The Infrastructure Investment and Jobs Act (the Act), H.R. 3684, commonly referred to as the infrastructure bill, was signed into law by President Biden on November 15, 2021. Below are summaries of three key changes applicable to users in the crypto, blockchain and digital asset spaces.
I. Definition of Broker Under Internal Revenue Code Section 6045
Section 80603 of the Act, Information Reporting for Brokers and Digital Assets, modifies the definition of broker as set forth in Section 6045(c)(1) of the Internal Revenue Code of 1986, as amended (the Code), 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 term “digital asset” is defined by Code Section 6045(g)(3)(D) to mean “except as otherwise provided by the Secretary [of the Treasury], any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” This broad definition will likely be interpreted to include cryptocurrency exchanges and may extend in certain cases to non-fungible tokens (NFTs), peer-to-peer digital asset exchanges and financial institutions with platforms supporting cryptocurrency transactions.
II. Broker Reporting Requirements of Digital Asset Transactions
The consequence of this amendment to the definition of broker is that, for returns required to be filed and statements required to be furnished after December 31, 2023, brokers of digital assets will be required to provide the name and address of each customer along with such details regarding gross proceeds and such other information as the Secretary may require. The information reported by brokers will include the adjusted basis of the digital asset and whether any gain or loss with respect to the digital asset is subject to long-term or short-term tax rates, as set forth on Form 1099-B. Failure to comply with the reporting requirements applicable to digital assets could subject brokers to a penalty of $280 per failure to report, up to a maximum penalty of $3 million.
The Act states the amended Code section applies to covered securities, defined to mean any digital asset “acquired through a transaction in the account in which such security is held” or “transferred to such account from an account in which such security was a covered security, but only if the broker receives a statement under section 6045A with respect to the transfer [setting forth the customer’s adjusted basis in such security and whether any gain or loss is long term or short term].” This language seems to exclude digital assets held in foreign-based accounts or with brokers outside the U.S., which would fall outside the regulatory purview of Section 80603.
The Act also includes an amendment to Code Section 6045A(d), which sets forth a return requirement for certain transfers of digital assets that would otherwise be exempt from reporting. The amendment provides that in the event any broker transfers “a digital asset from an account maintained by such broker to an account which is not maintained by, or an address not associated with, a person that such broker knows or has reason to know is also a broker,” the broker shall file a return, including therein the name and address of the customer, gross proceeds, adjusted basis, and whether gains or losses are short term or long term. This language seems to cover transfers of digital assets from a customer’s account with the broker to an individual or even a business (e.g., car dealership).
III. Digital Assets Treated as Cash; $10,000+ Transaction Reporting Requirement
Attempting to sweep digital asset transactions into the anti-money laundering provisions of the Code, the Act amends Code Section 6050I(d) to require the treatment of digital assets as cash, and requires any person or business that receives payment of more than $10,000 in digital assets to file Form 8300, reporting the identity of the sender, including their name, address and taxpayer identification number. Failure to comply can result in penalties of up to $3 million per year, or higher if the failure is due to intentional disregard of the requirement. 26 U.S.C. §§ 6721, 6722, 7203. Similar to the effective date above, this requirement applies to statements required to be furnished after December 31, 2023.