Securities Regulation Daily Wrap Up, VIRTUAL CURRENCIES—House passes bipartisan infrastructure bill, (Nov 8, 2021)

By Mark S. Nelson, J.D.

The bipartisan infrastructure bill now goes to the president’s desk along with its provision mandating IRS transaction reporting for cryptocurrency transactions.

The House passed the bipartisan Infrastructure Investment and Jobs Act (H.R. 3684) by a vote of 228-206. The vote sending the bill to the president’s desk to be signed into law comes just weeks before temporary transportation funding would expire and nearly three months after a group of Democratic and Republican senators brokered a compromise deal to provide mostly for traditional national infrastructure projects, with only some exceptions, such as the bill’s cryptocurrency transaction reporting provision.

Tense hours and a Friday night vote. Final passage by the House also took longer than expected after the first two of numerous procedural votes dragged on for hours until moderates and progressives within the Democratic party reached an accord that would allow the infrastructure bill to proceed to a vote on final passage. The moderates agreed to vote later this month for the Build Back Better Act, the Biden Administration’s social policy bill currently being shepherded through the budget reconciliation process, provided that the Congressional Budget Office score on the BBBA is consistent with White House estimates. Representative Josh Gottheimer (D-NJ) tweeted the outlines of the accord. Ultimately, the infrastructure bill garnered 13 Republican votes and lost only 6 Democratic votes, thus providing for a degree of bipartisanship in both the Senate and House.

The day after passage, President Biden, at a press conference, hailed the infrastructure bill as “…a once-in-a-generation investment that’s going to create millions of jobs modernizing our infrastructure—our roads, our bridges, our broadband, a whole range of things—to turn the climate crisis into an opportunity. And it puts us on a path to win the economic competition of the 21st century that we face with China and other large countries and the rest of the world.” The president also had a message for lawmakers regarding the BBBA: “Let me be clear: We will pass this in the House, and we’ll pass it in the Senate.”

Cryptocurrency provision. Section 80603 of the Infrastructure Investment and Jobs Act would require transaction reporting under the Internal Revenue Code by persons and entities in the cryptocurrency industry. Specifically, the provision would apply to “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”

Some lawmakers and the cryptocurrency industry had objected to the broad language used in the provision but bipartisan efforts to amend the text failed when Democrats and Republicans mutually declined to allow each other’s unrelated amendments to proceed to votes. The primary objection was that the reporting provision could ensnare more distant blockchain providers, such as miners and network validators, who may not possess the types of information that would have to be reported to the Internal Revenue Service.

Lawmakers have introduced numerous bills during the last two Congresses that have largely focused on creating exemptions from securities laws for digital tokens or that sought to create regulatory sandboxes where creators of new financial technology services can experiment within set parameters without fear of being subjected to enforcement actions. Some other bills would have created exceptions to tax laws, for example, to allow the inclusion of digital assets in retirement accounts.

Meanwhile, the IRS has pursued a series of John Doe summonses against cryptocurrency exchanges with the goal of obtaining transaction information that would help the agency to verify its concern that many such transactions are not being reported to the IRS or are not being fully or correctly reported, thus resulting in a significant, collective tax deficiency.

Thus, it is significant that one of the first U.S. blockchain laws is one that will require reporting of cryptocurrency transactions for tax purposes and, if the IRS is correct, will result in greater tax compliance by persons who trade in cryptocurrencies and higher revenues to the U.S. Treasury. It is also significant that the next batch of U.S. cryptocurrency laws would also address tax concerns and could become law if the BBBA is enacted. The BBBA would amend Internal Revenue Code to include digital assets in provision dealing with wash sales and constructive sales, and the BBBA would include digital assets among statutory enforcement priorities (See BBBA Sections 138150, 138152, and 138401).

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