The crypto industry finds the infrastructure bill taxing
Hello and welcome to Protocol | Fintech! This Tuesday: The crypto industry loses a tax battle in the infrastructure bill, Robinhood reveals a breach, and why you'll soon be able to Venmo Amazon.
Crypto is taxing
The long, winding road to an $1 trillion infrastructure bill also had many twists and turns for the crypto industry — and it's not over.
The bill, which was passed by the House on Friday and is expected to be signed by Biden this week, includes two provisions that crypto advocates had railed against. While the crypto industry has seen its lobbying power grow, it still isn't able to easily push changes through the vast machinery of Congress.
I'm a broker, you're a broker. The term "broker" has a clear enough definition in traditional finance. Who's a broker in crypto? Fire up your shruggy emoji.
- The bill includes a tax reporting requirement for "brokers" that the industry says is too broad. As written, crypto advocates say, it covers miners, node operators and software developers — people who aren't actually facilitating transactions and have no ability to report such information to the IRS.
- This issue erupted over the summer in the Senate version of the bill. A group of senators reached an agreement to include language that "a broker means only those persons who conduct transactions on exchanges where consumers buy, sell and trade digital assets." But that deal fell apart due to an unrelated issue.
Felony crypto? The infrastructure bill would amend section 6050I of the tax code in a way that could apply to the crypto industry.
- That section requires people receiving cash transactions over $10,000 to verify the sender's personal information, record their Social Security number and other information and report all this to the IRS within 15 days. The rules could also apply to people in areas such as NFTs, where tax reporting is already a huge headache.
- Violating 6050I is a felony, which naturally alarms people.
- For some crypto advocates, anonymous transactions are an article of faith — a feature, not a bug.
- Not everyone thinks this is a defensible position in Washington. The point is to stop anonymous transfers of capital, and there are long-established public-policy reasons for doing so. "The government will never stop caring about the two Ts, terrorism and taxes," venture capitalist Parker Thompson wrote on Twitter.
- There might be a business opportunity here, Thompson pointed out: "It's time to stop talking about problems and to start solving for the two Ts. Probably good money in it too."
The battle isn't over yet. Crypto industry lobbyists are still working on several ways to turn back these changes.
- First, the crypto provisions don't go into effect until 2024, according to Jerry Brito, executive director of Coin Center. Brito is hoping to include a fix in the Senate's next major spending bill. He's also hoping to get a separate House bill that would change the reporting requirements.
- "We may have lost the battle to remove these provisions from the bipartisan infrastructure bill, but this fight jolted a sleeping giant," said Kristin Smith, executive director at the Blockchain Association. "We'll have more resources, more brilliant minds and more boots on the ground to fight harmful regulation and legislation moving forward."
Ultimately, the Treasury Department will have latitude to decide how to apply these new rules. There were some reports in August that the Treasury was inclined to use a narrower definition of "broker," but that hasn't been clarified. Watch for emerging IRS rulings as the next flashpoint.
— Tomio Geron
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From Protocol | Fintech
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Three Questions with John MacIlwaine, CEO of Highnote
What fintech trend are you most excited about?
I find DeFi, or decentralized finance, really exciting. There are two reasons for that. First, it's a shift in the traditional power dynamic. The ability to dictate what happens with money in what way and when is moving away from large, traditional financial infrastructure, and more toward individual players.
The second reason is that DeFi creates efficiencies that are almost incapable of existing within the current legacy system. DeFi removes traditional intermediaries and creates broad peer-to-peer networks that can operate much faster and with less friction — and that are inherently more secure.
What problem would you like to see a fintech company solve?
ACH is a complete mess here in the U.S. It would be great to see a fintech solve that problem. DeFi is solving some of that, and allowing for real-time settlements between two different parties. But most of the world already has this in their mainstream banking ecosystems. For example, in the U.K., they have open banking laws that allow everything to be digital. India, Japan and the whole of the Asia-Pacific region also have it. The U.S. is behind. It did recently introduce something called real-time ACH, which is ACH in four-hour batch windows, but that's nowhere close to what other countries are offering. I believe solving it is critical: It's hurting America's competitiveness and ability to innovate in the banking sector.
What's your favorite pastime that doesn't involve a screen?
I'm a self-taught piano player. I started playing the drums in high school but soon realized I liked composing music too, and you can't do that too easily on drums. So I switched to piano in college and now I use both composing and playing as a way to relieve stress. My daughter will often ask me to play her favorite song, which is usually whatever the latest Taylor Swift song is, and that's nice for me because those songs are relatively straightforward and it allows my daughter and me to have fun and spend time together.
Need to know
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SMBX raised $11.5 million. The FINRA-regulated crowdfunding service's seed funding was led by Dovi Frances' Group 11.
That's the projected cost savings from blockchain-based cross-border payments by 2030, compared to $301 million in 2021, according to Juniper Research.
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