On Friday November 5, 2021, Congress passed the Infrastructure Investment and Jobs Act, which interestingly includes new reporting requirements on brokers of cryptocurrency, specifically persons responsible for regularly providing service effectuating transfers of any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.
Currently, cryptocurrency reporting generally is only required in the context of reporting requirements applicable to capital property (which may not be required for transactions under $600), or where the currency is used as compensation to employees or independent contractors. The bill requires reporting of any other transactions where the current rules do not apply.
The provision is included due to the concern that large amounts of cryptocurrency transactions are not being reported as taxable income, and the taxation of that income helps to offset the total cost of the bill. Additionally, the penalties imposed on taxpayers for failure to file information returns are extended to apply to this new requirement, helping to raise more revenue.
Another provision expands a section of the U.S. tax code called 6050I to include digital assets. Section 6050I requires that people who receive more than $10,000 in cash and equivalents file a report with the IRS. The report includes details about who paid them, including names and Social Security numbers. Any failure to report details about those sending payments is considered a felony offense.
The infrastructure bill provision would require similar from businesses and exchanges when they receive more than $10,000 in cryptocurrency.
Almost immediately upon the release of the legislative text, lawmakers and industry experts expressed concerns about the provision, claiming that the text of the bill is too broad, and could potentially extend the reporting requirements to cryptocurrency “miners” (people who generate new cryptocurrency by verifying complex chained transactions). Nevertheless, the amount of revenue generated by the provision made it essential to include in the bill, and amendments have been included to narrow the focus of the provision.
The reporting requirements do not take effect until a few years.
For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC
Newport Beach and Yorba Linda, California