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Tax implications for digital assets in the Infrastructure Investment and Jobs Act

United States Publication November 17, 2021

On November 15, 2021, United States President Biden signed the US$1.2 trillion Infrastructure Investment and Jobs Act into law. The law includes tax information reporting provisions that will apply to "digital assets." Its passage represents the first time that Congress has specifically addressed transactions in digital assets in the Internal Revenue Code (the Code) and will impact digital asset transactions in two main ways.

Form 1099-B "broker" definition

First, the law modifies Section 6045 of the Code to expand the definition of a "broker" responsible for information reporting on IRS Form 1099-B to include transactions in digital assets. The new definition includes "any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person." The term "digital asset" is defined as "[e]xcept as otherwise provided by the Secretary….any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary." The provision in the law is a revenue-raising measure designed to ensure the reporting requirements for digital assets are no different than stocks, bonds and other traditional investments for purposes of reporting "proceeds" and "basis," which are used for determining taxable gains and losses.

Critics, including both industry participants and a number of senators, however, are concerned that the broad definition of "broker" contemplated in the law is overbroad and could bring unintended entities into scope such as validators, stakers, software protocol developers, miners and sellers of hardware or software wallets. This could impose impossible reporting obligations on these newly defined "broker" entities because they are often not in possession of all the information necessary to fulfill the 1099-B reporting requirement (i.e. the name and address of each of its customers, including details regarding gross proceeds, cost basis and such other information as the IRS may require with respect to such business).

The decentralized nature of digital assets makes it difficult to apply traditional reporting requirements to these assets. It will be up to the Treasury Department to issue guidance and enforce the expansion of the "broker" definition in a reasonable and properly tailored manner.

Expansion of § 6050I to include "digital assets"

Second, the law will expand § 6050I of the Code to include digital assets. The § 6050I reporting requirement currently requires that individuals who receive more than US$10,000 in cash or cash equivalents file an information return with the IRS within 15 days of receipt that includes the personal details of the sender, including names, addresses and Social Security numbers. The law will now treat "digital assets" as cash or cash equivalents. It will require, in a broad range of scenarios, "any person" who receives over US$10,000 in digital assets, in one transaction or two or more related transactions, to comply with the § 6050I reporting requirements. Failure to report those personal details is considered a felony offense which results in mandatory fines and up to five years in prison.

"Digital asset" for purposes of § 6050l is defined by reference to § 6045 of the Code—generally, any digital representation of value on a distributed ledger. While cryptocurrencies such as bitcoin and ether will definitely fall under the definition, non-fungible tokens (NFTs) could as well. It's possible that an exchange of US$10,001 of bitcoin for an NFT worth US$10,001 could trigger a reporting obligation for both parties to report the details of the other. An exchange of two different cryptocurrencies may also trigger the reporting requirement.

This provision of the law is designed to enable enhanced surveillance of digital asset transactions—transactions that have historically seen anonymity and privacy as major benefits. The new law, however, also raises numerous questions about how the reporting requirement will be enforced and leaves it to the Treasury Department to address key aspects of the amendments, among others: what does it mean to "receive" digital assets, what constitutes a "trade or business" for purposes of § 6050I and how do you value digital assets that continually fluctuate in value?

Critics are concerned that the expansion of § 6050I will require validators, miners, developers, stakers, node operators, service providers, internet service providers and anyone else involved with the transfer of digital assets in excess of US$10,000 as a part of their trade or business to collect and report sensitive customer information. Further, such requirements could hinder innovation, pushing many law-abiding crypto-projects offshore. Many in the industry also argue that any statute imposing felony crimes for users of digital assets should be debated openly and not inserted in a spending bill.

Effective date

Under the law, the new reporting regime would apply to transactions occurring for digital assets acquired on or after January 1, 2023. However, since 2014, when the IRS issued Notice 2014-21, the IRS has made clear that virtual currency is to be treated as property for Federal income tax purposes and that longstanding tax principles applicable to property transactions apply with equal force to virtual currency. The new law finally provides the IRS the tools it needs, and already had available in non-crypto settings, to start tracking virtual currency transactions and thereby enforcing what the IRS declared long ago. In similar contexts, the IRS has provided penalty relief to entities that make a good faith effort to comply and a similar approach may be necessary here to allow taxpayers and reporting entities to be in a position to comply with these new requirements.


Special thanks to Ian McGeown, who works under the supervision of Andrew Lom, for contributing to the preparation of this content. McGeown's admission to the New York State bar is pending.



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