The cryptocurrency industry may be breathing a sigh of relief following the release of recent IRS guidance on cryptocurrency tax reporting, which effectively postpones the January 1, 2023 effective date of the digital asset broker rules and reporting obligations enacted by the 2021 Infrastructure Investment and Jobs Act (the “Act”) under Sections 6045 and 6045A. See Announcement 2023-2 (the “Announcement”) linked here. While this effective delay may be good news for cryptocurrency market participants potentially subject to these reporting rules, retail cryptocurrency investors may not receive IRS Form 1099-Bs covering their cryptocurrency investments this tax season and so may need to continue to make do with the improvised system that the cryptocurrency industry has implemented in past years.
Prior to the Act, cryptocurrency market participants struggled with how the tax reporting rules of Sections 6045 and 6045A applied to cryptocurrency, as these rules were not drafted with cryptocurrency in mind. Thus, the cryptocurrency industry has been left to its own devices to answer such basic questions as (1) who must report (e.g., exchanges, miners, stakers, and others), (2) what must be reported (e.g., gross proceeds, tax basis, and other information), and (3) to whom must the reports be provided (e.g., IRS, customers, and others). With the delay of reporting rules, cryptocurrency tax reporting remains muddled, and the reporting itself will be a crazy quilt of ad hoc interpretations of existing law.
As amended by the Act, Sections 6045 and 6045A impose mandatory tax reporting requirements for brokers of certain digital asset transactions entered into after December 31, 2022. Section 6045 requires brokers to report on IRS Form 1099-B certain information about taxpayers, including names and addresses, as well as certain information about the property underlying the transaction, including the sale date and gross proceeds of a sale (and for so-called covered…
