Coin Center

New House Financial Services Committee chair wants to delay crypto tax changes

U.S. Republican Representative Patrick McHenry called for clarification on a “poorly” written digital asset tax provision in a letter to the Treasury.

The incoming United States House Financial Services Committee chair, Patrick McHenry, wants the Treasury to delay implementing a section of the Infrastructure Investment and Jobs Act that deals with digital assets and tax collection.

McHenry sent a letter on Dec. 14 to U.S. Treasury Secretary Janet Yellen with questions and concerns about the scope of Section 80603 of the act. In the letter, he requested clarification over the “poorly drafted” and potentially privacy-compromising section that deals with the taxation of digital assets, scheduled to go into effect next year.

He said the section requires the government to treat digital assets as the equivalent of cash for tax purposes, which could “jeopardize” the privacy of Americans and hamp innovation.

The section, called “Information Reporting for Brokers and Digital Assets,” requires brokers to report certain information relating to dealing with digital assets to the Internal Revenue Service (IRS).

McHenry argues the section has been drafted badly and that the term “brokers” could be “wrongly interpreted” as applying to a wider range of people and companies than intended.

The Act contains a provision requiring individuals or entities engaging in a trade or business to report to the IRS any digital asset transactions that exceed $10,000.

The requirement was challenged earlier this year by Coin Center, a nonprofit advocacy group focused on blockchain technology, which filed a lawsuit against the Treasury arguing that the rule will impose a “mass surveillance” regime on U.S. citizens.

Related: Sens. Warren and Marshall introduce new money-laundering legislation for crypto

According to Fordham International Law Journal, the section is likely to impose reporting requirements on the major cryptocurrency exchanges that already have user information, including customers’ names, addresses and social security numbers.

McHenry acknowledged it was a positive step forward to see the Treasury Department state that “ancillary parties” should not be subject to the same reporting requirements as brokers.

In February, U.S. Senator Rob Portman tweeted a letter from U.S. Assistant Secretary for Legislative Affairs Jonathan Davies that clarified that parties such as crypto miners and stakers are not subject to the new legislation.

McHenry’s letter concluded by requesting the Treasury “immediately” publish the rules under the section and delay its effective date to give market participants time to comply with any new requirements.

It’s the second letter McHenry has sent to Yellen this year, having sent her a letter on Jan. 26 urging the Treasury secretary to clarify the definition of a broker.

Coin Center files lawsuit against US Treasury over Tornado Cash sanctions

The advocacy group alleged OFAC “exceeded their statutory authority” in sanctioning Tornado Cash because the mixer was a “privacy tool beyond the control of anyone.”

United States-based crypto policy advocacy group Coin Center has followed through with its intention to take the Treasury Department’s Office of Foreign Asset Control, or OFAC, to court over sanctioning cryptocurrency mixer Tornado Cash.

In an Oct. 12 filing in the U.S. District Court for the Northern District of Florida, lawyers for Coin Center as well as crypto investor David Hoffman, an anonymous human-rights advocate known only as John Doe and software developer Patrick O’Sullivan filed a complaint against OFAC, Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki. The complaint alleged that sanctioning Tornado Cash was “unprecedented and unlawful,” in part, due to privacy concerns over crypto transactions.

“If a user doesn’t take proactive steps to protect his privacy, the ledger’s transparency allows strangers to track his private associations and stalk his intimate relations,” said the filing. “It invites publicization of and retaliation for his private contributions to unpopular causes. And it allows anyone to see whether he has a lot of assets, which would put a target on his back.”

The plaintiffs added:

“As a result of the Biden Administration’s action, Americans who use Tornado Cash to protect their privacy while using their own assets are criminals. Additionally, their receipt of any asset through Tornado Cash, even one from a stranger that they did not solicit, is a federal crime. And their use of Tornado Cash to protect their expressive activities is criminal as well.”

Coin Center alleged Yellen, Gacki and OFAC “exceeded their statutory authority” in adding the crypto mixer to its list of sanctioned entities because Tornado Cash was a “privacy tool beyond the control of anyone.” The plaintiffs claimed OFAC “defied its own rules on the books” in imposing the sanctions in addition to violating the constitutional rights of users whose only intent was achieving some measure of privacy.

“They respectfully request that this Court hold unlawful, set aside, and permanently enjoin the enforcement of the criminalization of Tornado Cash,” said the complaint.

Among Coin Center’s reasons for the court to overrule the sanctions included donors wishing to keep their transactions private, claiming having Tornado Cash sanctioned means they are “less likely to contribute.” O’Sullivan and Hoffman, public figures in the Ethereum ecosystem, used the mixer as a means “to protect himself and his family” from the public tracking his funds as well as to avoid “potential civil and criminal liability” from receiving unsolicited tokens, respectively.

