The Infrastructure Investment and Jobs Act (IIJA) was signed into law on November 15, 2021. The new law goes beyond simply funding bridges, roads and similar projects — it also includes new reporting requirements for transactions involving “digital assets.” The goal is to generate additional tax revenue to help fund infrastructure projects.

The new requirements are yet another sign that taxpayers who engage in cryptocurrency transactions may be in the crosshairs of the IRS. The agency has already indicated its intent to more aggressively pursue taxpayers who haven’t reported earnings from virtual currencies. The IIJA requirements will give the agency more information to work from, as well as new points of potential noncompliance.

Digital Assets Defined

The IIJA explicitly refers to digital assets. The law defines such assets to capture “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.”

This definition extends beyond cryptocurrencies, such as Bitcoin and Ethereum. It also includes certain nonfungible tokens, commonly known as NFTs, and other assets involving blockchain technology. However, the law gives the U.S. Department of Treasury authority to narrow the definition or exempt certain assets or transactions.

New Rules for Transfers

Brokers have long been required to report their customers’ gains and losses on the sale of securities during the tax year to the IRS on Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions.” They generally must include:

• A description of the sale,
• The cost basis,
• The acquisition date and price,
• The sale date and price, and
• The resulting short- or long-term gain or loss.

In addition, if a client transfers a security to another broker, the original broker must furnish the new broker with a transfer statement with the cost basis and holding period.

The IIJA expands the definition of “broker” to include businesses “responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” This definition likely applies to those who operate digital asset trading platforms, such as cryptocurrency exchanges.

In other words, such platforms will be subject to the same reporting requirements as traditional brokers. So, if you do business on them, they’ll have to report your transactions to the IRS after the end of the tax year.

If you make transfers from one exchange to another — including transfers that aren’t sales (for example, a transfer from one digital wallet to another) — the original broker must provide the new broker with a transfer statement. Brokers also will be required to report to the IRS when their clients transfer digital assets to an account not maintained by a broker (a “nonbroker” account).

New Transaction Reporting Obligations for Businesses

The IIJA modifies existing anti-money laundering laws to treat digital assets as cash. That means that persons engaged in a trade or business will be required to report to the IRS when they receive more than $10,000 in digital assets in one transaction or multiple related transactions, just as they’ve been required to do for physical cash.

For such transactions, you’ll need to file Form 8300, “Report of Cash Payments Over $10,000 in a Trade or Business.” That will require you to collect the name, address and taxpayer identification number, among other information, from the payer.

As with the reporting of large physical cash transactions, the failure to comply with the new reporting requirements for digital assets can bring significant civil and criminal penalties. For some businesses, the new reporting obligation may make accepting or using cryptocurrencies for payment too much of a hassle or risk.

Stay Tuned

The digital asset provisions of the IIJA kick in for transactions in the 2023 tax year. The Treasury Department and IRS are expected to issue additional guidance before then. Our tax team is monitoring the latest developments and can help you comply with the enhanced cryptocurrency reporting requirements when the time comes.