Tax & AccountingAugust 19, 2021

New Reporting Requirements Proposed for Cryptocurrency and Digital Assets

By: CCH AnswerConnect Editorial

New Reporting Requirements Proposed for Cryptocurrency and Digital Assets

The U.S. Senate recently passed the Infrastructure Investment and Jobs Act that includes significant changes for reporting transactions involving cryptocurrency and other digital assets. If enacted, the changes would:

  • expand the definition of “broker” for reporting purposes to include person who provide services for transferring digital assets,
  • define “digital assets” to include cryptocurrency and any other digital assets,
  • treat digital assets as “covered securities” subject to basis reporting, and
  • treat digital assets as cash for reporting cash receipts exceeding $10,000.

Broker Reporting on Form 1099-B

A broker is generally required to file information returns with the IRS for each person for whom the broker has sold stocks, bonds, most commodities, regulated futures contracts, forward contracts, debt instruments, or other property or services. Form 1099-B is used for this purpose and a copy of the form must be provided to the broker’s customers.

The information generally required to be reported includes name, address, and taxpayer identification number (TIN) of the customer, property sold, CUSIP number of the security sold, gross proceeds, and sales date. In the case of a “covered security,” the broker must also report the customer's adjusted basis in the security and whether any gain or loss with respect to the security is long-term or short-term.

A broker is defined as any person who, in the ordinary course of a trade or business, stands ready to effect sales to be made by others. This includes an obligor that regularly issues and retires its own debt obligations or a corporation that regularly redeems its own stock. A person that fails to meet the reporting requirements is subject to penalties.

Broker Reporting for Cryptocurrency Sales

Under the Senate legislation, the definition of a broker is amended to include “any person who (for consideration) is responsible for regularly providing any services effectuating transfers of digital assets on behalf on another person.” A digital asset is defined as any digital representation of value that is recorded on a cryptographically secured distributed ledger.

The Treasury Department also would have the authority to designate other representations of value recorded on similar technologies as digital assets. Thus, a person would have to file information returns for helping to execute sale or exchanges of cryptocurrencies between third parties. The requirements could also be applied to other digital assets under future IRS guidance, for example, non-fungible tokens (NFTs). 

Broker Reporting for Other Cryptocurrency Transactions

A broker would also have to report on Form 1099-B transfers of digital assets that are not sales or exchanges and do not involve other brokers. Specifically, a broker would have to report a transfer that is not part of a sale or exchange if the transfer is:

  • from an account maintained by the broker,
  • to an account that is not maintained, or to an address that is not associated with, a person the broker knows or has reason to know is also a broker.

This would cover transactions where a person transfers cryptocurrency from an exchange to another exchange, for example the transfer from a personal wallet to another wallet.

Digital Assets Treated as Cash

In addition to the broker reporting requirement, the Senate legislation would treat digital assets as “cash” for purposes of the requirement to report cash receipts of more than $10,000. Each person engaged in a trade or business who, during such trade or business, receives more than $10,000 in cash in one transaction (or two or more related transactions) must file Form 8300 with the IRS. Similar information must also be reported to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Possible Changes to Narrow Scope of Requirements

The reporting requirements for cryptocurrency and digital assets provided in the Senate legislation are proposed to take effect beginning in 2023. However, there are concerns by many in the cryptocurrency field, as well as some members of Congress, that the requirements as written are overly broad.

The requirements could apply to persons who work in cryptocurrency but do not have access to the relevant information such as miners, network validators, developers, and payment service providers. There were some unsuccessful attempts in the Senate to narrow the reporting requirements for cryptocurrency solely to persons who conduct transactions on exchanges where consumers buy, sell and trade digit assets.

Treasury Department officials indicated that if the requirements are enacted as written it would seek to issue guidance to limit them to persons it considers brokers. The House is scheduled to take up the legislation this fall but with the expectation that it will amend the language to provide a clearer definition of who is subject to the reporting requirements.

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CCH AnswerConnect Editorial

Comprising of industry’s most trusted experts, the Wolters Kluwer CCH AnswerConnect Editorial Staff are knowledgeable and highly qualified to analyze and offer guidance on the latest, important tax topics. They ensure every topic is thoroughly researched and meticulously broken down so you receive the most up to date and accurate information available. Read more of their insights on CCH AnswerConnect.