INTERVIEW With A Lawyer : Find Out More About Section 6050I And What It Means For The NFT Community
Updated: Feb 8
As the house passed President Joe Biden’s Infrastructure deal last week, many in the NFT community began to focus on section 6050I, a piece of legislation tucked away in the bill, and the ramifications it could have on the crypto and NFT market.
“There’s a proposal waiting for a final vote in Congress that is dangerous for digital asset industries,” DeCential writer Abraham Sutherland in his article, “DeFi and the “Digital Asset” Felony Hidden in the Infrastructure Bill,” published on Novemeber 3rd. “It requires certain transactions to be reported to the government -- and makes failure to report them a crime. It’s bad for all users of digital assets, but it’s especially bad for decentralized finance. The statute would not ban DeFi outright. Instead, it imposes reporting requirements that, given the way DeFi works, would make it impossible to comply. “
Since Sutherland’s article was published, many in the NFT community have wondered what this means for them and the space at large.
“So those shitposts of all of us going to jail is turning out to be true? (in the US),” BAYC member NotKatarina.Eth tweeted on November 4th.
In order to understand section 6050I and what it could mean for the NFT community, The Bored Ape Gazette interviewed DeFi lawyer Carlo D’Angelo and asked him to shed some light on the law.
Carlo D’Angelo is a criminal defense attorney, former law professor and crypto & NFT enthusiast. Carlo’s law practice also focusses on advising clients in all areas of blockchain technology law.
Check out the full interview below:
What does 6050I mean for NFT investors?
President Biden’s Infrastructure Bill includes a new tax reporting requirement for “digital assets” such as cryptocurrencies and NFTs. The Infrastructure Bill amends Tax Code 26 U.S.C. § 6050I which regulates the disclosure of “cash received in trade or in business, etc.” Section 6050i was passed in 1984 to crack down on money laundering. The law states that any person receiving cash in excess of $10,000 as part of a “trade or business” must report the personal information of the sender. Under the amendment to the Tax Code proposed in the Infrastructure Bill, crypto assets would be defined as “cash” and any person receiving a digital asset in excess of $10,000 in value must report the identity of the person or business sending the payment. Under this new law, failure to report the identity of the sending party (including “name, address, and TIN of the person from whom the digital asset was received) can be punishable as a felony offense The criminal penalty for noncompliance is up to five years in prison. Internal Revenue Code
Is the proposed amendment to 6050I harmful to NFT investors?
Because crypto currencies like Bitcoin and Ethereum exist on the blockchain they are not tied to any centralized government. Many crypto and NFT investors believe these are decentralized assets and therefore prefer to remain anonymous when doing trades. The proposed amendment to Section 6050I would make it virtually impossible for crypto and NFT traders to remain anonymous because it would further centralize these assets and subject them to government oversight.
What do you think happens next?
The House of Representatives voted on November 5th to approve the $1 trillion Infrastructure Bill that the Senate passed back in August. The Bill is not yet law and has to clear some additional budgeting hurdles in the House before it is sent to President Biden’s desk for his signature. The House is scheduled to resume its session on November 15th.
What should NFT holders do between now and when this law goes into effect?
If the Infrastructure Bill becomes law, crypto investors will need to be sure they comply with Section 6050I. Failure to do so could result in potential civil and criminal sanctions. For now, NFT investors should stay informed on the progress of this Bill as it passes out of the House and on to President Biden’s desk for his signature into law. NFT investors should also become familiar with the existing tax laws regarding the disclosure of crypto currency investments. The IRS considers crypto currencies to be property and their taxable value is based on gains and losses. That means that when you trade a crypto currency, including an NFT, you are subject to capital gains taxes. Best practice is to be sure you consult with a CPA or tax attorney who knows and understands the crypto currency space so you can properly report and pay taxes any crypto or NFT trades you’ve already made.
Be sure to follow Carlo on Twitter at @DeFiDefenseLaw and on LinkedIn at Carlo D’Angelo