Banking and Finance Law Daily Wrap Up, FINANCIAL TECHNOLOGY—Keep Innovation in America Act introduced in the House to address digital asset reporting, (Nov 19, 2021)

By Donielle TIgay Stutland, J.D.

The bipartisan bill would revise the rules of construction applicable to digital asset reporting requirements under the Infrastructure Investment and Jobs Act, by narrowing the definition of broker and clarifying reporting requirements.

A bipartisan group of lawmakers, led by Patrick McHenry (R-NC) and Tim Ryan (D-O ...

By Donielle TIgay Stutland, J.D.

The bipartisan bill would revise the rules of construction applicable to digital asset reporting requirements under the Infrastructure Investment and Jobs Act, by narrowing the definition of broker and clarifying reporting requirements.

A bipartisan group of lawmakers, led by Patrick McHenry (R-NC) and Tim Ryan (D-Ohio), have introduced the Keep Innovation in America Act in the House or Representatives. The aim of the new legislation is to amend the digital asset reporting provisions in the Infrastructure Investment and Jobs Act (IIJA), which is now law, in an effort to provide transparency to technology innovators and entrepreneurs. Similar legislation was introduced in the Senate (see Banking and Finance Law Daily, Nov. 16, 2021).

"Blockchains, cryptocurrencies, and decentralized finance may still be relatively new and evolving, but Congress must recognize that these technologies are some of the most important innovations to come along in a generation,” said one of the sponsors of the new bill, Rep. Tim Ryan, in a statement. “We have to figure out how to balance consumer protection and reasonable oversight while simultaneously providing these technologies and companies with the necessary space they need to grow, innovate and democratize the financial sector.”

The sponsors of the house bill believe that the IIJA included certain definitions that are too broad in the digital asset space. Specifically, they believe it was in error that under the IIJA, the definition of a “broker” is broad enough to include digital asset entities for tax reporting that were not meant to be subject to the requirements, such as miners and validators, hardware and software developers, and protocol developers, who are not “true brokers” and would not collect or have reason to collect this information. Additionally, the bill sponsors believes the definition of “cash” is also too expansive for reporting purposes it includes “any digital asset,” requiring large transactions to be reported, raising privacy concerns. Finally, the bill addresses broad placing limits on the authority the Department of Treasury has to amend the definition of a “digital asset,” which the sponsors believe will have long-lasting and potentially harmful implications.

The Keep Innovation in America Act plans to address these concerns by: (1) Narrowing the definition of “broker” to include only those who are actually in the business of brokering are required to report; (2) Clarifying what information should be captured by a “broker” when transferring a digital asset to an account maintained by a non-broker; (3) Clarifying Congressional intent in defining “digital asset;” and (4) Studying the impact of expanding the definition of “cash” for reporting purposes.

The lawmakers proposing the legislation believe that these changes in the IIJA will threaten to push innovators overseas and raise privacy concerns for law-abiding citizens. The bill’s sponsors believe it will be a fix to ensure digital asset reporting requirements under current law match the technology’s operation. The statement also indicated that there is broad support by industry and market participants for the legislation.

“The United States needs to be leading the world in the digital asset development instead of over-regulating it and pushing it overseas,” said Rep. Ted Budd (R-NC). “I’m proud to join with colleagues from both sides of the aisle to remove burdensome regulations and taxes on everyday crypto investors. Our country prospers when Americans have the freedom to innovate and experiment. That’s why the federal government must do everything it can to ensure that the future of financial innovation is made in America.”

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