Doe, though living in the United States, has donated in crypto to pro-Ukraine causes amid the country’s war with Russia. He claimed being cut off from a privacy tool would make it more likely for Russian agents to “learn about his pro-Ukrainian activities,” potentially putting his livelihood at risk.

Coin Center’s legal team sought for the court to set aside Tornado Cash’s designation as an OFAC Specially Designated National with a “declaration that the criminalization of Tornado Cash is null, void, and with no force or effect.” In addition, they requested compensation for attorneys’ fees and other costs related to the case as well as “any other relief that the Court deems just and proper.”

OFAC added Tornado Cash as well as 44 USD Coin (USDC) and Ether (ETH) addresses connected to the mixer to its list of Specially Designated Nationals on Aug. 8. On Aug. 12, Dutch authorities reported they had arrested Tornado Cash developer Alexey Pertsev, claiming he had facilitated illicit transactions and money laundering through the mixer. TheTreasury also later clarified that publishing the controversial mixer’s code would not be a violation of U.S. sanctions

Related: Tornado Cash is the latest chapter in the war against encryption

Coin Center’s lawsuit followed crypto investors backed by Coinbase suing the Treasury Department in September, claiming OFAC’s sanctioning of Tornado Cash was “not in accordance with law.” Coinbase CEO Brian Armstrong argued the Treasury’s actions exceeded its authority, and would “harm innocent people, remove privacy and security options for crypto users, and stifle innovation.”

Coin Center may challenge US Treasury’s sanctions on Tornado Cash in court

“By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority,” said Coin Center’s Jerry Brito and Peter Van Valkenburgh.

United States-based crypto policy advocacy group Coin Center said it intended to “pursue administrative relief” for individuals affected by Tornado Cash sanctions imposed by the Treasury Department’s Office of Foreign Asset Control, or OFAC.

In a Monday blog post, Coin Center executive director Jerry Brito and director of research Peter Van Valkenburgh alleged OFAC “overstepped its legal authority” when it named cryptocurrency mixer Tornado Cash and 44 associated wallet addresses to its list of Specially Designated Nationals, or SDNs, on Aug. 8. The directors claimed Treasury’s actions could have potentially violated U.S. residents’ “constitutional rights to due process and free speech” and they were exploring bringing the matter to court.

“By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority,” said Brito and Van Valkenburgh.

According to the pair, Coin Center will first engage with OFAC to discuss the situation in addition to briefing members of Congress. The advocacy group will then help individuals with funds trapped on any of the 44 USD Coin (USDC) and Ether (ETH) addresses connected to Tornado Cash by applying for a license to withdraw their tokens. Following these actions, the organization will begin exploring challenging the sanctions in court.

Brito and Van Valkenburgh claimed that unlike OFAC’s sanctions against cryptocurrency mixer Blender.io in May — “an entity that is ultimately under the control of certain individuals” that better fit the definition of SDNs — “it can’t be said that Tornado Cash is a person subject to sanctions.” According to the Coin Center executives, this was due to the ETH addresses for the mixer smart contract:

“The Tornado Cash Entity, which presumably deployed the Tornado Cash Application, has zero control over the Application today,” said Brito and Van Valkenburgh. “Unlike Blender, the Tornado Cash Entity can’t choose whether the Tornado Cash Application engages in mixing or not, and it can’t choose which ‘customers’ to take and which to reject.”

They added:

“While typical OFAC actions merely limit expressive conduct (e.g. donating money to a particular Islamic charity), this action sends a signal — indeed seems to have been intended to send a signal — that a certain class of tools and software should not be used by Americans even for entirely legitimate purposes. Even if this listing is truly and exclusively aimed at stopping North Korean hackers from using Tornado Cash, and even if the chilling effect on the use of the tool by Americans for legitimate reasons was acceptable to OFAC in a collateral impact analysis, it may not be sufficient to a court.”

Related: Tornado Cash community fund multisignature wallet disbands amid sanctions

Following the announcement of the sanctions against Tornado Cash, individuals associated with the controversial mixer reported being cut off from some centralized platforms amid the controversy. Tornado Cash co-founder Roman Semenov reported developer platform GitHub had suspended his account on Monday, and users of the mixer’s decentralized autonomous organization and Discord channel said the two media also went dark.

In June, Coin Center took the U.S. Treasury to federal court, alleging the government department provisioned an unconstitutional amendment in the infrastructure bill signed into law by President Joe Biden in November 2021. The group claimed that a provision in the law was aimed at gathering information about individuals engaged in crypto transactions.

Coin Center may challenge US Treasury’s sanctions on Tornado Cash in court

“By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority,” said Coin Center’s Jerry Brito and Peter Van Valkenburgh.

United States-based crypto policy advocacy group Coin Center said it intended to “pursue administrative relief” for individuals affected by Tornado Cash sanctions imposed by the Treasury Department’s Office of Foreign Asset Control, or OFAC.

