A cryptocurrency tax reporting requirement tucked inside the $1 trillion infrastructure bill threatens Americans’ financial privacy and constitutional rights, Rep. Warren Davidson warned.
An amendment to Section 6050I of the U.S. tax code, buried deep inside the Infrastructure Investment and Jobs Act currently pending in the House, would impose new surveillance and reporting requirements on individuals trading cryptocurrencies. The requirements would subject certain individuals transacting in “any digital asset” to a provision in the U.S. tax code requiring businesses that receive more than $10,000 in a single transaction to report the name, address, and taxpayer identification number of the person from whom the funds were received.
“This is just another example of Democrats trying to pry away financial privacy from Americans in a completely unrelated piece of legislation,” the Ohio Republican, a member of the Congressional Blockchain Caucus and proponent of legislation favored by the cryptocurrency industry, told the Daily Caller News Foundation.
Several cryptocurrency advocates drew attention to the requirement Friday, with a report by Abraham Sutherland of cryptocurrency advocacy organization Proof of Stake Alliance first publicizing the reporting mandate. Sutherland said the amendment would be a “disaster if it becomes law,” arguing the tax code provision does not cleanly accommodate the unique nature of cryptocurrencies.
“The law’s relative clarity and limited applicability in the case of old-fashioned cash does not translate to digital assets,” Sutherland said. “Compliance can be impossible.”
Your constitutional privacy rights are under threat. Say it with me:
— Peter Van Valkenburgh (@valkenburgh) September 17, 2021
Peter Van Valkenburgh, director of research at Coin Center, argued in a Friday article that the requirement would infringe on American citizens’ Fourth Amendment rights by requiring individuals to collect and report their counterparty’s sensitive information to the government, without it obtaining the necessary warrant.
“If this provision becomes law, it will be ripe for a constitutional challenge and Coin Center is prepared to take on that challenge,” Valkenburgh wrote. (RELATED: El Salvador Becomes First Country To Use Bitcoin As National Currency)
Traditionally, the federal government can collect financial information provided to banks without a warrant under the “third-party doctrine,” which exempts information voluntarily given to third parties, such as banks, from Fourth Amendment protections. However, many cryptocurrency transactions do not use a third party, instead storing financial information in a distributed ledger.
“Like other reporting provisions, this reporting requirement makes Americans’ personal data more vulnerable to breaches in cybersecurity and continues to abuse the third-party doctrine,” Davidson told the DCNF. “Democrats need to learn that Americans want government to stay out of their financial affairs and stop using lazy requirements to circumvent the constitutional right to privacy.”
The reporting requirement is the second cryptocurrency provision in the infrastructure bill to attract controversy, with the Senate approving a last-minute amendment backed by the Treasury Department to the bill in August that expanded who has to report personal information to the Internal Revenue Service.
Davidson voiced his opposition to that amendment as well, declaring the provision a means of stifling the cryptocurrency industry and expanding the Treasury Department’s ability to surveil financial transactions.
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