Cryptocurrencies

Legislators Hid a Sneaky Crypto Reporting Provision in the Infrastructure Bill

It's even worse than the widely-skewered broker provision.

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Imagine a crypto trader who does hundreds or thousands of transactions a day. What if he was legally required to collect personal data about every single person he does business with? Think of how burdensome that would be.

Or rather: Think of how burdensome that will be. Under a provision slipped into the new infrastructure bill, that's the law.

Section 6050I is a "long-forgotten statute" within the tax code, says Abe Sutherland, an adjunct at the University of Virginia School of Law and a fellow at the Coin Center. It requires people who transact large amounts of cash—above $10,000—to file reports to the IRS detailing the senders' names and Social Security numbers. The new law amends the rule to make it apply to cryptocurrency transactions.

This is "way more severe" than just adding friction, he says.

"All other tax code reporting violations are misdemeanors, but violation of 6050I can be a felony (up to five years in prison)," Sutherland notes on Twitter. "The law's relative clarity and limited applicability in the case of old-fashioned cash does not translate to digital assets. Compliance can be impossible."

Congress passed 6050I way back in 1984, when practically the only people who used vast sums of cash for transactions were criminals. These days, big wads of $10,000-plus are rare, but transactions of that size involving bitcoin, ether, solana, or other cryptocurrencies are not. Imposing the rule on them could stymie widespread adoption of crypto by making it incredibly cumbersome to do business with it at all.

"Because this is technically a reporting provision, that allows people to say 'Oh, well, it doesn't ban it,'" but that misses a lot of the point, says Sutherland. The original provision was "designed to stop people from using cash," so they'd use banks instead. This provision could similarly compel crypto users to turn to the very financial institutions they're trying to free themselves from. After all, crypto's allure is partly due to the freedom users get from intermediaries.

Perhaps most importantly, there are significant concerns about whether the reporting provision is even constitutional at all. When applied to crypto, Section 6050I arguably constitutes unreasonable search and seizure. It's warrantless surveillance of an individual, who is now required to collect another individual's Social Security number. Multiple sources within the crypto world tell Reason they're prepared to challenge it in court.

The change to Section 6050I largely flew under the radar, as much of the cryptocurrency community was distracted by another measure in the same bill. This provision redefines broker to include "any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person." As Will Wilkinson writes at Model Citizen, "This definition is so vague and broad that miners/validators, node operators, or even Axie breeders—none of whom are brokers in any recognizable sense—could conceivably fall within its scope, which would subject them to nonsensical and potentially ruinous broker tax reporting requirements."

Thankfully, the Section 6050I amendment won't take effect until January 1, 2024, which "gives us some time to try to get it changed, to get it repealed," says Jerry Brito, executive director of the Coin Center.

Brito objects not just to the rule change but to how it was pushed through. The language was added at the last minute to a $1.2 trillion infrastructure bill without normal, separate hearings, debate, and voting. "There's a whole process through which the issues get aired and unintended consequences become understood, and then members can vote with a full knowledge of the vote," says Brito. But that didn't happen. Many lawmakers may not have even realized that the change had been included in the bill.

"I don't think people realize quite yet the significance," Brito says.

NEXT: Police Oversight Board Demands Answers After Dallas Cops Seized Traveler's Cash

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  1. Nancy Pelosi was right, we did have to pass the bill to find out what's in it.

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  2. Christ, what assholes.

  3. Call it the "Coinbase Protection Act".

    Next step: you have to update your crypto transaction records for your car to start.

  4. Who determines the "value" of a given crypto transaction at the time of the act?
    Since there is nothing "there", the value should be assumed to be zero.

    1. At the same time, you've got to be pretty nutty to believe that math is going to beat totalitarianism. Like ardent believers in the proof of the non-existence of God:
      "Oh dear," says The Totalitarian, "I hadn't thought of that," and promptly vanished in a puff of logic.

      1. He finished his fine meal, leaned back, and the waiter approached. Would monsieur care for some desert?

        "I think not" he said, and vanished.

        Who was it?

        1. the cards! the cards!

          the yoke was told to me as he was on an airline and the stew asked him if he wanted another drink

          1. Coises! Ferled again!

        2. Ah, yes, the old dining philosopher's problem. 🙂

  5. "Congress passed 6050I way back in 1984, when practically the only people who used vast sums of cash for transactions were criminals."

    No, the second half of that sentence was never true.

    1. Especially $10K. I could maybe reason something like $10M, $1M, or $500K in 1984 dollars but $10K, while a large sum of cash, was, as you say, virtually never extraordinary for legitimate transactions.

      And the assumption that it is and always has been 'only criminals' is a pretty narrow view, especially for a libertarian, to take. Dad once sold a truck and a dog for $9K (cash). He was looking to get at least $10K for the truck but he really hated the truck... and the dog. If you think he had a receipt for $10K with a $1K "1 dog discount" printed up, you'd be a retard.

  6. "After all, crypto's allure is partly due to the freedom users get from intermediaries."

    Not really, they are only trading one set of intermediaries for another.

  7. “Return to political norms.”

    You wanted it, Reason, you got it!

  8. The income tax is the worst thing that's ever happened to our privacy. Get rid of it. It's worse than the Patriot Act as far as enabling government intrusion in all we do.

  9. Government motto: "Let's do it and see if we can get away with it."

    1. BATF are absolute masters at that MO. Have been since it went out from under IRS, most likely long before that.

  10. Just more bullshit to ignore. Quit paying attention to these people.

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  12. Seems the nanny tax state wants to have it both ways. First they say it's not cash and is subject to capital gains now they say it is cash so large transactions need to be registered. Which is it? It takes quite a bit of mental gymnastics to say something is simultaneously a pig and a polecat.

    1. Both begin with the letter P. Only one is edible.

  13. Most free nations are barely any freer than those that are not, and I mean barely. The masses float along as if this is not true. Believing, for sanity, or out of plain ignorance, that this free nation is much better. I about choked on my food when I heard Biden talk of the corruption trouble in Afghanistan as if this country is not just as corrupt.

  14. The only way this will be enforceable is if they do something like ATF want to do.. backgoundchecks for all gun purchases onlywork if there is a ntionwide registry, and EVERY tansaction is entered as it happens. They want a seaerchable list of who has what, where, when they got it. And for how much. That is their goal.

    Same with this.. they want a searchable database to find out who has what and where, how long they've had it, what they paid for it. That would incude ALL transfers of the firear,,, oh squeeze me, crypto units.

    Makes me remember that old song, I tnink from the 60's, here's your gold watch and the shackle for your chians. After asking the colur of your toilet rolll and if your cousin was queer. And if youve a son who wants a good career get him to sign on the dotted line and we'll work him for fifty years.

    Its called ownership/slavery. It is supposed to be illegal, but just as it was before the Emancipation Proclamaion was signed there were those who could and did do it.

  15. 50% Chasing green unicorn for energy.
    Entirely subsidizing full wages for lefty-journalism.
    Initiating Commie-Day Care.
    Grabbing monopoly power over free-market crypto.

    ...because that's what Nazi's do.

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