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Key takeaways
- The infrastructure bill does not raise taxes for the average crypto investor.
- The bill mandates stronger reporting requirements for cryptocurrency — which may lead to issues if you’ve transferred cryptocurrency between wallets/exchanges.
- Starting in the 2025 tax year, exchanges will send 1099 forms to customers detailing all capital gains and losses.
America is looking to tax cryptocurrency more strictly than ever.
The Build Back Better Act — also known as the 2021 infrastructure bill — contains a provision that seeks to raise $28 billion dollars through tighter enforcement of cryptocurrency tax law.
In this guide, we’ll break down how this bill impacts crypto investors like you (and why the world’s biggest cryptocurrency companies protested against the bill).
What’s changing with cryptocurrency tax law?
Because of the infrastructure bill, centralized and decentralized cryptocurrency brokers like Coinbase will be required to report all crypto transactions to the IRS via Form 1099-DA starting in the 2025 tax year.
In addition, virtual currencies will be included in Section 6050I. As a result, people conducting a trade or business and are recipients of crypto transactions greater than $10,000 will be required to report the sender’s personal information, including name, address, and Social Security number.
The infrastructure bill does not increase crypto tax rates. However, it’s possible that reporting requirements will cause issues for investors who’ve transferred crypto into or out of an exchange (more on this later).
How does the crypto infrastructure bill change the way I report cryptocurrency taxes?
The infrastructure bill does not change the way that investors report their taxes. The bill only changes how exchanges like Coinbase report taxable income.
It’s important to remember that the IRS released its first guidance on cryptocurrency taxes as early as 2014. For years, the government has been clear that cryptocurrency is subject to income and capital gains tax.
Once the infrastructure bill goes into effect, centralized exchanges will be required to send 1099 forms that detail gains and losses from cryptocurrency disposals to customers and the IRS.
Of course, the IRS has been taking steps to fight crypto tax evasion for years. The government has issued John Doe Summons to exchanges like Coinbase and Kraken to hand over customer information. In addition, the IRS works with contractors like Chainalysis to identify tax fraud on public blockchains like Bitcoin and Ethereum.
Why are crypto companies opposing this policy change?
Some of the biggest companies in the cryptocurrency space — such as Coinbase and Kraken — came out in opposition to the infrastructure bill. While most crypto companies are in favor of some form of regulation, the general consensus is that the bill presents more problems than solutions.
One concern is that the bill’s definition of ‘broker’ is far too broad — which may force future cryptocurrency innovation overseas. According to guidance from the Treasury Department, ‘brokers’ include decentralized exchanges and certain wallet providers.
This is problematic as these market participants (as well as others within the DeFi space) do not have the ability to report customer information via 1099’s to the government, yet this law could potentially require them to. This could force businesses and future cryptocurrency innovation overseas.
To comply with the infrastructure bill’s rules, decentralized exchanges may be required to collect user info — including name and Social Security Number. Many users may not trust up-and-coming decentralized exchanges with their personal information — which may hurt innovation in the space.
How are 1099 reporting requirements changing?
1099 information reporting has existed within the traditional finance space for a long time, and all 1099 reporting serves the same purpose: to report non-employment related income—i.e. income earned outside of a W2 such as capital gains from equities or stock trading.
Given that cryptocurrencies and stocks are treated very similarly from a tax perspective, it makes sense why governments want to implement similar 1099 information reporting within the cryptocurrency ecosystem.
What’s the problem with the new 1099-DA requirements?
It’s important to note that cryptocurrency has key technological differences from traditional finance that could present problems within the 1099 reporting regime.
Cryptocurrency is designed to be transferable, peer-to-peer, and operate without the need for a third-party. Transfers into and out of centralized exchanges like Coinbase and decentralized platforms like software wallets happen regularly.
This makes it difficult for cryptocurrency exchanges to provide information on cost basis within a 1099-DA—which is needed for proper reporting. Consider the following scenario:
In this scenario, Exchange B does have records for the original cost basis of David’s cryptocurrency. As a result, Exchange B will likely report his proceeds as $15,000, with no record of his capital gain.
