On November 15th, 2021, President Biden signed the Infrastructure Investment and Jobs Act into law. Contained within this act are certain provisions regarding information reporting for digital assets (cryptocurrencies), along with a few other provisions that impact tax issues – most notably the cessation of the Employer Retention Credit as of October 1, 2021 for most businesses. Below we delve into the issues that arise for taxpayers who utilize digital currency.
Notable Provisions Included in the Act
One of the focuses of the IRS over the past two years has been to increase the reporting of cryptocurrency transactions. You may have noticed a new question on schedule 1 of your 2019 tax return asking if you “received, sold, sent, exchanged or otherwise acquired any virtual currency”. This question then made its way to the top of page 1 of your 2020, 1040 tax return. Even with the inclusion of this question, cryptocurrency transactions were still not properly being reported to the IRS.
To combat the burden of individuals trying to track their own cryptocurrency transactions each year, the Infrastructure Investment and Jobs Act (“The Act”) requires cryptocurrency brokers to furnish the information of its users to the IRS. The name, address, gross proceeds, and other information will be required to be reported by each broker beginning January 1, 2023.
Also included in The Act are additional reporting requirements for Broker-to-Broker transfers of cryptocurrencies. Brokers are required to furnish the information of any transfer of cryptocurrency during a calendar year under Code Sec. 6045A(a).
The last provision clarifies that any digital asset is included in the reporting requirements of Code Sec. 6050I(a). This will provide additional information to the IRS from businesses that receive more than $10,000 in one or more related transactions in the form of digital assets.
How These Changes Affect Individuals
For individual taxpayers, you should start to receive information about your cryptocurrency transactions from your broker beginning January 1, 2023.
For businesses and brokers, additional reporting requirements will be needed to help the IRS track cryptocurrency transactions. The term “broker” is vaguely defined within The Act as “any person who is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person”. There are currently ongoing efforts by Senators to amend the definition of a “broker” within the Infrastructure Investment and Jobs Act to further clarify who is considered a broker for reporting purposes.
If you have any questions about the provisions regarding digital assets within the Infrastructure Investment and Jobs Act, please contact our SC&H tax team.