By Keiter CPAs
IRS Expands Information Reporting Requirements for Digital Assets
For many years, the IRS information reporting rules have required brokers to report to the IRS and taxpayers for various transactions in securities. These transactions must be reported on Form 1099-B. The Infrastructure Investment and Jobs Act of 2021 included provisions to extend these broker information reporting rules to cryptocurrency exchanges, custodians, or platforms such as Coinbase, Gemini, or Binance. The information reporting rules also included digital assets such as cryptocurrency (e.g., Bitcoin, Ether, or Dogecoin). The rules will be effective beginning for 2023 tax reporting.
The legislation also extends existing cash reporting rules (for cash payments of $10,000 or more) to cryptocurrency, so that businesses that accept payments of $10,000 or more in cryptocurrency will have to report that to the IRS on Form 8300.
Existing broker reporting rules
Under current rules, if you have a stock brokerage account, then whenever you sell stock or other securities, you receive a Form 1099-B at the end of the year. On that form, your broker reports details of transactions, such as sale proceeds, relevant dates, your tax basis for the sale, and the character of gains or losses.
Furthermore, under the “broker-to-broker” reporting rules, if securities are transferred from one broker to another broker, then the previous broker must furnish a statement with relevant information, such as tax basis, to the new broker.
New reporting for digital assets (most cryptocurrencies, and potentially some non-fungible tokens (NFTs)
The 2021 legislation expanded the definition of “brokers” who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets on behalf of another person (for example, cryptocurrency exchanges). As a result, any platform on which you can buy and sell cryptocurrency will have to report digital asset transactions to the IRS and to you at the end of each year.
The cryptocurrency exchanges/platforms will have to gather information from customers, so that they can properly issue Forms 1099-B at the end of each tax year.
Cryptocurrency Customer IRS Reporting Information Required
- Customer’s name, address, and phone number
- Gross proceeds from the sale of digital assets
- Capital gains or losses
- Term the digital assets were held (short-term: held for one year or less or long-term: held for more than one year)
Note that it’s not yet known whether exchanges/platforms will have to file Form 1099-B itself (modified to include digital assets) or some other, new IRS form.
Other Considerations for Cryptocurrency Customers
In addition to collecting information list above, the cryptocurrency exchange or platform will need to begin tracking the holding period and the buy and sell prices of the digital assets in customers’ accounts.
The cryptocurrency exchange or platform will also be required to collect a Form W-9 from their customers (seeking taxpayer identification number).
What is the IRS definition of a digital asset?
For these reporting requirements, a “digital asset” is any digital representation of value recorded on a cryptographically secured distributed ledger or any similar technology. The IRS is allowed to modify this definition.
As it stands, the definition will capture most cryptocurrencies, and could potentially include some NFTs that are using blockchain technology for one-of-a-kind assets like digital artwork.
Cash transaction reporting on Form 8300 will apply to cryptocurrency
Under a set of rules separate from the broker reporting rules, when a business receives $10,000 or more in cash in a transaction, that business must report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300. For this cash reporting requirement, businesses will have to treat digital assets like cash.
IRS Form 8300 requires the reporting of the identifying information of the individual from whom the cash was received-including address, occupation, and taxpayer identification number-as well as other information. The current-law rules that apply to cash usually apply to in-person payments in actual cash. It may be difficult for businesses seeking to comply with the post-2022 reporting rules for more than $10,000 in cryptocurrency to collect the information that must be reported on Form 8300.
The transactions subject to the new reporting rules will include not only the selling of cryptocurrencies for fiat currencies (government-issued currency such as the US dollar), but also exchanges of cryptocurrencies for other cryptocurrencies.
Please contact your Opportunity Advisor with any questions or concerns you may have about these new reporting rules.
Current tax provisions are still in effect for cryptocurrency. Please see our previous articles for more information.
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.