Infrastructure bill, including crypto "broker" rules, becomes law

On November 15, 2021, President Joe Biden signed the Infrastructure Investment and Jobs Act (HR 3684) into law. The legislation includes roughly $550 billion in new spending, of which, $28 billion is expected to be paid for through expanded cryptocurrency and digital asset reporting rules.

The legislation, which is identical to the version we discussed in the August issue of this newsletter, includes language meant to increase reporting obligations and tax collections from facilitators of digital asset transactions by greatly expanding the definition of a broker to include "any person who (for consideration) is responsible for providing any service effectuating transfers of digital assets on behalf of another person." This expanded language would likely include US cryptocurrency asset exchanges and digital wallet providers, thereby requiring them to report certain information related to cryptocurrency transactions. The expanded definition would also potentially cause virtual currency miners and other entities who do not actually facilitate transactions to be implicated in the often burdensome and extensive reporting obligations of brokers.

Beginning with the 2023 tax year (with required reporting to be filed in 2024), the reporting obligations for “brokers” of digital assets would require them to report a taxpayer’s trades and transfers of digital assets on Form 1099-B, including basis and other transfer statements. At its core, this reporting obligation may raise issues simply because the broker may not have all the relevant information, such as a taxpayer’s basis in a digital asset, to accurately report on Form 1099-B.

While this legislation was proposed months ago, the House’s passing of the legislation without any changes was a surprise to many. In fact, at least two senators have already suggested (unironically) that the expansion of the broker rules needs to be revised, indicating that the language was "problematic from the start” and "badly flawed.” Senator Pat Toomey (R-PA) suggested that a clarification be made to the broker definition such that it only applies to exchanges through which consumers buy, sell, and trade digital assets, thereby excluding software developers and other parties who seemingly would be subject to the rule otherwise.

It is unclear whether future legislation will be enacted to specifically limit the potentially expansive definition of “broker" in the digital asset space, or whether the IRS and the Treasury Department will use their regulatory authority to do so.