Chairman of the House Financial Services Committee, Patrick McHenry, has said so publicly voiced are concerned about the Notice of Proposed Rulemaking on Digital Asset Reporting Requirements issued by the U.S. Treasury Department and the Internal Revenue Service (IRS). The proposed regulations, announced on August 25, 2023, are part of the Infrastructure Investments and Jobs Act.
Chairman McHenry stated, “The announcement of proposed regulations on digital asset reporting requirements is another front in the Biden administration’s ongoing assault on the digital asset ecosystem.” He emphasized that after passing the Infrastructure Investment and Jobs Act, legislators from both parties had clearly stated that any proposed rule should be “limited, tailored and clear.”
While McHenry acknowledged the delayed effective date and exemptions for other activities in the proposed rule, which he said reflected his bipartisan bill, the “Keep Innovation in America Act,” he also pointed out its shortcomings. “However, it fails on many other points. Any additional regulations related to the other parts of the law must be consistent with the intentions of Congress,” he added.
The chairman further urged the Biden administration to cease its efforts to undermine the US digital asset ecosystem and to work with Congress to enact clear regulation for the sector. He expressed his commitment to advancing his two-pronged solution, the “Keep Innovation in America Act,” to rectify these reporting requirements, protect the privacy of market participants and ensure that the US digital asset ecosystem thrives.
Chairman McHenry is the lead sponsor of HR 1414, the Keep Innovation in America Act, which aims to change the digital asset reporting provisions in the Infrastructure Investment and Jobs Act. The bill has received support from a bipartisan group of colleagues, including Representative Ritchie Torres (NY-15).
For context, proposed regulations from the Treasury Department and the IRS are intended to require brokers to report sales and exchanges of digital assets by their clients. The regulations aim to address ambiguities surrounding digital assets, including defining brokers and introducing a new reporting form, Form 1099-DA. IRS Commissioner Danny Werfel commented on the regulations, highlighting their intent to “end the confusion related to digital assets” and ensure that “digital assets are not used to hide taxable income.”
Public feedback on these proposed regulations is open until October 30, 2023, with a public hearing scheduled for November 7, 2023.
There has been widespread criticism of the proposed regulation, in addition to criticism from Chairman McHenry. Chye-Ching Huang of the Center for Tax Law at NYU Law expressed his concerns with an article titled “The US is likely to lose billions due to unacceptably long delays in digital asset reporting requirements“, due to the “unacceptably long delay” in releasing the proposed rules. The Center pointed to the decision to postpone the full implementation of these requirements until 2026, a two-year delay from the original statute. They warned for the financial impact of this delay This suggests that the Treasury Department and the IRS could lose billions in 2023 and 2024 due to non-compliance with taxes on digital asset transactions.
The Tax Law Center further emphasized that the Treasury Department and the IRS had other viable options for implementing these reporting requirements in a timely manner, allowing for public input and system development.
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