In a previous Tax Alert, GHJ discussed the reporting requirements imposed by the Infrastructure Investment and Jobs Act (IIJA), which went into effect on Nov. 15, 2021. The IIJA includes two provisions that increase the reporting requirements of digital assets and expand Form 1099 filings to include transfers of digital assets.
WHAT IS A DIGITAL ASSET?
Under the provisions of the IIJA, a digital asset is deemed to be cash. As such, any exchange of a digital asset will fall within certain cash exchange reporting requirements, including reporting transactions over $10,000 with Form 8300. This means cryptocurrency investors may face heightened reporting requirements.
The current IIJA definition of a digital asset is quite broad. The Lummis-Gillibrand Responsible Financial Innovation Act (LGRFI), currently working its way through Congress, seeks to clarify and narrow the scope.
The IIJA requires all Digital Asset Brokers, such as those involved with cryptocurrency exchanges, to issue Form 1099-B to certain users. These users would be identified by the broker. The IIJA defines a Digital Asset Broker as someone who “regularly provides any service effectuating transfers of digital assets on behalf of another person.” This means that certain organizations may now need to issue Form 1099-B that would not expect to have such a requirement.
The Form 1099-B reporting requirements are effective for transactions beginning on Jan. 1, 2023, with Form 1099 reporting requirements starting Jan. 1, 2024.
The provisions of the IIJA are highly complex and nuanced. To comply with these amendments, U.S. taxpayers who are engaged in digital asset transactions should begin tracking their investments as soon as possible and monitor any additional guidance that may be released.
If you have any questions about the IIJA, the proposed changes or their impact on you or your business, please contact a member of GHJ’s Tax Practice.