If David hasn’t kept records of his cryptocurrency purchases, he’ll be required to recognize the entire $15,000 in proceeds as a capital gain.
Quickly you can see the problem that even centralized entities face when it comes to reporting gains, losses, and income on a 1099-DA due to the transferable and open nature of cryptocurrencies.
Yes, centralized entities like Coinbase and Gemini could share cost basis information with one another, but what if the transfer actually came from a cold wallet? Or a mining pool? Or anywhere else that isn't 3rd-party owned?
Since centralized entities only account for a small portion of crypto transactions, it’s clear that this regulation could do serious damage to the ecosystem.
How will the crypto infrastructure bill impact brokers?
As a result of the infrastructure bill, cryptocurrency brokers will be required to collect information from customers and issue 1099 forms to customers and the IRS.
According to guidance from the Treasury Department, it’s likely that centralized and decentralized exchanges, certain wallet providers, and crypto payment processors may be considered ‘brokers’. As a result, decentralized exchanges like Uniswap may be required to introduce Know Your Customer procedures in the near future to continue operating in the United States.
What about Section 6050I?
The infrastructure bill also expands Section 6050I so that any person or entity who receives more than $10,000 in virtual assets must file a report with the IRS with the sender’s personal information.
It’s likely that expanding Section 6050I to cryptocurrency will cause issues for crypto investors who wish to make large peer-to-peer transactions.
Section 6050I was initially created to discourage large, in-person cash transactions. It’s likely that applying this regulation to cryptocurrency will heavily discourage peer-to-peer swaps, as it requires participants to give away sensitive information.
Consider the following scenario.
In this case, Ryan would need to take Faith’s name, address, and Social Security number. It’s likely that Ryan would not feel comfortable taking this information, nor would Faith want to give it away freely.
However, once the new infrastructure bill goes into effect, it’s possible that Ryan would be guilty of a felony if he doesn’t collect and report Faith’s information.
When will this bill take effect?
Originally, the crypto provisions of the infrastructure bill were set to go into effect in the 2023 tax year. However, mandatory 1099 reporting will now take effect in the 2025 tax year.
It’s important to note that even though implementation of crypto reporting regulations for exchanges has been delayed, investors are in the meantime still required to report cryptocurrency capital gains, losses, and income to the IRS.
What does the crypto infrastructure bill mean for the future?
As noted earlier, the infrastructure bill does not increase tax rates on cryptocurrency. However, the Biden Administration has made numerous attempts to introduce taxes to the crypto ecosystem — including a proposed 30% tax on cryptocurrency mining that ultimately did not pass into law.
Ultimately, this infrastructure bill highlights the government’s focus on collecting more tax revenue from the crypto ecosystem. As a result, it’s important for investors to accurately report their taxes to avoid future trouble with the IRS.
We know that navigating the tax code can feel stressful. Crypto tax software like CoinLedger can help. CoinLedger integrates with exchanges like Coinbase, Kraken, and Binance, to allow investors to report their taxes in a matter of minutes.
Get started with a free preview report today. No credit card is required to sign up and test out the platform!
Frequently asked questions
- Is crypto in the infrastructure bill?
- What does the infrastructure bill mean for crypto?
- Do you have to report cryptocurrency gains?
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How we reviewed this article
All CoinLedger articles go through a rigorous review process before publication. Learn more about the CoinLedger Editorial Process.
CoinLedger has strict sourcing guidelines for our content. Our content is based on direct interviews with tax experts, guidance from tax agencies, and articles from reputable news outlets.
H.R.3684 - Infrastructure Investment and Jobs Act (2021) https://www.congress.gov/bill/117th-congress/house-bill/3684/text
Transitional guidance under sections 6045 and 6045A with respect to the reporting of information on digital assets by brokers. (2022) https://www.irs.gov/pub/irs-drop/a-23-02.pdf
US: Senate-passed infrastructure bill would impose information-reporting requirements on sales of cryptocurrency and other digital assets (2021) https://www.ey.com/en_gl/tax-alerts/us--senate-passed-infrastructure-bill-would-impose-information-reporting-requirements-on-sales-of-cryptocurrency-and-other-digital-assets
