Digital Asset Reporting in H.R. 3684 Infrastructure Legislation

Late on November 5, 2021, the House passed (228-206) H.R. 3684, INVEST in America - the infrastructure bill that has received a lot of attention this year. It already passed in the Senate on August 10 (69-30).

One of the few tax items here and added for tax gap concerns is to expand the definition of broker under §6045 to require additional reporting for certain digital asset transactions. A few observations:

1. There are much bigger tax gap concerns than misreporting or non-reporting of digital asset transactions such as underreporting and non-reporting by some cash businesses.

2. The text added to §6045 requires actions by the IRS and is confusing and potentially too broad to be administrable (unless the IRS addresses that broadness). The issue is that "broker" is expanded to include: "any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person." While the goal was likely to make virtual currency exchanges such as Coinbase and Kraken be brokers, the reach is potentially wider. For example, what about a company that provides various software for transfers or wallets? 

Digital asset is also broad and warrants input from IRS: "Except as otherwise provided by the Secretary, the term "digital asset" means any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary."

That last phrase reminds me of the cryptic item in the 2020 Form 1040 instructions on the broadness of "virtual currency." The instructions for the virtual currency questions included for 2020: "Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes." [page 17 of 2020 Form 1040 instructions] What does that mean?

I have a track changes version of §6045 and related provisions that were modified by H.R. 3684 (Sec. 80603), which can help see the set of changes to broker reporting that were made.

These changes are effective for statements required by be furnished after 12/31/23 so there is time for the IRS to issue proposed regulations and get public comment.

What do you think?

Vehicle Miles Traveled Tax Study Versus Action

Seven years ago I blogged about California's new legislation to study a vehical miles traveled (VMT) tax as an alternative to the gasoline excise tax (10/4/14 post). Oregon had already been studying one.

In July 2015, a Senate Finance Committee working group - working on tax reform, discussed a VMT in its report on infrastructure in reference to issues with the gasoline excise tax and Highway Trust Fund. Basically, with people driving more fuel efficient cars including electric cars that don't use any gasoline, not enough money goes to the HTF. And the gasoline excise tax has been 18.4 cents per mile since 1993!  It is not adjusted for inflation and hasn't been increased. The HTF has needed General Fund contributions since at least 2008 (the 2015 Senate report notes that over $65 billion had been transferred since 2008).

The 2015 report suggests a VMT as long-term option to fund the HTF. The working group noted that a VMT "has the potential to imprve the efficiency of highway financing because the tax can be calibrated closely to the costs that vehicles impose in terms of rod damage an dcongestion. Additionally, the tax coud be calculated based on time of day, congestion, type of road, type of vehicle, etc."

The Senate working group noted that it "take up to a decade to fully implement" a VMT. BUT, unfortunately, nothing was started!

I had this topic on my calendar for a while because I was going to note that the Build Back Better plan doesn't address the problems with the gasoline excise tax or suggest implementing a VMT.  A lot of study has already been done on a VMT by Oregon and California, academics and think tanks. We should move on it.

But new news - H.R. 3684, INVEST in America Act, the infrastructure bill passed by the Senate on 8/10/21 by a vote of 69-30, includes at Sec. 1630, a requirement that the GAO do a study on "per-mile user fee equity" within 2 years of enactment. This study would look at various issues of a per-mile user fee system including its effect on low-income individauls and the ability to access jobs and services.

Given use of the term "fee" and no reference to the gasoline excise tax, sounds like if such a fee were implemented, it would be in addition to the gasoline excise tax.

So, it is good that the concept of a VMT at the federal level is not completely forgotten, but more is needed to replace the out-dated gasoline excise tax with something more appropriate for funding the HTF. Let's see if something more comprehensive gets into the infrastructure bill. I think we need action rather than just more study.

What do you think?