Infrastructure Bill Expands Tax Reporting Obligations for Crypto and Digital Assets
Latest Crypto Update: President signs the Infrastructure Investment and Jobs Act
On 15 November, President Biden signed the Infrastructure Investment and Jobs Act (“Infrastructure Bill”) into law. This takes us one-step closer to having regulations requiring the information reporting of Crypto Currency. Although there is some identified information reporting today for payments made with crypto for goods and services, the Infrastructure Bill sets forth clear terms for reporting the sale and basis of digital assets, that includes crypto currency.
How will the Infrastructure Bill impact Crypto and Digital Asset Reporting?
In case you missed the details in our earlier outlines below is a summary of what is expected from the Infrastructure Bill.
Broker reporting requirements that the reporting of sales and disposition of digital assets.
- The Infrastructure Bill requires brokers to report account transfers of digital assets to another broker as well as to non-broker.
- Definitions under the Act expands entities that fall under the broker reporting rules to include exchanges, miners and software wallet holders even if that do not custody the assets.
- Finally the cost basis rules under 6045 will be amended to include digital assets.
It is also worth noting that the Infrastructure Investment and Jobs Act requires bank deposit reporting in line with the reporting requirements for physical currency deposits. Section Section 6050I(d) as amended under the Act 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.
What does this mean for Crypto and other entities currently engaged in activities that would need to be captured under the Infrastructure Bill?
In addition to existing Know-Your-Customer (KYC) processes Crypto exchanges, Crypto miners, Crypto software wallet holders and other entities will now need to execute the following processes to meet their compliance obligations.
Collection of Tax Documentation
- Execute Tax Withholding
- Tax Reporting
Crypto Tax Documentation Collection under Infrastructure Bill:
First, in addition to the current Know-Your-Customer (KYC) documentations collection you will be required to collect a Form W-9 or W-8 to identify information reporting requirements. At first glance, it does not seem apparent as to why the collection of a W-8 would be needed, but as a certified foreign person, 1099 and cost basis reporting is not required as Non-US persons with a valid W-8 are exempt from reporting under 6045.
Crypto Withholding Tax under Infrastructure Bill:
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 presumes US of identified as US through KYC. Penalties and interest for failure to withhold can accumulate very quickly and are difficult to get abated.
Tax Reporting under Infrastructure Bill:
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 Infrastructure Bill Crypto Tax Reporting Regulations become effective?
The Infrastructure Bill is currently legislated with an effective date of January 1, 2023, therefore cryptos and other business will only have 13 months to put in place manual processes or develop or buy software solutions to comply with the new provisions. The industry normally requires considerably more time for large-scale changes.
How can TAINA help you be proactive about Crypto Compliance?
At TAINA we continue to monitor the crypto and digital asset regulatory landscape and will track the IRS published regulations with an expectation that the actual initial reporting year will not be 2023. At TAINA we believe that regulatory compliance doesn’t need to become a blocker to user growth or affect your user experience. By using TAINA’s fully-automated Validation Platform you can continue to focus on growing your business whilst we take care of your compliance.
To find out more information on the recent crypto regulation changes and to learn more about how you can take a proactive approach to crypto compliance by implementing regulatory technology, get in touch with us today or request a demo.