The Congress recently decided, without fanfare or debate, that transferring economically meaningful digital assets is as rare, cumbersome, and criminally questionable as the trading of cash bricks. The eight-word amendment to the US tax code for the infrastructure spending bill, which will become legal on November 15, defines digital assets as cash for the first time. This is a small change that negatively affects innovation in the United States.
Section 6050I of the tax code, enacted in 1984, requires distress reports if a business receives more than $10,000 in physical currency. This discourages the use of cash and encourages the use of banks. Banks have been tasked with monitoring and reporting US transactions since 1970 for the purpose of taxation and fighting other crimes.
But section 6050I is ambiguous. In 1984, money was already abolished for its use in accordance with the economically significant laws of the modern economy. So when Congress created another reason to use banks instead of cash, nobody cared except for criminals.
But digital assets and bitcoin are not old. The November amendment will prevent the development of this new technology and effectively ban the use of many digital assets. It drives innovation outside the United States, establishing large existing financial and technology institutions, while forcing Americans to report to each other and charge them with a felony.
The new law also creates a contradiction with other federal laws. Section 6050I interacts with the provisions of the Bank Secrecy Act in a subtle way that the amendments did not take into account. This should have been understood before Congress legislated such an important technology.
This clause is also questionable in the Constitution. Section 6050I forces companies to collect, verify, and report customer names, addresses, Social Security numbers, and other personal information without permission. This is an important enforcement of the right to privacy and is of course challenged under Section 4 of the Constitutional Amendment.
Unfortunately, there is no quick fix with smart closet organization. The decree limits the discretion of regulators, and the decree itself sets out monitoring and reporting requirements.
Some members of Congress realized this was important, and the bill was quickly introduced to repeal the amendments that had not been hastily discussed.
One was introduced by Congressman Patrick McHenry (R., North Carolina) and Tim Ryan (D., Ohio), with 12 bipartisan Republicans, among others, the 6050I Amendment. Replaced by investigation and reporting to Congress.
This is the correct approach. Section 6050I was originally written for the head-to-head movement of physical, untraceable objects that occur on American soil. But digital assets are more than just digital cash. Unlike physical cash, digital assets are highly traceable. And digital assets are not old.
After years of silence, Congress’ first major advance on digital asset law was smart and wise, without considering the consequences. For those who don’t understand the 6050I or digital assets, the big ramifications of the new law aren’t obvious, but they are real. You can correct any errors. Congress has repealed the Section 6050I Amendment and needs to start over.
Sutherland is a fellow at the Queen Center and adjunct professor at the University of Virginia School of Law.
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