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The Crypto Tax (and Penalty)— In the Infrastructure Bill After All

Posted by Brandon Keim | Dec 10, 2021 | 0 Comments

It's an Infrastructure Bill, after all. It was probably asking too much for a new cryptocurrency tax provision to fall through the cracks. And it didn't. Despite some efforts from the industry, pages of new crypto tax requirements have made it into the new Infrastructure law, and two specific elements are garnering a lot of attention. Because if people with crypto don't start paying attention now, they'll pay in cash later.

First, the previous Bank Secrecy Act-related reporting requirements for receiving more than $10,000 in cash or other untraceable funds now apply to cryptocurrency. If you receive more than that amount, you'll now need to be filing a Form 8300 with the Internal Revenue Service (IRS).

The second major change is that brokers, a.k.a. cryptocurrency exchanges, must file 1099-Bs directly with the IRS. This may pose a challenge for crypto investors who will need to start tracking what they paid and when—because it will need to match what the brokers have reported. 

The other major twist is that the new law is unclear in defining who is covered under this broker requirement. The law is not limited to commercial entities or people who sell or transfer Bitcoin as a business. But it might be much broader than that—include any person (or entity) transferring crypto between multiple holders to facilitate a sale of an item or for some other reason.

And if someone decides they are not a broker and fails to file those 1099s, but then IRS decides they are a broker and should have—things can get severe, quickly. The penalties for failing to comply are $280 per customer, with a cap of $3 million.

Already, there are pleas for Congress to clarify this legislation, but in the meantime, figuring out compliance requirements should be a priority for anyone dealing in crypto.

HAVING AN EXPERIENCED TAX ATTORNEY MATTERS

Don't wait until you get an audit notice before you decide if you're going to be considered a crypto broker. Have qualified tax counsel review your crypto portfolio now to help you figure out what your requirements are under the new law. If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.

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