You may have heard that the United States infrastructure bill would affect crypto taxes—but how?
The new infrastructure bill (formally known as the Bipartisan Infrastructure and Investment Jobs Act) has created a stir in the cryptocurrency community thanks to a provision that increases reporting requirements and would aid the IRS’s crypto tax enforcement efforts.
The sweeping bipartisan effort promotes investment in America’s roads, public transit, water, clean energy, and more. But to pass the infrastructure bill into law, lawmakers must include provisions to pay for that investment.
Cracking down on cryptocurrency tax evasion and underreporting is one way of raising the necessary funds.
Within the crypto world, those most impacted by the bill would be the brokers themselves and any crypto investors who’ve been trying to hide digital assets from the IRS.
Cryptocurrency Reporting in the Infrastructure Bill
The infrastructure bill would require all crypto brokers to send annual information returns to consumers and the IRS. These information returns must include data about customers’ transactions, including the price points when cryptocurrency was bought and sold. Given the language in the bill, cryptocurrency brokers would likely need to issue Form 1099-B.
Although the bill’s definition of “brokers” has been widely contested and may ultimately change (more on that below), the essence of the idea—that true cryptocurrency brokers will have increased reporting requirements—is likely here to stay.
As an individual cryptocurrency investor, here’s what you need to know about the infrastructure bill and crypto reporting (if the bill becomes law):
- Beginning in 2024, if not sooner, your exchanges and wallets will send you an annual Form 1099-B.
- The IRS will receive Form 1099-B as well, so if you don’t report these transactions, you’ll be a prime target for an audit or worse.
- Form 1099-B includes information about every transaction you make on that platform, including how much you initially spent on your crypto (cost basis) and how much you sold it for.
- If you’re using more than one exchange or wallet, Form 1099-B will NOT include the full information you need for your tax return.
Controversy Over Who Is a Cryptocurrency “Broker”
There has been hot debate over the language in the original bill, which critics say defines “brokers” too broadly. Under the original language, miners, node operators, and others who help maintain blockchains are defined as “brokers”—but they would be unable to provide the information returns that would be required under law.
Proposed amendments to clarify this language were rejected and the bill passed the Senate on August 10, 2021 with its original language.
However, the bill still needs to make its way through the House of Representatives. If passed there, the IRS will be responsible for interpreting the law and writing it into the United States Tax Code.
Hopefully, the language that has sparked so much debate and creates impossible standards for non-brokers will be modified along the way.
Regardless, true brokers—namely, cryptocurrency exchanges or wallets where users can buy, sell, trade, stake, send, and receive cryptocurrency—should plan to implement the required information returns after December 31, 2023.
The Infrastructure Bill Would Standardize Cryptocurrency Reporting
Cryptocurrency reporting by exchanges has historically been all over the map, thanks to patchwork regulations and enforcement.
To be clear, the requirements for taxpayers—to report all transactions and pay taxes on any capital gains or income from cryptocurrency—have always remained the same. However, the IRS can more easily identify crypto tax evasion when exchanges report information about customers’ transactions.
After being forced to hand over customer records in 2017, Coinbase began issuing an annual Form 1099-K; some other exchanges followed suit. (Kraken and Poloniex were also ordered to send the IRS customer records in 2021). Later, Coinbase began issuing Form 1099-MISC instead. Meanwhile, a few exchanges (notably Robinhood) were issuing Form 1099-B.
The problem is, all of these forms provide only limited information, and they often create confusion for taxpayers. Form 1099-B is the most useful of the bunch, but it’s still incomplete if you use more than one wallet or exchange.
Form 1099-K and Form 1099-MISC provide little that can be used to complete a full cryptocurrency tax return, but have helped the IRS identify some underreporting and send taxpayers astronomical crypto tax bills.
Now, if the infrastructure bill passes and all exchanges and wallets have to issue Form 1099-B, cryptocurrency reporting will certainly be easier for taxpayers than it has been in the past.
However, those with complex activity still might need professional help to reconcile the information between their various wallets and exchanges and produce a complete crypto tax report.
Need Help with Crypto Taxes?
Call the cryptocurrency tax attorneys at Gordon Law Group! We’ve been preparing crypto tax returns since 2014, and our dedicated team knows the ins and outs of this ever-changing field.
If you want to rest easy knowing your cryptocurrency tax return is fully accurate while saving as much money as possible, don’t wait; contact us today!