On August 1, 2021, the Senate released the latest version of the bi-partisan infrastructure bill. The bill is 2,702 pages long and includes increased reporting requirements for cryptocurrencies exchanges. Along with increased information reporting requirements, the bill includes increased reporting penalties.
Critics of the new cryptocurrency regulations suggest that the reporting requirements are overbroad and need to be clarified. However, on August 9, 2021, a last-minute amendment (which would have specified that the new reporting requirements only apply to transactions in excess of $10,000.00) was rejected.
The following day, August 10, 2021, the Senate passed the infrastructure bill with the original reporting requirements intact. Before it becomes law, the bill must pass in the House of Representatives. Opponents of the proposed cryptocurrency regulations are hopeful that the reporting requirements can still be updated and clarified before the bill becomes law.
New Reporting Requirements
The pending bill will require cryptocurrency exchanges to file an information report for every transaction made on the exchange. If passed, the proposed legislation will be effective in the year 2023, giving cryptocurrency exchanges slightly more than one year to prepare. Notably, the proposed bill defines cryptocurrency exchanges as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” Individual crypto investors and holders are not subject to these increased reporting requirements.
Effect on Individual Cryptocurrency Investors and Holders
While the proposed bill does not impose additional reporting requirements on individual cryptocurrency investors and holders, the bill still impacts them. The information reports from the cryptocurrency exchanges will be used by the IRS to match the information reported on individual taxpayer’s tax returns. If an individual cryptocurrency investor’s tax returns do not match the information reports from the cryptocurrency exchanges, the IRS may perform an audit on the individual to uncover the discrepancy (much like they would if an individual’s tax returns do not match their W-2s or 1099s.) Accordingly, the proposed bill makes it far more likely that the IRS will be aware of an individual cryptocurrency investor’s transactions, and will be expecting the transactions to be reported on the individual’s tax return.
In other words, if the proposed bill is passed, cryptocurrency exchanges will need to meet precise information reporting requirements. Additionally, individual cryptocurrency investors and holders will need to ensure their cryptocurrency transactions are correctly reported on their tax returns.
The full Senate infrastructure bill can be read here.
If you have questions regarding current cryptocurrency reporting requirements, please contact Friedman & Nemecek, L.L.C., in Cleveland, Ohio at 216-928-7700 for a free initial consultation.