WASHINGTON — In a hunt for funds to help pay for the Senate’s bipartisan infrastructure package, lawmakers have turned to the cryptocurrency industry as a potential source of tax revenue and are proposing tougher scrutiny of digital transactions.
A provision of the package would require cryptocurrency brokers and investors to provide more disclosure about their transactions to the Internal Revenue Service. The aim is to bring more transparency to an opaque sector, which critics argue is a haven for money laundering and tax evasion. But the provision also underscores the realization in Washington that the $2 trillion industry is here to stay and offers a new opportunity to generate federal tax revenue.
By strengthening tax enforcement on such digital assets, the federal government could raise $28 billion over a decade, according to an estimate by the Joint Committee on Taxation, which analyzed the plan. While that would be just a small fraction of the $550 billion that lawmakers have proposed in new federal spending on infrastructure, it is among the few fresh sources of revenue included in the plan.
The potential for more federal scrutiny of crypto transactions is rattling nerves in the nascent financial technology industry, which has so far escaped the kind of rigorous oversight applied to traditional financial services.
“What regulation will come, and from which agencies, is not clear yet, but make no mistake — regulation is coming for the industry,” Owen Tedford, an analyst at Beacon Policy Advisors, wrote in a note to clients on Friday. “Lawmakers and regulators are taking cryptocurrency concerns seriously and seem poised to make sustained efforts on multiple fronts to bring it out of the shadows.”
Earlier this year, the Biden administration outlined a variety of policy priorities and how they could be used to raise revenue, including bringing the crypto industry under more I.R.S. scrutiny. The administration initially proposed requirements for reporting cryptocurrency transactions as part of its broader initiative to narrow the $7 trillion so-called tax gap.
That Treasury Department plan, however, came with additional funding to help the I.R.S. crack down on tax cheats — money the Senate infrastructure package does not include. That could make it more difficult for an already strapped agency to crack down on a high-tech industry that has developed almost overnight.
A preliminary draft of the Senate legislation, which The New York Times obtained, has broader language than the Treasury Department’s proposal. The administration’s plan would apply new reporting requirements to cases in which taxpayers bought crypto assets from one broker and then transferred them to another broker. It would also apply to businesses that received crypto assets worth more than $10,000. According to the Treasury’s estimates, that proposal would raise a “negligible” amount of revenue.
The Senate bill, which could still change, proposes similar reporting requirements but includes a broader definition of a cryptocurrency broker to mean anyone who facilitates transfers of digital assets.