The new U.S. bill may turn crypto participants into KYC users and submit IRS reports

Original Title: New US Act Let All Encryption Users KYC

On July 31, the General Counsel of Compound tweeted that: The new U.S. Infrastructure Act may turn all industry participants into KYC users and submit an IRS (U.S. Inland Revenue Service) report. Government agencies plan to pass the bill on cryptocurrencies. Taxation raised about 28 billion U.S. dollars.

The following is the original tweet of Compound General Counsel Jake Chervinsky: 

This is a deal with the U.S. Infrastructure Act: a new provision has been added that expands the definition of “brokers” in the tax law to cover almost everyone in cryptocurrencies, including non-custodial actors such as miners, forcing them to use them all KYC users.

The bill expands the definition of “broker” to include “anyone (for consideration) who is responsible for and provides any service for realizing digital asset transfer on a regular basis.” The early draft said “even non-custodial” and explicitly included DEX and P2P (lending) markets.

This definition is very broad, and if taken literally, it can be applied to almost every economic participant in the US encryption industry. This includes PoW miners and PoS validators, because “providing services to enable the transfer of digital assets for consideration” seems to be suitable for both.

It may also include a large number of DeFi market participants, such as DEX LP, liquidators, protocol regulators, etc. According to the meaning of “for consideration”, it may also be extended to non-economic participants such as node operators or wallet developers. The scope here may be large.

Tax laws require brokers to comply with IRS reporting requirements. Most importantly, they must provide the 1099 form to the customer and submit it to the IRS. To fill out the 1099 form, the broker must collect customer data, including name, address, phone number, etc.

This means that brokers must comply with IRS reporting requirements to KYC clients. Therefore, this clause is like an SEC (United States Securities and Exchange Commission), which plays a supervisory role. Mnuchin proposed in the last few days of the Trump administration. As before, this is a very bad idea.

Anyone who knows encryption already knows that users are anonymous and access is without permission. It is almost impossible for non-regulatory actors like miners to obtain the information they need to fill out the 1099 form. In fact, this may mean that the United States actually bans mining.

This sounds crazy, but it can happen. Most encryption legislation has nowhere to go, so it is easy to overlook. Not this time. The clause is part of a bipartisan and other popular infrastructure bill, which is being passed quickly by Congress and is very likely to be passed .

You may ask, what is the relationship between encryption and infrastructure?

The bill must include a “pay” clause to increase revenue from new expenditures, thereby keeping it income neutral as a whole. The definition of “broker” is one of the payment clauses in the draft Senate bill.

In such a bill, there are three main ways to increase revenue: increase current taxes, increase new taxes, or improve tax compliance. Allegedly, this belongs to the third category-letting people pay the taxes they already owe. Congress believes that cryptocurrency is full of tax evaders. (It is not.)

Infrastructure costs are estimated to be >1 trillion US dollars. Congress assessed the tax definition of the new crypto “broker” bill at 28 billion U.S. dollars, an increase in tax revenue. I don’t know how they got this number or how it was calculated. In any case, this is not the way to deal with major new regulations.

This is a seriously misguided clause. If adopted, it will do more harm than good to the interests of the United States. I will give you my top five reasons:

1. First, it is illogical to adopt a regulation that is almost impossible to comply with, unless the goal is to kill the industry.

2.  Secondly, this will be a huge foreign policy failure. After China made the geopolitical mistakes that forced miners to leave their country, many of us hope that the United States can capture market share in this critical area. We cannot make the same mistakes as other countries. We must stay in the game (market).

3.  Third, it doesn’t work. As the U.S. crypto industry closes or goes offshore, we lose two (or ten) U.S. dollars for every dollar of tax increase. As more and more users “blacken” on unregulated platforms, the IRS will receive less revenue, rather than a deeper understanding of taxable crypto benefits.

4.  Fourth, it shortens our discussion with FinCEN. Since President Biden took office, FinCEN (U.S. Cyber ​​Financial Crime Enforcement Agency) has done a lot of solid work on cryptocurrency anti-money laundering supervision. We should let this process continue instead of sneaking KYC through the back door of the tax law to cut it off.

5. Fifth, the burden it brings to civil rights is unacceptable. Our 4A privacy rights limit the surveillance tasks that the government can enforce without authorization, and in the post-SolarWinds world, the last thing we need to do is expose more sensitive information to security vulnerabilities.

So, what can we do? 

First of all, don’t panic. This clause has not yet been finalized and can still be changed. Even if it passes as it is, it will not take effect until 2023 at the earliest, so at least we have time to try to revoke it in Congress or the courts. This may be a protracted battle. If you are a US citizen, please call your congressman, especially Senator Portman in Ohio . If someone says “It won’t help” after we postpone FinCEN and FATF (Financial Action Task Force on Anti-Money Laundering), I will lose my mind.

If you are the head of an American crypto company and have not yet participated in it, please contact me or the team BlockchainAss (after you call your congressman). Your voice is especially important. Finally, everyone recharges your donation to coincenter and they may need these donations.

Coincenter is a leading non-profit organization that focuses on the policy issues facing cryptocurrencies. Participate in research, educate policy makers, and advocate for reasonable supervision of this technology.

As far as I am concerned, as usual, I will challenge this clause in litigation with BlockchainAssn, fund_defi and others, if it is involved. I don’t think the court will be kind to laws that force non-custodians to monitor U.S. citizens on behalf of the IRS.

Things are going fast, which makes people feel scared. But just like the rules proposed by FinCEN, it’s amazing that the entire industry will come together to oppose this this week. We do have some of the best and brightest people.

Article source: Jake Chervinsky Compiler: Block unicorn

 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/the-new-u-s-bill-may-turn-crypto-participants-into-kyc-users-and-submit-irs-reports/
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