Monday, December 13, 2021
On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (the “Infrastructure Bill”), which significantly expands tax information reporting for certain cryptocurrency transactions. The Infrastructure Bill includes an information reporting requirement for cryptocurrency asset exchanges and custodians on an IRS Form 1099, and an information reporting requirement for certain persons who accept large payments in cryptocurrency in such person’s trade or business on an IRS Form 8300. The effective date of these changes will apply to any information return required to be filed after December 31, 2023.
Form 1099 Reporting
Currently, the tax code does not specifically require cryptocurrency exchanges to report taxpayer information to both the IRS and their customers. However, beginning with the 2023 tax year, they will be required to collect taxpayer identifying information from their customers, so that they can properly issue Forms 1099 at the end of each tax year. Specifically, the following type of information will be required to be reported:
name, address, and phone number of each customer;
the gross proceeds from any sale of digital assets; and
capital gains or losses and whether such capital gains or losses were short-term (held for one year or less) or long-term (held for more than one year).
The Infrastructure Bill redefines the term “broker” under IRC 6045 to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person”. Under the Infrastructure Bill, cryptocurrency exchanges will be treated similar to traditional brokerage houses. The Infrastructure Bill doesn’t specifically identify the type of information return that must be filed, but it likely will be similar to IRS Form 1099-B (Proceeds from Broker).
The IRS imposes a penalty up to $250 per customer, up to a maximum $3 million penalty, for failure to timely file a correct Form 1099 with the IRS under IRC 6721 and a penalty up to $250 per customer, up to a maximum $3 million penalty, for failure to timely furnish a correct Form 1099 to the customer under IRC 6722. These penalties may be reduced if such failures are timely corrected.
If the failure to file and furnish a correct Form 1099 is determined to be intentional, then the IRS imposes a penalty with respect to each such failure equal to $500 or, if greater, 5% of the aggregate amount of the items required to be reported correctly under IRC 6721 and IRC 6722. There is no maximum penalty for these intentional failures.
In addition, if it is determined that a person willfully violated the required reporting on an …….