Senators Push Dueling Cryptocurrency Amendments

Senate Finance Committee Chairman Ron Wyden, D-Ore., Banking Committee ranking member Pat Toomey, R-Pa., and Sen. Cynthia Lummis, R-Wyo., were seeking a Saturday vote on language to clarify new cryptocurrency tax provisions included in the bipartisan Infrastructure Investment and Jobs Act substitute for shell bill HR-3684 (see 2108050064). They seek to narrow the definition of “broker” for digital asset third-party tax-reporting requirements. Software developers, e-wallet providers and miners shouldn’t face the same burdensome requirements as entities running crypto exchanges, they said.

The Wyden-led proposal is competing with a rival amendment from authors of the HR-3684 substitute, Sens. Rob Portman, R-Ohio, and Kyrsten Sinema, D-Ariz. Portman and Sinema offered an amendment with Sen. Mark Warner, D-Va. That proposal, which the White House endorsed, would further clarify the original cryptocurrency provision. It was unclear whether either amendment would get a vote Saturday, a GOP aide told us Friday.

Senate Majority Leader Chuck Schumer, D-N.Y., set a Saturday vote to invoke cloture on the HR-3684 substitute after talks faltered Thursday on a bid to set up votes on a last package of amendments and proceed to final passage (see 2108050064). Sen. Bill Hagerty, R-Tenn., objected to the package, which was to include a side-by-side vote on both cryptocurrency amendments Thursday. “I think we’re at an impasse,” Toomey told reporters then. “They want to apply [the broker definition] in a fashion that we think is too broad, doesn’t work, shouldn’t be done, and they disagree.”

The amendments package also included a proposal from Senate Minority Whip John Thune, R-S.D., to narrow the pool of broadband projects that would be eligible for $1.9 billion in ReConnect program funding. Thune’s amendment would set the ReConnect eligibility threshold at 80% of served households being “in a rural area” rather than the 50% the bipartisan group envisioned. The plan would strike language allocating 10% of ReConnect for areas with 90% of served households in rural areas. Senate leaders were negotiating to hold a vote on an updated amendment led by Sen. John Cornyn, R-Texas, that would let states redirect unused COVID-19 aid money to pay for broadband and other projects (see 2108030071).

Portman told reporters the Senate voted on 22 amendments to HR-3684 through Thursday, which he said is a “high water mark.” He noted the White House's endorsement of his amendment. The measure from Portman, Sinema and Warner “strikes the right balance,” said a White House statement.

The Senate Republican aide said Toomey’s camp is concerned the administration is using this as an opportunity to gain more power in regulating the crypto industry. This is a new technology that everyone is learning about, the aide said: The Senate should proceed “thoughtfully and carefully.”

Wyden noted Thursday that Portman said publicly he would support the rival amendment if it received a vote. Everyone agrees crypto tax avoidance is a “real issue,” said Wyden, but the Senate needs to address the issue while leaving a “clear field” for innovation. “This is going to be a debate that’s going to play out over the years,” said Wyden.

Crypto is an “amazing” technology with “tremendous potential,” Toomey said: It offers alternatives to expensive, time-consuming processes for establishing ownership. “This can all be done on blockchain, almost instantly at no cost," he said: "This is the direction we’re going to be headed.” Toomey agreed with the intent of the Portman-Sinema provision, but believes as drafted it would impose reporting requirements on people who don’t have information about the purchase or sale. Not adopting this amendment could have a “very chilling effect” on technology, he said.

The amendment clarifies that validators of distributed ledger data like miners, hardware wallet providers and software developers aren’t in a position to report transactional data to the IRS, Lummis said. The definition of broker should be narrowed to exclude those groups, she said.

More than 100 crypto groups wrote to Schumer and Senate Minority Leader Mitch McConnell, R-Ky., supporting the Wyden-Toomey-Lummis amendment. It "removes reporting obligations for network participants who don’t have -- and shouldn’t have -- access to customer information,” the groups said. “It does so without affecting the reporting obligations placed on brokers and traders of digital assets." The Blockchain Association, Americans for Tax Reform, Government Blockchain Association, Wall Street Blockchain Alliance and others signed.