Senate Infrastructure Bill Proposes New Tax Reporting Requirements for Cryptocurrency

The Senate infrastructure bill passed on August 10, 2021, includes three critical provisions for cryptocurrency investors. While these provisions do not create new cryptocurrency taxes, they do create new cryptocurrency tax reporting requirements—and these requirements could lead to enhanced enforcement by the Internal Revenue Service (IRS).

In fact, the inclusion of the new cryptocurrency tax reporting requirements in the bill are specifically intended as revenue-generating tools to help pay for the Senate’s infrastructure proposals. Congressional accountants have estimated that the requirements will generate approximately $28 billion in revenue over the next 10 years. So, if you invest in cryptocurrency, what do you need to know? Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

The Senate Infrastructure Bill Includes Three New Reporting Requirements

While media coverage of the infrastructure bill has focused on one reporting requirement in particular, the Senate infrastructure bill actually includes three new reporting requirements pertaining to cryptocurrency. If passed, the Senate bill would institute the following:

• Third-Party Reporting – As has been widely reported, the bill includes a provision requiring cryptocurrency brokers to report sales similar to how stockbrokers report their customers’ securities transactions.
• Reporting for Movement of Cryptocurrency Assets – The bill also includes a provision that would require reporting of transactions that result in assets being moved out of cryptocurrency exchanges.
• Reporting for Crypto Transactions Over $10,000 – Finally, the bill includes a provision that would require reporting of all cryptocurrency transactions worth more than $10,000.

Given the bill's broad language, how exactly each of these reporting requirements would be implemented remains to be determined. The U.S. Department of the Treasury will likely need to use its rulemaking authority to develop enabling regulations that spell out the new reporting requirements in greater detail.

Third-Party Reporting Will Lead to Enhanced Enforcement

As reported by MSN, third-party reporting is “a tried-and-true way for lawmakers to improve tax compliance.” If the new cryptocurrency reporting requirements in the Senate infrastructure bill become law, taxpayers who invest in Bitcoin and other cryptocurrencies will need to be especially cognizant of their federal income tax obligations. With new resources at its disposal, the IRS will have a mandate to enhance its enforcement efforts, and taxpayers whose income tax returns conflict with the information reported by their brokers will be prime targets for civil audits or criminal enforcement investigations.

Notably, the IRS was already ramping up its enforcement efforts with regard to cryptocurrency tax liability. Thus, regardless of whether the cryptocurrency provisions of the Senate infrastructure bill become law, now is still a good time for investors to make sure that their recent tax returns are accurate.

Request an Appointment with Boston Tax Lawyer Kevin E. Thorn

Do you have questions or concerns about your cryptocurrency tax liability? If so, you can contact us to schedule a confidential consultation with Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group. Call 617-692-2989, email ket@thornlawgroup.com or inquire online today.