Matter & Substance
  December 2, 2021

How Cryptocurrency Transactions Are Affected by the Infrastructure Investment Jobs Act

Last week, President Biden signed the Infrastructure Investment and Jobs Act (not to be confused with the Build Back Better Act currently in the Senate), which authorizes $550 billion in new funding on infrastructure projects such as public transportation, roads and bridges, and passenger and freight rail.
In a previous email, we detailed the aspects of the Infrastructure Act that include several tax-related provisions that will help fund the outlined projects. Today, we want to take a closer look at how this new bill will be affecting sales of cryptocurrency and other digital assets.

Expanding the Definitions of Cryptocurrency Exchange

With the Infrastructure Investment and Jobs Act being passed, the definition of a broker has been expanded to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”

The Act also defines a digital asset as “any digital representation of value which is recorded on a cryptographically secured distribution ledger or any similar technology.

Reporting Digital Assets Under the Infrastructure Act

Currently, brokers send Form 1099-B to report details related to financial accounts to the IRS and their customers. This form itemizes all transactions made during a tax year and creates a sum of the individual’s taxable gain. Moving forward, the 1099-B form will be required for cryptocurrency transactions.

When transferring securities to another broker, all brokers are required to provide a transfer statement, including a customer’s cost basis and holding period. Under the Act, these transfer statements will be required for digital assets—including cryptocurrency—not only to other brokers but also to non-brokers. This will result in transfer statements being required for transactions such as customers moving tokens from an exchange to an electronic wallet.

Under the Infrastructure Act, digital assets, including but not limited to cryptocurrency, will be treated as “cash.” With existing requirements in place, treating digital assets as cash means you will be required to report on Form 8300 the receipt of more than $10,000 in one transaction.

If you're not already, you should keep track of your cost basis—what you originally paid for your crypto—as accurately as possible. Because this is a new requirement, you'll want to confirm your cost basis matches the cost basis being reported by your broker.

With these changes, brokers will need to track and report cryptocurrency and digital asset transactions. Failure to comply with this new reporting requirement can result in both civil and criminal penalties, including up to $3 million per customer for failure to provide all required information.

Though these new requirements are effective for returns filed and statements required after December 31, 2023, you should begin planning for these changes soon.

We're Here to Help

The Infrastructure Act’s new reporting and recordkeeping requirements will add additional costs and risks for businesses accepting and making payments with digital assets. Brokers entering into transactions involving digital assets will want to review the Act’s new provisions and monitor future interpretive guidance from the IRS and Treasury Department. As things continue to evolve, we will be here to guide you through any changes or questions.

Xamin is the IT services arm of Mowery & Schoenfeld, an accounting and consulting firm in the suburbs of Chicago. Both organizations are focused on providing superior service and acting as a trusted partner to our clients. Xamin provides IT services and assessments to businesses and their owners. Their mission is to help organizations have a clear understanding of technology vulnerabilities and provide solutions for the protection of customer, employee and company data.