The hotly anticipated crypto 1099 information reporting tax law changes may finally come to light this week. In an interesting twist to the bipartisan infrastructure bill negotiations, Senator Rob Portman (R)-OH added specific 1099 reporting tax law changes for digital asset transactions. The additions to the bill, entitled “Enhancement of Information Reporting for Brokers and Digital Assets,” are proposed to bring $28 billion in additional tax revenue by making changes to internal revenue code I.R.C. § 6045 to require exchanges and custodians to report Forms 1099 for digital asset transactions.
Some of the most significant changes proposed are:
Expansion of the definition of a broker to include “any person who (for consideration) is responsible for and regularly provides any service effectuating transfers of digital assets).”
- Defines a digital asset as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.”
Updates the definition of a “specified security” to include digital assets – i.e., a digital asset is a Covered Security that will require basis to be included in the information reporting statement.
- Addition of § 6045A transfer reporting requirements for transfers of crypto assets from one institution to another.
Requires application by January 1, 2023. Brokers would be required to report basis details on digital assets on information returns issued in early 2024.
Senator Ron Wyden (D)-OR introduced a new Rule of Construction definition in an effort to narrow the scope of who is considered a ‘broker.’ The rule specifically excludes node operators, miners and other “actors” in the digital asset process that should not be required to report tax information – and in many cases, don’t have the access to the information needed to complete tax information reporting. Portman countered with another amendment, but in the end, the Senate passed the bill to the House with the original broad definitions.
As the bill moves to the House, it will likely undergo additional changes. But make no mistake: crypto 1099 reporting has arrived.
Join our 30 minute webinar on Tuesday, August 17 at 2 p.m. EDT where we’ll provide a breakdown of the proposals included in the infrastructure bill and potential information reporting impacts to exchanges and custodians of digital asset transactions.