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Deciphering cryptocurrency reporting requirements

The Infrastructure Investment and Jobs Act (IIJA) was signed into law on November 15, 2021. It includes new information reporting requirements that will generally apply to digital asset transactions starting in 2023.

The IIJA will now require cryptocurrency exchanges to report Cryptocurrency transactions on the Form 1099.

Existing Crypto reporting rules

Currently, when a stock or other similar security is sold, it requires your broker to prepare a Form 1099-B at the end of the year.  This 1099-B reports the details of your transactions to you and the IRS for proper reporting on your tax return. These details include the sales proceeds, relevant dates, tax basis, and the character of any gains and losses you might have. In addition, if you transfer stock from one broker to another broker, the old broker must furnish a statement with relevant information, such as tax basis, to the new broker.

New Digital asset broker reporting

Under the IIJA, a broker that regularly provides any service that transfers a digital asset on behalf of another person is now required to furnish Form 1099-B. Thus, any platform on which you can buy and sell cryptocurrency will be required to report digital asset transactions to you and the IRS after the end of each year.

Transfer of Crypto reporting

There are situations where a transfer transaction does not qualify as a sale or exchange.  This occurs when you transfer a cryptocurrency from your wallet at one crypto exchange to your wallet at another crypto exchange.  While the exchange holding the cryptocurrency changes, it is still in your wallet and therefore does not qualify as a sale or exchange. In this situation, the old crypto exchange must furnish the relevant digital asset information to the new crypto exchange.  Additionally, if the transfer is to an account maintained by a party that isn’t a crypto exchange (or broker), the IIJA requires the old crypto exchange to file a return with the IRS. It is expected that a return in this situation will follow the current reporting in a typical broker-to-broker transfer.

Digital asset definition

A ”digital asset” is defined as any digital representation of value that’s recorded on a cryptographically secured distributed ledger or similar technology.  (Please note that the IRS can change this definition as digital assets change.) This definition encompasses the majority of cryptocurrencies as well as some non-fungible tokens (NFTs) that utilize blockchain technology for one-of-a-kind assets like digital artwork.

Cash transaction reporting

When a business receives a cash transaction of $10,000 or more, it is required to report the transaction to the IRS of Form 8300. The IIJA expanded these reporting requirements by requiring businesses to treat digital assets like cash for the purposes of cash transaction reporting.  The Form 8300 includes the identity of the person from whom the cash was received, the identity of the business receiving the cash and the amount of cash involved, among other details.

When reporting begins in 2023

The new reporting rules for the Form 1099-B apply to transactions that occur after January 1, 2023.  It is unclear whether the IRS will change the current Form 1099-B or create a new form specifically for digital asset reporting.  It is assumed that the Form 8300 will follow the same effective dates.

More details

If you are involved in a crypto exchange, the new reporting requirements will require you to provide your broker with your taxpayer identification number using the Form W-9. You can expect your broker to request this if they have not done so already. It is important to note that the new reporting requirements apply to the sale of cryptocurrencies for flat currencies (such as the U.S. dollar), as well as the exchange of cryptocurrencies for other cryptocurrencies.  Be sure to contact your Wegner CPAs specialist with any questions regarding cryptocurrency reporting or how it impacts your tax situation.

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