purposes of IRS accounting, "brokers" need to provide identifying information on their clients, as well as 1099-B forms, tracking their investment performance. The primary consideration for the change is legal protection for network participants like miners and node operators who "effectuate transfers" but likely don't have the tax identification information for the wallet addresses on either end of those transfers. The new definition seems to restrict that obligation to exchanges in particular. 

The Keep Innovation in America Act also takes on the infrastructure bill's addition of digital assets to the definition of cash for the purposes of Section 6050I of U.S. tax code, mandating that the Treasury Secretary conduct a study on the impact of that change. Though it received less attention than the broker definition, that provision requires businesses to report cash transactions of over $10,000 to the IRS. Some in the industry have argued that this would be a death knell to, for example, the NFT industry. 

The new bill boasts support from eight other representatives, including several members of the Blockchain Caucus. The announcement also highlights the bipartisan nature of support for the change, though the more senior members are Republicans.

Kevin Brady, the leading Republican on the House Ways and Means Committee, said in a statement, “Digital assets are here to stay, and this bill ensures that cryptocurrency reporting requirements are meaningful and effective.”

McHenry himself is the leading Republican on the House Financial Services Committee. The most recent Congress has seen him introduce a flurry of bills in line with longstanding wish list items for the cryptocurrency industry. The outlook for any of those bills in this Congress is, however, doubtful.

The new bill follows one introduced by Senators Ron Wyden and Cynthia Lummis on Monday, which would restore the language they had tried to add to the bill while it was still in the Senate. On Tuesday, Senator Ted Cruz also introduced a bill that would remove the new language from the infrastructure bill altogether.