President Joe Biden signed the Infrastructure Investment and Jobs Act of 2021 (IIJA), more commonly known as the “Bipartisan Infrastructure Package,” into law on November 15, 2021. The IIJA provides for $1.2 trillion in spending related to America’s infrastructure, including money to improve roads, railways, broadband, ports and other projects.
As a funding mechanism, the IIJA requires that cryptocurrency exchanges share information with the Internal Revenue Service. The IRS was concerned that, without the information sharing, they did not have to tools to properly enforce the tax laws related to cryptocurrencies.
The IIJA is the first piece of legislation to address official reporting requirements for digital assets, which are defined in the IIJA as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.” That definition encompasses cryptocurrencies, such as Bitcoin, Ethereum and Dogecoin, as well as certain non-fungible tokens (NFTs).
1099-B Reporting Requirements for Digital Asset Exchanges
Beginning with Tax Year 2023, digital asset exchanges will be required to file a Form 1099-B with the IRS for each of their clients who sells a digital asset during the year. Form 1099-B is already required to be filed for sales of traditional financial assets (such as stocks or bonds) and reports the taxpayer’s name, address, tax ID number, and the proceeds of the sale. A copy of the 1099-B is also required to be provided to the client. Essentially, the IIJA subjects digital assets and digital asset exchanges to the same rules as traditional financial assets and brokers.
$10,000 Reporting Requirement
In addition to the 1099-B reporting requirements set forth for crypto exchanges, the IIJA also requires businesses to treat digital assets like cash for purposes of the existing $10,000 reporting threshold. Note that “cash” in this context means dollar bills and coins. The current law requires trades and businesses to report cash payments of more than $10,000 to the federal government by filing IRS Form 8300. This requirement will be applicable for businesses that exchange cryptocurrencies for fiat currencies (such as the United States Dollar) or exchange one cryptocurrency for other cryptocurrencies.
When does this go into effect?
The two provisions of the IIJA mentioned above become effective on December 31, 2023, which gives the Treasury Department time to collect input from the public and write appropriate rules and regulations.
GBQ is committed to keeping up to date with all changes to the tax laws, including those related to digital assets. Please contact your GBQ Tax Team if you would like to discuss further.
Article written by:
Rob D. Roll, CPA
Manager, Tax & Business Advisory Services
Tawny Flareau, CPA
Senior, Tax & Business Advisory Services
