On November 15, 2021 President Biden signed into law the Infrastructure Investment and Jobs Act (the IIJA). This act has been widely reported on in the news, mainly for its provisions dealing with physical infrastructure, such as roads and bridges. However, the act included many other provisions, including ones that expand existing financial reporting requirements to cryptoassets.
What are the existing reporting requirements?
If you have traditional brokerage accounts you are probably already familiar with IRS Form 1099-B. This is the form your broker sends to you and the IRS at the end of the year to report details of the transactions made in your account, such as sales proceeds, relevant dates, the tax basis for the sale, and the character of gains or losses. Additionally, if you transfer stock from one broker to another, the old broker is required to furnish a statement with relevant information – such as tax basis – to the new broker.
How do the new reporting requirements affect cryptoassets?
Definition of Broker expanded to include Crypto Exchanges
The IIJA expands the definition of brokers to include businesses that regularly transfer digital assets on behalf of another person, referred to in the act as Crypto Exchanges. Crypto Exchanges will now be required to provide their clients and the IRS with a Form 1099-B reporting digital asset transactions at the end of each year.
Definition of Digital Assets covers blockchain-based assets
For the reporting requirements, Digital Assets are defined to include any digital representation of value which is recorded on a cryptographically secured distributed ledger – a blockchain, in other words – or any similar technology. This definition is broad enough to cover most cryptocurrencies and could potentially include some non-fungible tokens (NFTs) that use blockchain technology for one-of-a-kind assets like digital artwork.
Transfers of Digital Assets must be reported
As with transfers of traditional assets from one broker to another, when one Crypto Exchange transfers digital assets to another, the IIJA will require the transferring exchange to report details on the digital assets to the receiving exchange. Also, the transferring Crypto Exchange will be required to file a return with the IRS reporting details on the transferred digital assets. Details on the specific information to be reported are currently vague, but they will likely include the same information that is furnished in a broker-to-broker transfer.
Cash transactions subject to reporting
You are probably already familiar with the requirement for businesses to report cash transactions of $10,000 or more to the IRS, including the identity of the person from whom the cash was received. These details are reported to the IRS on Form 8300. Under the IIJA, transfers of digital assets valued at $10,000 or more will also have to be reported to the IRS, just like cash transactions.
When do the new requirements go into effect?
The new reporting requirements imposed by the IIJA on Crypto Exchanges will apply to subject transactions that occur on or after January 1, 2023. It remains to be seen whether the IRS will use the existing Form 1099-B, update it to accommodate the nuances of digital assets, or come up with an entirely new form.
The effective date for Form 8300 reporting of cryptoasset transactions of $10,000 or more is currently unspecified but will presumably be the same as those for Crypto Exchange transactions.
There are a few things to keep in mind regarding the new requirements imposed by the IIJA. First, if you have accounts with a Crypto Exchange you can expect to receive a Form W-9 from them requesting you provide your taxpayer identification number (if you have not received a W-9 from them already). Second, the reporting requirements will cover not only crypto to fiat transactions but will also cover transactions exchanging one cryptocurrency for another. Third, this reporting regime, as applied to crypto, is an entirely new endeavor and therefore the reporting for the first year of subject transactions could be a bit bumpy. Just remember that we are here to assist you and provide solutions to any challenges that may come up.
If you have any questions or concerns about these new reporting requirements for cryptoassets, please don’t hesitate to contact us.