In a Monday blog post, Coin Center executive director Jerry Brito and director of research Peter Van Valkenburgh alleged OFAC “overstepped its legal authority” when it named cryptocurrency mixer Tornado Cash and 44 associated wallet addresses to its list of Specially Designated Nationals, or SDNs, on Aug. 8. The directors claimed Treasury’s actions could have potentially violated U.S. residents’ “constitutional rights to due process and free speech” and they were exploring bringing the matter to court.

“By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority,” said Brito and Van Valkenburgh.

According to the pair, Coin Center will first engage with OFAC to discuss the situation in addition to briefing members of Congress. The advocacy group will then help individuals with funds trapped on any of the 44 USD Coin (USDC) and Ether (ETH) addresses connected to Tornado Cash by applying for a license to withdraw their tokens. Following these actions, the organization will begin exploring challenging the sanctions in court.

Brito and Van Valkenburgh claimed that unlike OFAC’s sanctions against cryptocurrency mixer Blender.io in May — “an entity that is ultimately under the control of certain individuals” that better fit the definition of SDNs — “it can’t be said that Tornado Cash is a person subject to sanctions.” According to the Coin Center executives, this was due to the ETH addresses for the mixer smart contract.

“The Tornado Cash Entity, which presumably deployed the Tornado Cash Application, has zero control over the Application today,” said Brito and Van Valkenburgh. “Unlike Blender, the Tornado Cash Entity can’t choose whether the Tornado Cash Application engages in mixing or not, and it can’t choose which ‘customers’ to take and which to reject.”

They added:

“While typical OFAC actions merely limit expressive conduct (e.g. donating money to a particular Islamic charity), this action sends a signal — indeed seems to have been intended to send a signal — that a certain class of tools and software should not be used by Americans even for entirely legitimate purposes. Even if this listing is truly and exclusively aimed at stopping North Korean hackers from using Tornado Cash, and even if the chilling effect on the use of the tool by Americans for legitimate reasons was acceptable to OFAC in a collateral impact analysis, it may not be sufficient to a court.”

Related: Tornado Cash community fund multisignature wallet disbands amid sanctions

Following the announcement of the sanctions against Tornado Cash, individuals associated with the controversial mixer reported being cut off from some centralized platforms amid the controversy. Tornado Cash co-founder Roman Semenov reported developer platform GitHub had suspended his account on Monday, and users of the mixer’s decentralized autonomous organization and Discord channel said the two media also went dark.

In June, Coin Center took the U.S. Treasury to federal court, alleging the government department provisioned an unconstitutional amendment in the infrastructure bill signed into law by President Joe Biden in November 2021. The group claimed that a provision in the law was aimed at gathering information about individuals engaged in crypto transactions.

Coin Center takes US Treasury to court over alleged financial spying

Coin Center filed a lawsuit against the Treasury Department in federal district court — challenging the enforcement of Section 6050I’s reporting mandate.

Coin Center, a Washington, D.C.-based nonprofit blockchain advocacy group, filed a lawsuit against the United States Department of the Treasury for allegedly provisioning an unconstitutional amendment in the controversial infrastructure bill.

Coin Center lawsuit information about plaintiffs and defendants. Source: Case: 5:22-cv-00149-KKC

In an official announcement, Coin Center revealed the filing of a suit against the Treasury Department in federal district court — challenging the enforcement of Section 6050I’s reporting mandate within the Infrastructure Investment and Jobs Act. The lawsuit read:

“In 2021, President Biden and Congress amended a little-known tax reporting mandate. If the amendment is allowed to go into effect, it will impose a mass surveillance regime on ordinary Americans.”

The 6050I amendment requires individuals and businesses to report information related to all incoming transactions worth $10,000 or more, which includes the sender’s name, date of birth and Social Security number. 

Coin Center, in its announcement, highlighted how the amendment affects the entire crypto community, including the NGOs that receive anonymous donations and nonfungible token (NFTs) artists who will have to reveal their client’s personal information to the government.

In the first claim of the lawsuit, Coin Center alleged that the 6050I provision is not aimed at collecting information about the third parties but rather focuses on the information about the general public participating in crypto transactions.

“The second claim is about our freedom of association,” the company added as it pointed out a Supreme Court ruling that forbids the government from forcing organizations to keep and report lists of their members.

On an end note, Coin Center reached out to the crypto community for support, stating that:

“We are considering adding additional co-plaintiffs to this suit, so if you might fit this description and are interested, please get in touch.”

Related: Leaked copy of US draft bill shows DeFi and DAOs under regulatory lens

Last week on June 7, Cointelegraph came across a leaked copy of a United States draft bill concerning cryptocurrency doing the rounds on Twitter.

Further investigations revealed the regulators’ concerns around user protection across the decentralized finance (DeFi), stablecoins, decentralized autonomous organizations (DAOs) and crypto exchanges ecosystems.