Coming Soon: Expanded Crypto Asset Reporting

H.R. 3684, known as the Infrastructure Investment and Jobs Act, passed the Senate on August 18th by a vote of 69–30 and now goes to the House of Representatives for consideration. To become law, the House must pass a companion bill and then the differences between the two must be worked out in committee prior to being sent to the President for signature. If the bill passes the House without substantial change, federal law will require reporting of crypto asset transfers by certain exchanges and others starting January 1, 2023.

Section 80603 of the bill imposes new crypto asset information reporting requirements on brokers. The Internal Revenue Code Sec. 6045(c)(1) definition of “broker” is expanded to include anyone who for consideration effectuates “transfers of digital assets on behalf of another person,” but is not expected to include miners, hardware and software developers, or blockchain developers. For these purposes, “digital asset” is defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.” The bill would amend Sec. 6045A to require brokers to provide information returns reporting any transfers of digital assets to accounts that are not maintained by a broker. This requirement would be unique to the class of assets including cryptocurrency, since securities generally cannot be transferred to a destination that is not a broker-dealer.

While the crypto asset reporting provision has received a mixed reception in the virtual currency community, it may turn out to be a blessing in disguise. We often work with clients who are unable to produce complete records for the year at tax time. This problem is compounded by reporting on Form 1099-K, which was unilaterally adopted by Coinbase, Gemini, and others for 2017 and later years. Because Form 1099-K does not includes only proceeds from the sale of cryptocurrency (as an electronic payment) and not basis information, many virtual currency investors have found themselves slapped with massive adjustments to their previously filed tax returns under examination by the IRS, along with additional tax that they probably do not owe. The proposed reporting requirement may take much of the administrative burden off the table by requiring crypto exchanges to render reports that are comparable to conventional brokerages.

If you are unsure how to report your crypto gains (or losses) or need help amending prior years, our cryptocurrency consulting services can help! Contact us with questions or to schedule a consultation.

**Edit 12/03/21: This provision was incorporated into the infrastructure package signed into law late this year.