Source: AdobeStock / ungvar
The US Congressional Research Service (CRS) is reminding lawmakers of trade-offs and risks related to potential forthcoming crypto regulations spearheaded by the US administration. At the same time, US Senators are developing proposals in a bid to protect the interests of crypto investors.
The CRC recognizes that, to the extent new reporting obligations to be imposed on crypto-focused business are considered as creating a ‘paper trail,’ some legitimate consumers who would consider using crypto could decide to avoid these obligations.
“Policymakers face a tradeoff in this industry between providing the necessary tools to ensure [anti-money laundering] compliance and driving activities out of the US market,” the service said.
As reported, if the controversial US infrastructure bill is passed in its current form, it may force crypto companies to leave the country as there’s no way to comply with the new requirements. However, the industry would also depend on the US Treasury as this institution would need to put the vague language into practice.
While the new regulations could help the government cut the tax gap, their efficiency is yet to be determined.
“Although enhanced reporting requirements may help to close the tax gap, some underreporting of income generated from crypto transactions will likely still continue as some crypto transactions are intended to elude authorities,” the CRC admits.
President Joe Biden’s budget request for next year proposes requiring crypto exchanges and custodians to file information returns with the Internal Revenue Service (IRS) for gross flows above USD 600, among others. The administration’s proposal includes a reporting requirement for inter-broker crypto transfers, and obliging businesses that accept cryptocurrencies to report such transactions that exceed USD 10,000 in value to the IRS.
“The Administration also proposes expanding the information reporting requirements for brokers, including crypto exchanges and wallet providers, to include information on US and certain foreign account owners,” the service said.
The US government says this would allow for automatic information sharing with foreign tax jurisdictions. In exchange, Washington would provide them with information on US taxpayers who transact in crypto outside the US, according to the document.
The latest development comes as the debate over crypto regulations is to be picked up by Congress in the nearest term. Most recently, Republican Senator and a member of the Senate Banking Committee Pat Toomey has put out a call soliciting proposals on means to make sure that federal law fosters the development of the crypto blockchain industries, in a way that protects investors. The committee is to collect proposals until September 27.
“Rather than trying to ignore or suppress cryptocurrency and related technologies, regulators and legislators alike need to recognize that open, public networks are here to stay. Our laws and regulations must adapt to these developments,” Toomey said in a statement. “That’s why it’s important Congress gets this right and ensures the United States remains at the forefront of cryptocurrency and fintech innovation.”
The senator’s move comes after failed efforts to amend the infrastructure bill spearhead by the Biden administration. Along with Republican Senator Cynthia Lummis and Democratic Senate Finance Committee Chairman Ron Wyden, Toomey aimed to include a provision in the bill that would redefine the term “broker” to limit the new reporting requirements, preventing crypto miners and developers from being covered by such obligations.
“I am hopeful the broad array of legislative proposals I receive will help in crafting thoughtful legislation,” the senator said.
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