22 August 20213 minute read

Infrastructure bill passed by the Senate would impose new information reporting requirements on cryptocurrency transactions

On August 10, 2021, the US Senate passed the Infrastructure Investment and Jobs Act (HR3684, or the Infrastructure Bill) that, if enacted, would provide for significant investments in roads, bridges, ports, airports, electric grids, water systems and broadband. In order to fund this expanded investment in infrastructure, the Infrastructure Bill provides for numerous revenue-raising proposals, the largest of which would impose information reporting on cryptocurrency transactions similar to those in effect now for stock and securities transactions.

Under the Infrastructure Bill, beginning on January 1, 2023, cryptocurrency “brokers” would be required to collect certain information (ie, name, address and tax identification number) about the owners of cryptocurrency accounts. Cryptocurrency “brokers” would also be required to provide certain information to the IRS regarding a client’s sale of cryptocurrency, including identifying information about the seller and the amount recognized from the sale. Finally, such “brokers” would be required to provide information to the IRS regarding the price at which a particular unit of cryptocurrency was acquired by a client, subject to certain specified adjustments (in other words, the client’s tax basis in the cryptocurrency), and to provide this information to other brokers if a client transfers her cryptocurrency to another digital wallet or exchange. In effect, that is, the Infrastructure Bill would provide to the IRS both the sales price and the tax basis for cryptocurrency transactions, which would permit the IRS to track and calculate gain associated with sales of cryptocurrency.

As currently drafted, the Infrastructure Bill does not limit these reporting requirements to “brokers” organized in the United States, although whether these requirements could or would be extended to non-US “brokers” is unclear.

The Infrastructure Bill effectuates this expanded information reporting regime by broadening the existing definition of “broker” to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”

This broader definition of “broker” is designed to encompass any cryptocurrency exchange and other entities that facilitate cryptocurrency transfers, but there is widespread concern that this broader definition will encompass other participants in the cryptocurrency space, such as miners, software developers, stakers and other persons who do not serve customers.

Proposed amendments to the Infrastructure Bill that would have clarified and narrowed this definition of “broker” were rejected by the Senate, but the bill still needs to make its way through the House of Representatives, where such changes to the existing text could still be made.