What is the Infrastructure Crypto Tax Bill?
Wondering about the Infrastructure Bill, also known as the Crypto Tax Bill? The Infrastructure Investment and Jobs Act - also known as the Infrastructure Bill - was signed into law by President Biden on the 15th of November 2021. Since then, you might have seen panicked discussions across crypto communities about the implications on the crypto market - both long-term and short-term. But most of us don't have hours to read through the 1039 pages to see how it might impact our investments - that's why we're breaking down everything crypto investors need to know about the Infrastructure Bill and your crypto.
What is the Infrastructure Bill?
Let's start with a quick overview of the Infrastructure Bill - because not all of it is actually related to crypto.
The bill contains $1.2 trillion in spending including $65 billion for broadband access, $55 billion for water and lead pipe replacements, and $11.6 billion for flood prevention projects to name just a few projects.
Of course, this kind of bill needs funding, which is where crypto comes into it.
Section 80603, Information Reporting for Brokers and Digital Assets expands crypto and digital assets reporting to help fund some of this bill's spending.
Now let's break down the impact of this section on the crypto industry.
What does the Crypto Tax Bill mean for crypto?
The main takeaways of the Infrastructure Bill for crypto investors are:
The definition of digital assets is expanded.
The definition of a broker is expanded.
Digital assets are considered a covered security.
The reporting requirements have changed to include increased 1099 reporting and crypto transfers reporting.
Businesses accepting payments or trades of $10,000 or more in digital assets must now use Form 8300.
These changes have some big impacts on individual investors, as well as crypto exchanges and other businesses - both short and long-term.
What does the Infrastructure Bill mean for crypto exchanges, wallets, and businesses?
The broker aspect of the bill is one of the most controversial parts. As it currently stands, a broker could include:
Centralized crypto exchanges
Decentralized crypto exchanges and other DeFi protocols
Centralized crypto wallets
Decentralized crypto wallets
NFT exchanges and platforms
Crypto developers or technology providers
The IRS will need to further clarify the definition of a broker in Section 6045, as well as provide guidance to those who are defined as brokers about how to complete the new compliance and reporting requirements. Senators Cynthia Lummis and Ron Wyden are working on additional legislation to narrow this definition. It is likely that those involved in developing new blockchain technology will be excluded from this definition in the future, at the very least.
For those who are defined as a broker - they'll need to comply with the new digital asset reporting rules. Don't worry, they don't come into effect until 2023, so nothing is going to change overnight as a result of these new rules.
This said, as a minimum, both centralized and decentralized crypto exchanges are very likely to be considered brokers under the new definition. This means they'll need to alter their processes to comply with IRC Section 3406. So they'll have to collect certified taxpayer identification numbers (TIN) for all US users for Form 1099-B reporting.
Of course, some of you will know that some larger crypto exchanges like Coinbase and Binance, used to issue Form 1099 to both users and the IRS in an attempt to comply with previous US legislation. This bill formalizes mandates a similar process and extends it out to other crypto platforms beyond major crypto exchanges.
How does the Infrastructure Bill impact crypto DeFi?
In particular, the bill presents significant issues for DeFi platforms. DeFi has thrived in recent years - partially due to the lack of KYC requirements creating borderless financial opportunities and anonymous transactions. If you would like to find out more we've created a guide where our experts picked the best no KYC exchanges.
This said, this looks set to change for US investors.
DeFi exchanges (dexes) as a minimum are likely to fall under the definition of broker and need to comply with Form 1099-B reporting - meaning they need to change processes to collect taxpayer information for US users.
6050I, Crypto & Investors
As well as the above, IRC Section 6050I has implications for investors. This section requires payments of more than $10,000 received in a trade (or business) to be reported on Form 8300. While this used to only apply to cash payments, the bill expands this to include transfers of digital assets as payments - making them subject to Form 8300 reporting.
As part of the form, you'll need to report the senders and recipients' names, addresses, and TINs to the IRS within 15 days of the transaction.
Infrastructure Bill Crypto Updates
Before you panic and pull out all your investments - none of this is certain. Though the bill has passed into law, the particulars around it are still being hashed out.
There is much Congress and the IRS needs to clarify for both investors and crypto businesses before any of these changes come into effect. This includes the definition of brokers, the exact reporting requirements, and more.
Especially considering the lackluster guidance from the IRS on the tax treatment of DeFi investments and NFTs, it is highly likely that another document clarifying further crypto tax treatment is imminent. It’s also likely there will be further changes to crypto tax in the second part of the infrastructure agreement - the Build Back Better Act.
What can you do in the meantime to stay tax compliant?
As the crypto tax experts, here at Koinly, we keep a keen eye on crypto tax developments around the world to ensure our software makes crypto tax reporting as painless as possible - whichever tax office you report to.
The best thing you can do in the meantime while the IRS hashes out the details is report your crypto taxes accurately under the current guidelines and keep good records of your crypto transactions to ensure you’re ready for any changes to crypto tax reporting requirements.
Koinly can help you do both. You can see our full guide on US Crypto Tax to see how we can help you report your crypto taxes in line with the most up-to-date IRS guidelines.
But Koinly also works as a great portfolio tracker - letting you keep track of all your various crypto transactions across all the platforms you use. In particular, Koinly is one of the leading options for tracking your DeFi investments and we’re always working on improving this and adding more DeFi protocols to our product to make managing your investments easier and paying your taxes simpler.
This means whatever the changes to the tax treatment of crypto in the US, you’ll be ready as you’ll have complete records of your crypto transactions and resulting capital gains, losses, income, expenses, and more.
The Infrastructure Bill was signed into law on November 15, 2021.
The changes won't take effect until 2023.
There will be more guidance and changes to crypto tax in the Build Back Better Act.
The definition of brokers has expanded to include a variety of crypto businesses, including decentralized platforms.
Brokers will need to collect TINs and send out Form 1099-B to the IRS and users.
Trades or payments of more than $10,000 in crypto must be reported on Form 8300.