In case you missed it, on August 1, 2021, the U.S. Senate unveiled their infrastructure package that included information reporting requirements for brokers and digital assets. This impacts the broker reporting rules in Internal Revenue Code (IRC) sections 6045, 6045A, and 6050I and their corresponding regulations and includes the following key updates:
- Proposed changes to the definition of the term “broker” under section 6045 of the Internal Revenue Code, “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person”. This means that brokers would be required to issue Forms 1099-B to owners of digital currency.
- Proposed addition to the failure to file penalties in section 6724 to include returns for certain digital assets.
- Proposed definition of the term “digital asset” in new paragraph (D) of section 6045(g)(3) as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary”.
- Proposed addition to section 6045A will include return requirements for certain transfers of digital assets not otherwise subject to reporting. This new paragraph (d) would require any broker, with respect to any transfer, which is not part of a sale or exchange executed by that broker to an account which is not maintained by, or an address not associated with, a person that the broker knows or has reason to know is also a broker, must make a return for that calendar year showing the information otherwise required to be furnished with respect to transfers.
- Proposed addition to section 6050I will include new paragraph (d)(3) thereby treating digital assets as cash for purposes of reporting under this section.
These proposals would be in effect for returns and statements required to be filed after December 31, 2023.
So, what is next? The Senate will vote on amendments to the infrastructure bill. If any senator objects, this could hold up approval for days. The contagious new Covid variants could impact voting as well. The House is scheduled to return to Washington on September 20, 2021, so it could take a bit to reach the desk of the President. After that, the IRS and Treasury will have to develop regulations and other guidance for taxpayers required to submit the impacted reports. The IRS will have to provide additional guidance for new filing requirements on Form 1099-B. With that, we all have a bit of time before this becomes official!
Take a look at the bill here: https://www.congress.gov/congressional-record/2021/08/01/senate-section/article/S5247-1