I used a scary title because I wanted to get attention, but it actually is very scary. And it is Not a law yet. It is still a bill in the House of Representatives, yet to be voted on by the Senate.
Also, I'm going to try to keep this blog brief. A colleague’s very detailed, well written research report is already available. Abraham Sutherland is a law professor at the University of Virginia—the link is in this blog.
The proposed amendment is to the infrastructure bill that has been making so much news lately. The part that concerns us is the change to the tax code 60501. Like any big piece of legislation, proponents have to win over representatives by giving them stuff. This stuff is usually amendments that help their particular district, or worse, a particular group of donors for otherwise influential small groups. It is my feeling that in this case, it is the latter.
I'm attempting to write this with as little legalese as I can--again, if you want the thorough, legal analysis, go to professor Sutherland’s report. What is it? Have you ever seen a movie where the actor goes to many banks to withdraws $9,900? Because he doesn't want to go over the $10,000 limit? Or when you come back to the United States, the customs form asked you if you have more than $10,000? This involves that law.
This new 60501 law will apply to all cryptocurrency or NFT or any digital asset. And it will apply to every person inside the United States investing or trading or mining or otherwise involved in anything decentralized.
The proposed law says that for any transfer and receipt of digital assets, the receiver must get all of the senders personal information, and fill out a two-page IRS form—every single time you make a transaction. To whoever it is, from wherever it came from—even an exchange of coins of the same value. And when I say personal information, I mean all of their personal information including social security numbers and addresses and account information.
The proposed law applies only to receivers; however, it did not leave the senders out. If the sender gives incorrect information, and the government says it is a lie, or if the sender does something like sending three $9,900USD worth of coins within a few days, he can be found guilty of a similar charge. There are more requirements for senders that I want address here, but are both onerous and ridiculous.
This law could include anyone in America as a broker—meaning that anyone trading in digital assets would fall under laws that are traditionally meant for securities brokers. It not only means people trading in digital assets but anyone involved in mining, involved in DeFi of any sort, or involved in the blockchain....
Basically anything and anyone connected to digital assets and cryptocurrency gets hit, hard. For example, this would mean anyone doing a part of the ledger of the blockchain would need to get All of them personal information of the recipient, and fill out the form and send it within 15 days or face felony charges. Even though he or she was never in possession of any crypto or money.
Adherence and Punishment If you are involved of anything described in the aforementioned paragraph, you must file the form with the government in 15 days. A failure to do so results in a felony. And now comes the strange part: There are similar laws for securities, but the penalties are misdemeanors, not felonies. And this is a felony with a maximum of 5 years for each time you failed to send the form to the government in 15 days. Also, there is a $25,000 fine. Each time. So if you did it four times, you could face 20 years and a $100,000 fine.
This is why we're making such a big deal of this. This is why I said scary in the title. It is not hyperbole.
For my law-abiding readers, there is a gigantic difference between being convicted of a misdemeanor and a felony. There is also a huge difference in legal fees, which you'll have to pay because you need to plea down those felonies into misdemeanors!
The new rule clearly states that there are no exceptions. Except that there are exceptions for big banks, or for anyone that the Department of Treasury writes a permission slip for. (It Also does not apply to transactions from anywhere outside of the USA--thst has always involved different laws altogether).
Potential Effects The first thing that I see is that this gives banks the power for all financial transactions and to charge fees for it. Same as it's always been. Individuals can continue without banks, but who has the manpower to continue filling out these IRS forms? I can see people trying to do it, especially the hardcore, individualist-crypto folks, but not only does it eat time, it is also incredibly annoying. This will actually push crypto people to use the big banks. (Also, I am a tax lawyer, so I'm fairly familiar with IRS forms. Most forms are boxes to be checked, numbers to be written into boxes, names and addresses written in, signatures, that kind of thing…this form has a place for a full paragraph to describe the nature of the transaction. It's unusual, and it's because the government literally wants to know everything about you and the transaction).
Another effect that Abraham pointed out, was that it makes digital assets—be it crypto, NFTs, or something else—look dirty! If something requires so much information to give to the federal government, there has to be something wrong with it, right? The government has to make sure it's not criminals doing highly criminal things, right? This law will taint anything to do with digital asset as possibly or probably criminal.
This is an important point. There is already too much and too inaccurate stigma about Bitcoin—especially BTC being used by criminals to finance drugs, weapons, human slavery… Because before Bitcoin, these crimes were impossible, right? Criminals will always find methods of moving money and most of it is actually moved through these big banks that are raising the concerns about dirty Bitcoin. Furthermore, the blockchain is public! The ledgers are open! This is not true of the big banks that guard their privacy fervently.
Does it affect my civil rights? What can I do about it? Let's start with the second question first. Call and write to your representative. I didn't know who mine was, I had to look it up and get the name and the address, and make a phone call. Also, you can write an email...but the best effect is an actual letter with a real envelope, a stamp…a mailbox the whole thing. Letters piling up on a representative's desk have more effect then emails peppered into their inbox and read by an aid. Phone calls are great, also. Everyone can hear the hard lines ringing. What should you say? “Delete amendment 60501 because it infringes upon my Fourth Amendment right, my right to privacy, and it's only effect will be to make big banks richer and entice otherwise normal citizens to go underground and hide from federal law. It will also push the growing crypto industry outside of the United States.” Obviously, you can say whatever you want! That's what mind said….
Contact me if any of this is not clear. Obviously, I wrote it informally. Because Abraham Sutherland has already written the research report. If you want specifications, detail, click his link. Also, he's just a better writer than I am.