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Senators Compromise on Crypto Tax Provision; Bull Run Continues

Despite regulatory scrutiny in the Senate, the recent bull run continues for bitcoin and ethereum.

A compromise amendment on the cryptocurrency-related tax provision in the $1.3 trillion infrastructure bill was put forward by a group of US Senators on Monday.

In the bipartisan deal, Senators Pat Toomey (R-Pa.), Cynthia Lummis (R-Wyo.) and Rob Portman (R-Ohio) joined forces with Democratic Senators such as Mark Warner (D-Va.) and Kyrsten Sinema (D-Ariz.) to come to an agreement.  

”We came together to provide greater clarity on the rules for who are the actual brokers of a cryptocurrency,” Senator Toomey said during a press conference early Monday morning. “We’re not proposing anything sweeping or anything radical.” 

The new amendment narrows down the definition of a cryptocurrency “broker,” a point of contention in the original bill’s proposal, so that it would exempt hardware wallet makers, cryptocurrency transaction validators, node operators and other non-brokers from tax regulations.

“The amendments that have been made to the proposed legislation are common sense, and far more reasonable than the original proposal,” said Valkyrie Investments Chief Investment Officer Steven McClurg in a note to Blockworks. “We are, of course, in favor of regulation, but all we ever advocated for was fairness, and for the parties covered to be similar to those in the traditional financial markets. Now that we appear to have reached a sensible compromise, we can focus on being compliant when the rules go into effect in 2023.”

The controversy

The bi-partisan infrastructure bill proposal, revealed on July 28, sent shockwaves through the digital asset community in recent weeks. 

Originally, the bill included a provision that would require cryptocurrency “brokers” to report customer information to the Internal Revenue Service (IRS). In the original proposal’s language, “broker” was broadly defined as anyone “responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” 

However, many crypto advocates wanted a more narrow and nuanced definition for the term. 

In response, two separate groups of elected officials proposed last minute cryptocurrency-related amendments with varying definitions of “broker.”

One amendment, proposed by Senator Lummis, Wyden and Toomey, clarified that blockchain developers and miners should not be included in the provision’s tax reporting requirements. 

Over the weekend, the bill passed a key hurdle in the Senate, but it’s not over yet.

Senators Sinema and Warner updated their amendment, (separate from Lummis’) on Saturday to exclude proof-of-stake validators and proof-of-work miners from reporting requirements to the IRS. 

The Senate voted 68-29 to shut down debates Saturday afternoon. 

What’s next?

Currently, amendments are being held up because of conflict over the 30-hour rule, Senator Lummis tweeted on Sunday. The rule gives elected officials a 30-hour limit to consider the bill before voting on the proposal. 

The Senate is scheduled to do a final vote on Tuesday, but they could still make amendments on the bill in the meantime. To complicate matters, due to the time-sensitive rule, the bill could be put to a vote without amendments being considered.

“This has been an interesting day. Here’s what is happening: First, we’ve been able to have very productive conversations with senators on all sides of this issue, and if we could vote on amendments I think the digital asset community would be pleased with the outcome,” Lummis tweeted late Sunday night. 

The bull run continues

Despite regulatory scrutiny in the Senate, the recent bull run continues for major cryptos. 

Bitcoin is trading at $45,965.85, up 4.38% in the last 24 hours. Ethereum has risen 3.42%, trading at $3,137.99 in the last 24 hours.