Congress is hoping that tax revenue from cryptocurrency transactions will help fund infrastructure projects across the country...
Congress is hoping that tax revenue from cryptocurrency transactions will help fund infrastructure projects across the country. Under a controversial provision in the $1 trillion infrastructure bill approved by the U.S. Senate, cryptocurrency brokers will be subject to new tax-reporting requirements.
Increasing Oversight Over Cryptocurrency
As discussed in prior posts, the federal government is steadily increasing its oversight over cryptocurrency as it grows in popularity. The Internal Revenue Service (IRS) has led the charge, seeking to increase tax compliance around cryptocurrency transactions. In 2019, the IRS began sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.
In 2020, the IRS added a new section to Form 1040 that asks taxpayers to report capital gains and losses from crypto transactions. Earlier this year, the U.S. Department of Treasury released a report outlining the Biden Administration’s proposed tax compliance measures, which includes the requirement that crypto transactions exceeding $10,000 be reported to the IRS.
Cryptocurrency Provisions in Infrastructure Bill
The Infrastructure Investment and Jobs Act (H.R. 3684) seeks to increase the reporting of cryptocurrency transactions to the Internal Revenue Service (IRS), a move that is projected to raise $27.9 billion over the next ten years. The bill would specifically require cryptocurrency “brokers” to collect certain information from cryptocurrency account owners, such as their names, addresses, and tax identification numbers. Brokers would also be required to provide certain information to the IRS regarding a client’s sale of cryptocurrency, including identifying information about the seller and the amount recognized from the sale.
The proposed legislation is generating controversy because it expands the definition of “broker” under the U.S. Tax Code to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” While the definition is intended to capture cryptocurrency exchanges and other entities that facilitate cryptocurrency sales or transfers, the cryptocurrency industry has raised concerns that the broad definition will also sweep up cryptocurrency miners, software developers, and others who don’t have visibility to buyers and sellers.
While several amendments were proposed in the Senate, lawmakers were unable to reach a consensus on substitute language. As a result, the Infrastructure Investment and Jobs Act passed with the controversial cryptocurrency provision intact.
Should those efforts be unsuccessful, the U.S. Treasury will still have the opportunity to clarify the reporting requirements when enacting implementing regulations. As currently written, the new requirement wouldn’t take effect until 2024, which leaves a lot of time to solicit feedback and fine-tune the “broker” definition.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Teddy Eynon, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
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