A proposed amendment to the latest version of the Senate infrastructure bill will significantly narrow the definition of a broker and limit who must file the information reporting forms.
New Amendment Limits “Broker” Tag
Previous to the amendment, the definition of a “broker” was wide enough to potentially include any individual or entity who earned consideration in any way connected with cryptocurrency.
However, Senators Ron Wyden, Dem, Oregon, Pat Toomey, Rep, Pennsylvania, and Cynthia Lummis, Rep, Wyoming, have proposed to redefine the term by excluding specific categories of people and entities.
Anyone who only validates distributed ledger transactions or sells hardware or software limited private key controls is to be eliminated from the legal definition of “broker.” Another category of individuals proposed to be taken off the list comprises those who develop digital assets or their corresponding protocols for any use by non-clients.
Non-Financial Intermediaries Not Brokers
Further clarification was provided in the press release announcing this decision. The amendment was proposed to ensure that the term “broker” applies to only the people who conduct transactions on exchanges where consumers participate in trading digital assets. Thus, individuals falling outside the newly defined category of “brokers” would not be required to file the proposed information reporting.
Senator Toomey spoke on the matter, saying,
“By clarifying the definition of broker, our amendment will ensure non-financial intermediaries like miners, network validators, and other service providers…are not subject to the reporting requirements specified in the bipartisan infrastructure package.”
Concerns Over Information Reporting
Understandably, individuals and entities who receive crypto funds might be confused about whether they have to report or not. However, it must be noted that reporting penalties are considerably high, and taxpayers cannot even contest them in court without having fully paid them. Therefore, experts are suggesting that it is better to be safe than sorry and stick to information reporting, irrespective of the proposed amendment.
Armstrong Supports Proposal To Pinpoint Brokers
Coinbase co-founder and CEO Brian Armstrong has criticized the current, entirely too-broad definition of the term “broker,” tweeting,
“But the bill defines “brokers” to include anyone who “effectuates transfers of digital assets.” This means almost anyone in the crypto ecosystem (miners, validators, smart contracts, open source developers etc) could be treated as a “broker” with massive reporting obligations.”
He also applauded the amendment introduced by the three Senators, saying that it would help narrow down the definition to intermediaries that actually have the capacity to report, similar to the traditional financial system.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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