With cryptocurrency on the rise, even invading the NBA with the rename of the Staples Center to Crypto.com Arena, the use of cryptocurrencies are becoming commonplace in lives of Americans. Cryptocurrency, or just a digital currency that can be used to buy goods and services, has created a need for new rules and regulations for the American economy.
On November 15th, 2021, HR 3684, the “Infrastructure Investment and Jobs Act” was signed into law by President Biden. Commonly known as the infrastructure bill, this new Act allocates funding and other resources focused on roads and bridges, water infrastructure, resilience, internet, and cybersecurity, among others. While previously crypto gains and losses were not reported to the IRS, section 80603 of this bill clarifies reporting requirements, so that taxpayers know to report cryptocurrency gains.
How Does the Infrastructure Bill Relate to cryptocurrencies?
The biggest takeaways from this bill in relation to crypto include:
The definition of a broker has changed:
According to the bill, a broker now includes any website “providing any service effectuating transfers of digital assets on behalf of another person” (H.R. 3684, p. 2420).” Platforms for cryptocurrency exchanges (such as online websites like Coinbase and Robinhood) are now considered “brokers” in the traditional sense like Fidelity, Schwab, E*Trade, etc.).
Digital assets are now defined:
This newly defined category of digital assets defines the terms as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary” (H.R. 3684, p. 2421). Additionally, any digital asset that is valued at $10,000 or more is now treated like “cash” which is received for any person engaging in a trade or business to combat tax evasion and other illegal financial activities.
Digital assets are classified as securities:
In the past, digital assets were treated like property, but now the reporting of digital assets will be like other securities such as stocks, bonds, and some commodities. However, the legislation failed to include the Securities and Exchange Commission (SEC) which still leaves some gray area in how they will deal with digital assets.
New reporting requirements:
Under current law, no reporting requirements for crypto exist. Now, cryptocurrency exchanges are required to report information to both the IRS and to their customers. Additionally, there is now a penalty that Cryptocurrency exchanges will face for a failure to report: $250 penalty per customer, up to a maximum $3 million penalty (U.S. Code, Title 26, §6722, “Failure to furnish correct payee statements”).
As cryptocurrency continues to invade mainstream culture, more regulations will be continued to be put in place.