As the 2021-year winds down, here’s a quick take away or quick summary of what you need to know about the $1 trillion dollar bill that was signed into law by President Joe Biden.
The game changer in the new law includes IRS information reporting requirements that will require cryptocurrency exchanges to perform intermediary Form 1099 reporting for cryptocurrency transactions. Generally, these rules will apply to digital asset transactions starting in 2023.
Please note that if you use a Crypto Exchange, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so. Second, the transactions subject to the reporting will include not only selling cryptocurrencies for fiat currencies (like U.S. dollars), but also exchanging cryptocurrencies for other cryptocurrencies. Third, a reporting intermediary does not always have perfect information, especially when it comes to an entirely new type of reporting. Thus, the first information reporting cycle for digital assets may be a bit bumpy. Remember that we are always here to help you and can provide solutions for any challenges that may develop.
Digital asset broker reporting. The new law expands the definition of brokers who must furnish Forms 1099-B (i.e., brokerage statement) to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets on behalf of another person (“Crypto Exchanges”). Thus, any platform on which you can buy and sell cryptocurrency will be required to report digital asset transactions to you and the IRS at the end of each year.
Transfer reporting. Sometimes you may have a transfer transaction that is not a sale or exchange. For example, if you transfer cryptocurrency from your wallet at one Crypto Exchange to your wallet at another Crypto Exchange, the transaction is not a sale or exchange. For that type of transfer, as with stock, the old Crypto Exchange will be required to furnish relevant digital asset information to the new Crypto Exchange and to the IRS.
Digital assets. For the reporting requirements, a “digital asset” is any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology. Furthermore, the IRS can modify this definition. As it stands, the definition will capture most cryptocurrencies (e.g., Bitcoin, Dogecoin, Litecoin, Ethereum, Cardano, etc.) as well as potentially include some non-fungible tokens (NFTs) that are using blockchain technology for one-of-a-kind assets like digital artwork.
Cash transaction reporting. You may be aware that when a business receives $10,000 or more in cash in a transaction, that business is required to report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300. The IIJA will require businesses to treat digital assets like cash for purposes of this reporting requirement.
When reporting begins. These digital asset reporting rules will apply to information reporting that is due after December 31, 2023. For Form 1099-B reporting, this means that applicable transactions occurring after January 1, 2023 will be reported. Whether the IRS will refine the Form 1099-B for digital asset nuances, or come up with an entirely new form, is yet to be seen. Form 8300 reporting of cash transactions will presumably follow the same effective dates.
Important Business Provisions:
- Retroactive termination of the employee retention credit – The act provides that the employee retention tax credit applies to wages paid by an eligible employer after June 30, 2021, and before October 1, 2021 (or in the case of a recovery startup business, wages paid after June 30, 2021, and before January 1, 2022)
- The Acts allows tax exempt financing for broadband projects in under-deserved areas.
- A private activity bond, an otherwise taxable state or local bond whose proceeds are used for private business uses—will nevertheless be tax-exempt if it qualifies as an “exempt facility” bond.
- Certain contributions to a regulated public utility are non-taxable contributions to capital
- The Act extends pension interest rate smoothing to 2034.
If you have questions or concerns about the digital asset reporting rules, please do not hesitate to reach out to us at 215.343.7730.