The Infrastructure Investment and Jobs Act, signed by President Biden on November 15, 2021, authorizes $550 billion in new funding on so-called “hard” infrastructure projects. This includes roads and bridges, passenger and freight rail, public transport, broadband deployment, water infrastructure, airports and power grid reliability. To pay for these expenditures, the Act relies mostly on non-tax revenue sources.
However, the Act also contains several tax-related provisions, including one imposing strict information reporting requirements on sales of cryptocurrency and other digital assets.
We broke down what was in the $1.2 trillion infrastructure bill when the Senate passed it in August.
Currently, brokers use IRS Form 1099-B to report to customers and the IRS details relating to financial accounts including gross proceeds, adjusted tax basis and whether any gain or loss upon sale is long-term or short-term. The Act expands the definition of broker to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” This definition would include cryptocurrency exchanges and others.
The Act also defines a digital asset as “any digital representation of value which is recorded on a cryptographically secured distribution ledger or any similar technology...” that is acquired on or after January 1, 2023. This definition would include common cryptocurrencies such as bitcoin and Ethereum and may include other digital goods.
Consequently, brokers will need to track and report transactions in digital assets purchased on or after January 1, 2023, similar to the information reporting that is done for stock and debt securities today. Significant penalties — $250 per customer up to $3 million — can apply for failures to file or provide all the required information.
Brokers transferring securities to another broker are required to provide a transfer statement to the other broker, including a customer’s cost basis and holding period. Under the Act, transfer statements are required for transfers of digital assets (including cryptocurrency) not only to other brokers but also to non-brokers. This will likely result in transfer statements being required when customers move tokens from an exchange to an electronic wallet, for example.
The Act also treats digital assets, including but not limited to cryptocurrency, as “cash” for purposes of the existing requirement to report to the IRS on Form 8300 the receipt of more than $10,000 in one transaction (or multiple related transactions). This provision may affect businesses accepting digital assets as a form of payment. Failure to comply with this reporting requirement can result in civil and criminal penalties.
The new requirements to report information related to digital assets and treat digital assets as “cash” are generally effective for returns filed and statements required after December 31, 2023.
Congress expects these new provisions will capture certain digital asset transactions currently going unreported as taxable and generate $28 billion to help pay for the infrastructure projects.
The Act’s new reporting and recordkeeping requirements will add additional costs and risks for businesses accepting and making payments with digital assets. Brokers and others entering into transactions involving digital assets will want to review the Act’s new provisions and monitor future interpretive guidance from the IRS and Treasury Department.
Have questions on how this new legislation will impact your organization?
This article is provided for general informational purposes only. It is not legal, accounting or other professional advice, as it does not address any individual facts, circumstances or concerns. Before making personal or business related decisions, please consult with appropriate legal, accounting or other qualified professionals.