How will the Infrastructure Bill impact Crypto Tax Reporting?
Recently the US Senate passed the Infrastructure Investment and Jobs Act (“Infrastructure Bill”), this bill still has to pass the House and be signed by the President. The Bill provides for a series of approved infrastructure spending and carries additional Broker Reporting provisions under Title VI – Other Provisions.
What Sections of the Infrastructure Bill will affect Crypto Tax Reporting?
Section 80603 outlines changes on Information Reporting for Brokers and Digital Assets .
Under the current bill changes to Section 6045(g)(3)(B) will be amended to include any digital assets including cryptocurrency .
Additionally Section 6045(g)(3) will be amended to include a definition of Digital Asset as “digital asset means any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology”.
Additionally, the Infrastructure Bill also requires bank deposit reporting in line with the reporting requirements for physical currency deposits. Section Section 6050I(d) as amended under the Bill would treat digital assets deposits as “cash” for purposes of the statutory requirement to report receipts of cash in excess of $10,000. This includes where deposit are made in 2 or more increments and in total are equal or in excess of $10,000 USD equivalent would need to be reported.
Finally the cost basis rules under 6045 will be amended to include digital assets.
The Introduction of Crypto Tax Reporting Requirements
The Infrastructure Bill formally introduces broker reporting requirements that include the reporting of sales and disposition of digital assets. In addition, the bill requires brokers to report account transfers of digital assets to another broker as well as to non-broker. The definition of a broker under the bill is “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person,”. This definition expands the types of entities that fall under the broker reporting rules.
Entities that would currently fall under this definition ,even if they do not custody the assets, include:
Crypto software wallet holders.
What does this mean for crypto exchanges, crypto miners and crypto software wallet holders currently engaged in activities that would need to be captured under the bill? These entities will need to start performing tax due diligence on accounts, collect tax documentation, execute withholding tax and meet their reporting obligations to be compliant under the new tax provisions. Let's expand on these below.
Crypto Compliance: Collection of Tax Documentation
Firstly, in addition to the current Know-Your-Customer (KYC) documentation collection you will be required to collect tax forms including Form W-9 and W-8. At first glance it does not seem apparent as to why the collection of a W-8 would be needed, but the fact still remains that as a certified foreign person 1099 and cost basis reporting is not required as Non-US with a W-8 are exempt from reporting under 6045.
Crypto Compliance: Withholding Tax
Second, make sure that if you have a reporting obligation that you have the proper systems to execute withholding where a person is not certified and are either presumed US or identified as US through KYC. Penalties and interest for failure to withhold can accumulate very quickly and are difficult to get abated.
Crypto Compliance: Tax Reporting
Finally a process to create the appropriate reporting to the taxpayer or the receiving entity of the asset being transferred would be required. Tracking of original lots and sub-lots will require powerful systems that will need to churn and adjust calculation when events like wash sales occur.
When do the changes to crypto tax reporting become effective?
If the Infrastructure Bill passes a house vote in its current form the changes are currently legislated with an effective date of January 1, 2023, slightly less time than the 18 months that the industry normally requires for large-scale changes. We will continue to track and monitor the Bill as it moves through the house.
How can TAINA help you be proactive?
At TAINA we continue to monitor the crypto regulatory landscape and track the progress of the Infrastructure Bill. We believe that regulatory tax compliance doesn’t need to become a blocker to user growth or affect your customer and investors experience, using the TAINA’s fully-automated FATCA and CRS Validation Platform you can focus on growing your business whilst we take care of your FATCA and CRS compliance.
To find out more information about how you can take a proactive approach to the changing crypto regulatory landscape by implementing a new validation process to comply with crypto tax, get in touch with us today or request a demo.