The Infrastructure Bill Proposes Big Changes for the Crypto World. Here’s What You Need to Know.

August 11, 2021

At a glance

  • The main takeaway: The new bipartisan infrastructure bill that’s making its way through Congress is proposing some changes that have the crypto world buzzing.
  • Impact on your business: If passed, as expected, those who deal in cryptocurrency will be required to report all digital asset transactions to the IRS starting in 2024.
  • Next steps: Work with an expert who is well-versed in the accounting requirements of the technology and blockchain space to start preparing for these changes now.

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The full story:

What does cryptocurrency have to do with infrastructure? Not much, other than the fact that it plays a role in how Congress intends to pay for its infrastructure bill.

Decades ago, when people sold shares of stock at brokerage houses, reporting stock sales to the IRS was not a requirement. When the IRS first implemented 1099 reporting for people who sold stock of public companies, they were only required to report sales proceeds — there was no requirement to report cost basis. Taxpayers had to track and report cost basis on their own.

Eventually, though, the IRS required brokers to report cost basis. Even today, if you sell an asset on one platform that you purchased on another platform, the brokerage house at which you sold the asset does not have to report cost basis.

So, what does this have to do with the infrastructure bill? It includes requirements for reporting digital asset transactions beginning in 2024. While that date seems far off into the future, in the crypto world, it might as well be tomorrow.

There are several, vast considerations that every player in the crypto world should consider as a result of these requirements, especially since the language in the bill addresses the already-complex crypto world in a very simplistic way. Currently, there are over 535 amendments proposed to this bill and several of them are related to the inherent problems related to digital asset reporting.

Here is a preliminary overview of the key areas crypto players should consider.

Who is a broker?

One of the major changes proposed in the bill is the definition of a broker. The bill redefines a broker to include “… any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”

In order to properly understand this new definition, we should consider how the IRS defines a “person.” According to the IRS’s regulations, a person “… includes any governmental unit and any agency or instrumentality thereof.” This raises a few key questions:

  • How would the crypto world define “agency” or “instrumentality”?
  • Would the IRS consider the bitcoin blockchain or a decentralized autonomous organization (DAO) as an instrumentality? If so, why?
  • In the IRS’s eyes, what activities or functions would constitute providing services effectuating transfers of another person’s digital assets?
  • What happens if the “consideration” referenced in the definition is a fraction of a penny? Would there be any de minimis exception regarding the size of the consideration?

The key players transacting on-chain, and the types of activities they’re conducting, may include validators, companies that airdrop tokens, processing companies, B-ATMs and many others; in fact, the list may be as long as the blockchain itself.

Some of the bill’s amendments include exempting “validators” of transactions on the blockchain who do effectuate transfers and, in some cases, earn slivers of fees.

Reporting to the IRS

The real reason why Congress included this change to who qualifies as a broker is not about the definition itself; it is actually because brokers have IRS reporting responsibilities.

Once the IRS determines that you or your company is considered a broker under this definition, you will have massive reporting requirements, just like brokers of securities.

Aside from the language pertaining to brokers, the bill goes on to define “digital assets” as follows:

“Except as otherwise provided by the Secretary, the term ‘digital asset’ means any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.’’

In addition to reporting sales transactions, the bill includes a specific requirement to report transfers, which it describes as:  


Any broker, with respect to any transfer (which is not part of a sale or exchange executed by such broker) during a calendar year of a covered security which is a digital asset from an account maintained by such broker to an account which is not maintained by, or an address not associated with, a person that such broker knows or has reason to know is also a broker, shall make a return for such calendar year, in such form as determined by the Secretary, showing the information otherwise required to be furnished with respect to transfers.”

The bottom line

As of August 10, 2021, the infrastructure bill is tied up in a “political game” and might not move through Congress to the President’s desk for weeks or months. If the bill goes through, as expected, companies of all sizes will have to report sales proceeds for digital transactions, cost basis and transfers from one account to another.

Some companies already have spent millions building reporting platforms to help them meet these requirements, but others are far behind and need to start the preparation process now. And while many compliant taxpayers would love for the crypto world to make their lives easier and provide 1099s with sales proceeds and cost basis, others are not looking forward to reporting their activities to the IRS.

Regardless of what happens in D.C. with the infrastructure bill, these crypto-related provisions have been in the works for years, so we do expect some version of the changes to become law sooner than later.

Once the bill does become law, the IRS will work toward providing guidance to report the sales and movement of digital assets. But the longer this bill stays in limbo, the longer it will be for the IRS to provide guidance. After all, it only took the IRS four years to share their guidance on the Bitcoin Fork, which happened in 2017 — so let’s hope the IRS rapidly shares guidance on this reporting change, which will need to start in 2024 for transactions in 2023.

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Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.

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About the Author

Mitchell Kopelman

Mitchell is the partner-in-charge of Aprio’s Tax practice as well as the Technology & Biosciences group. He has been a partner since 1990 with Aprio, which is the largest Georgia-based tax, accounting and consulting firm. Mitchell works with companies in the software, gaming, clean tech, financial technology (FinTech), health care IT, processing, biosciences (biotech and medical device) and manufacturing industries. Whether a company is pre-revenue, starting up, growing or preparing for a liquidity event, Mitchell works with them to maximize their potential at each stage. He is known for promoting research, innovation and entrepreneurship by enabling companies to be successful, regardless of where they are in their business lifecycle.

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