GetBlock invites you to reflect on the effects the infamous bill might have on node operators
$28 billion is to be raised from the crypto segment
On Tuesday, Aug.10, 2021, The Senate passed the $1 trillion infrastructure bill (HR 3684). This massive post-pandemic spending program includes numerous proposals to build roads, bridges with a particular focus on clean energy and carbon neutrality.
To fuel mentioned programs, some new taxation initiatives were proposed. $28 billion (2.8 per cent) out of this monstrous $1 trillion pack will be covered by the taxation of crypto transactions.
Pro-crypto and anti-crypto groups of senators proposed different amendments to the bill as #DontKillCrypto campaign went viral in all social media channels. The Americans were calling their senators forcing them to vote for a more or less ‘forgiving’ version of the bill.
This campaign was supported by pro-Bitcoin celebrities including Twitter founder Jack Dorsey.
To @RonWyden, @SenLummis, @SenToomey, @MarkWarner, @SenRobPortman, @SenatorSinema, @TedCruz, respective staff & everyone who’s worked on the Infrastructure Bill “Crypto Tax Reporting” provision: thank you for your work to get this right.— jack⚡️ (@jack) August 8, 2021
May we offer a workable simplification?
Nevertheless, the most draconic edition of the document went to the House of Representatives; the final voting will take place in early September. Highly likely, this bill will be approved.
Why is this bill THAT bad for crypto?
As per the text of the bill, any entity or person that facilitates a crypto transaction on behalf of another person would be treated as a broker. Besides taxation, brokers will be obliged to fill the cumbersome ‘know-your-customer’ forms, e.g. disclose the identity of their customers and users.
This ‘accounting’ and ‘reporting’ procedures should be referred to as the hardest problems for crypto market participants. Seasoned crypto lawyer Jake Chervinsky, GC of DeFi protocol Compound Finance, clarified that it is impossible to fill all necessary forms as many actors involved are anonymous. We still can’t fill the KYC form for a smart contract.
1/ 🚨 Here's the deal with the US infrastructure bill:— Jake Chervinsky (@jchervinsky) July 30, 2021
A new provision has been added that expands the Tax Code's definition of "broker" to capture nearly everyone in crypto, including non-custodial actors like miners, forcing them all to KYC users.
This is not a drill 👇
Besides that, all services will be required to give Form 1099s to the IRS for all users who interact with digital assets. As such, anonymity in DeFi and crypto are on borrowed time in the U.S.
Are node operators brokers?
The definition of the ‘broker’ status is the most critical question of the implementation of this bill. In the U.S. civil law (Tax Code, 26 USC § 6045(c)(1)), it is clearly stated that the broker is ‘(A) a dealer, (B) a barter exchange, and (C) any other person who (for a consideration) regularly acts as a middleman with respect to property or services’.
As blockchain transactions are verified by nodes, miners, stakers and node operators can be taxed as brokers.
Besides operators of all regulatory-compliant crypto services, DeFi teams (actually, the distributed groups of software engineers) can be labelled as ‘brokers’.
Here’s why running a blockchain node can be considered a taxable event.
Treasury comes to the rescue
New bill will become effective in 2023 to allow the market participants to update their accounting and processing systems. However, some experts are sure that new requirements will be ignored by the U.S. tax watchdogs.
According to anonymous sources of Bloomberg, The Treasury Department has no intention to come for the crypto markets participants except for ‘cryptocurrency companies it considers brokers’. As such, no new restrictions may be issued: detailed instructions on the bill implementation may be released this week.
There’s no better moment to outsource all node management ‘heavy lifting’. GetBlock, a leading infrastructure provider for Ethereum, Binance Smart Chain, Polygon, Bitcoin and so on is always ready to on-board new customers with no regard to their tax status in the U.S.