How sections of the recently-passed physical infrastructure bill impacts crypto transactions
By Patrick T. R. Charvat, CPA
While the recently signed Infrastructure Investment and Jobs Act does not incorporate any of the sweeping tax reform ideas proposed by then-candidate Joe Biden last year, it includes some changes to cryptocurrency's tax reporting requirements set to go into effect on January 1, 2023.
The following is a closer look at how the new legislation impacts crypto investing, from the definition of broker and cash transaction reporting to increased requirements on exchanges.
Expansion of broker definition
The expanded reporting requirements under the new law are twofold. The first item is expanding the Internal Revenue Code’s definition of “Broker” to include cryptocurrency exchanges, which I raised as a possibility in a previous article.
The new definition reads that “any person who [for consideration] is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person” is a broker. The key phrase “digital assets” classifies cryptocurrency transactions as reportable by brokers.
How this new requirement specifically manifests is not yet finalized. Brokers dealing in traditional capital assets such as stocks and securities are required to issue Form 1099-B to their clients who sell or exchange said securities. Whether that is the form for the new cryptocurrency reporting requirements or if a new form is created will be determined by the Treasury Department before the law takes effect in 2023.
Expanded Form 8300 reporting
The second reporting requirement is another expansion to a definition. Before this law, the Internal Revenue Code required businesses that receive more than $10,000 in cash in a single transaction to report additional information on Form 8300. The new law expands the definition of cash to include “any digital asset” in this informational reporting context.
For example, if a business receives more than $10,000 in Bitcoin as part of a single transaction, it must be reported on Form 8300.
Increased crypto exchange reporting requirements
One of the perceived benefits of cryptocurrency is the ability to trade it directly peer-to-peer, which provides a layer of anonymity.
The lack of a third-party institution to process cryptocurrency transactions between individuals or businesses (such as a bank, in the case of traditional currency) makes such transactions only known to the direct participants and, thus, much harder to track.
While the new law does not increase the scrutiny on peer-to-peer transactions, it does require exchanges to step up their reporting requirements to the IRS. Many exchanges have robust identity verification requirements before one can trade, including client name, address, and bank account information, so the idea of exchanges reporting such trades to the IRS is entirely achievable.
Crypto investors should also remember that any capital gains from cryptocurrency sales or exchanges must already be reported and taxed on a taxpayer’s return.
While any capital gains from cryptocurrency sale or exchange must already be reported and taxed on a taxpayer’s return, taxpayers who trade cryptocurrency on exchanges will begin receiving tax statements from their broker in the opening months of 2024 to prepare their 2023 tax returns.
Until that time, it is still the taxpayer's responsibility to keep track of their crypto transaction information and include them on their tax returns. This information includes cost basis, fair market value at the time of sale, amount of cryptocurrency, and purchase/sale dates.
If you have questions or concerns about your cryptocurrency tax situation, our tax experts at Boyer & Ritter are ready to help.
Patrick T.R. Charvat is a CPA and tax supervisor with Boyer & Ritter who has experience working with multistate and local business entities and individuals. Contact Patrick at 717-761-7210 or firstname.lastname@example.org