Written by Eamonn McElroy, CPA, Atlanta
Published December 2, 2021
The Infrastructure Investment and Jobs Act (“IIJA”) was signed into law by President Biden on November 15, 2021. While the IIJA primarily deals with government investments in infrastructure, there are a couple tax provisions which may affect the average taxpayer and business owner. These are explored in detail below.
New reporting requirements related to virtual currency for brokers
Over the past 7 or so years, the Treasury has been eyeing virtual currency transactions as an ever-increasing potential revenue source with a low compliance rate. Changes in both procedure and law to enforce compliance were inevitable. We saw nascent and not-too-serious efforts to increase compliance first with the 2019 tax year, when a question regarding virtual currency was added to Schedule 1 of the 2019 Form 1040. However – taxpayers who did not have to file a Schedule 1 did not have to answer the question. Realizing this was a serious loophole, the IRS moved the question to the face of the Form 1040 for the 2020 tax year and slightly reworded it.
BUT, those efforts by the IRS were relatively passive and complacent. In strong contrast, the IIJA makes legislative change and rapidly moves forward the enforced compliance of virtual currency transaction taxation. It is perhaps the most serious and broadly sweeping compliance change to date for those who buy, sell and hold virtual currency.
§80603 of the IIJA, which takes effect for returns and reports required to be filed after December 31, 2023 (generally the 2023 tax year), amends §6045 and §6045A of the Internal Revenue Code. It requires any person who, for compensation, is responsible for regularly providing any service effectuating transfers of “digital assets” on behalf of another person to make a return with the IRS that lists transactions occurring during the year and details related to them (e.g. adjusted tax basis, gain or loss, holding period). In plain language, what this means is that brokers and facilitators like Coinbase will be required to file an informational report with the IRS annually that reports certain virtual currency transactions, beginning with the 2023 tax year. The author expects the reports that individuals will receive for virtual currency transactions will largely resemble the IRS Form 1099-B provided each year by brokerage houses to report publicly-traded security gains and losses for taxable brokerage accounts.
A “digital asset” is defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary. Note that both cryptocurrency and nonfungible tokens (“NFTs”) seem to both fit squarely within this definition.
§80603 of the IIJA also amends §6050I of the Internal Revenue Code to include “digital assets” in the definition of cash under that section. What this effectively means is that businesses who receive more than 10,000 USD in cash (which now includes “digital assets” – e.g. cryptocurrency and NFTs) in the course of their trade or business in one transaction or two or more related transactions will have to file an informational report with the IRS. This provision also applies to returns and reports required to be filed after December 31, 2023 and may affect any businesses that accept cryptocurrency or NFTs as payment.
Note: the IIJA did not contain any provision to apply the wash sale rules to virtual currency. However, a similar provision may find its way into future legislation, including the Build Back Better Act.
End of the Employee Retention Credit sooner than expected
The Employee Retention Credit (“ERC”) was previously set to expire for wages paid on or after January 1, 2022. Under §80604 of the IIJA, the ERC has generally expired as of October 1, 2021, with an exemption for “recovery startup businesses”, for which the old expiration date of January 1, 2022 still applies.
A “recovery startup business” is defined as any employer who began carrying on any trade or business after February 15, 2020 and for which the average annual gross receipts do not exceed $1 million.
On the Horizon
The Build Back Better Act (“BBBA”), which has passed the House but not the Senate as of the date this article was published, is currently expected to contain much larger and broader sweeping tax changes. Delays after passing the House would seem to indicate that the current House passed version is unpalatable in the Senate and won’t receive the requisite number of votes if it’s brought to the floor. I currently expect the Senate will pass their own version of the BBBA and there will be a reconciliation process. Everything regarding the BBBA is currently in flux.
Copyright © 2021 Eamonn McElroy CPA, LLC.
Disclaimer: Tax law, regulation and procedure are constantly changing. Eamonn McElroy CPA, LLC has provided this article as general information only and is under no obligation to update the article for future changes, including but not limited to changes in tax law or procedure. The information contained in the article is not tax, investment or legal advice, nor should it be construed as tax, investment or legal advice. You should consult with your advisors to determine how the information in this article affects you and what actions you may take and should take.