Thread by @jasonfurman

Yesterday I got 2 types of replies to a tweet about the crypto provision in the bipartisan bill: (1) don’t stop our tax evasion and (2) sincere misunderstandings of the leg language & what Treasury would do with it. This 🧵is for the 2nd group of people.

https://twitter.com/jasonfurman/status/1422934671978008576?s=20

The leg text does 3 things:

1. Make explicit that broker reporting rules apply to crypto exchanges writ large. There is ambiguity about whether those rules apply to all entities (JCT appears to think they don’t), many don’t report now & would litigate heavily if Treasury tried.

For honest taxpayers these reporting requirements are a big help. They’re like the 1099s you get from your broker that tell you your capital gains and dividends for the year, it is virtually impossible to do your taxes without them.

Without information reporting the evidence is that compliance is generally around 50% in the best of areas and could be considerably lower in the crypto world.

2. Require broker-to-broker reporting of the basis of the basis of your asset (how much you paid for it). Congress did this for regular assets in 2008 and it has been a big simplification for honest taxpayers, meaning you don’t need to rifle through shoeboxes to find your basis.

For crypto this needs to cover all the stages. If you buy a coin on Coinbase for $50, transfer it to a wallet, and then to another exchange where you sell it for $500. The new exchange needs to know that you bought it for $50. If you pay taxes you need to know that too.

3. Right now if you buy a Tesla or anything else with cash they need to report it to the IRS. This would extend that same requirement to buying with crypto.

A lot of the sincere misunderstanding stems from a few sources:

1. The belief that coins are more like cash than like stocks. Cash doesn’t have capital gains and losses that need to be tracked. Stocks do. Crypto is more like the later.

2. The belief Treasury has this authority already. There is ambiguity and debate about this, I’m not a lawyer, but it appears as if JCT thinks there are limits to their authority—thus the large score. Regardless, clarifying would be helpful.

3. The belief this would lead to onerous information reporting requirements having nothing to do with the above, like on miners. This isn’t how Treasury operates, they don’t try to squeeze blood from stones. They just wouldn’t do this.

The amendments being considered would gut the provision—limiting who it applies to (and with holes in the process it becomes much less effective) and delaying the implementation. It would be a real shame if lobbying on behalf of tax evasion succeeded.

In sum, the crypto provisions are thoughtful and important. The intense industry lobbying has been a thing to behold because it is by entities that benefit from the additional demand they get from tax evaders. For law abiding crypto holders this is actually a simplification.