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Broker Check

The Infrastructure Investment and Jobs Act of 2021

The Infrastructure Investment and Jobs Act of 2021 (IIJA) was signed into law on Nov. 15, 2021. The IIJA includes IRS information reporting requirements that will require cryptocurrency exchanges to perform intermediary Form 1099 reporting for cryptocurrency transactions. Generally, these rules will apply to digital asset transactions starting in 2023.

Existing reporting rules. As you probably know, if you have a stock brokerage account, then whenever you sell stock or other securities you receive a Form 1099-B at the end of the year. Your broker uses that form to report details of transactions such as sale proceeds, relevant dates, your tax basis for the sale, and the character of gains or losses. Furthermore, if you transfer stock from one broker to another broker, then the old broker is required to furnish a statement with relevant information, such as tax basis, to the new broker.

Digital asset broker reporting. The IIJA expands the definition of brokers who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets on behalf of another person ("Crypto Exchanges"). Thus, any platform on which you can buy and sell cryptocurrency will be required to report digital asset transactions to you and the IRS at the end of each year.

Transfer reporting. Sometimes you may have a transfer transaction that is not a sale or exchange. For example, if you transfer cryptocurrency from your wallet at one Crypto Exchange to your wallet at another Crypto Exchange, the transaction is not a sale or exchange. For that type of transfer, as with stock, the old Crypto Exchange will be required to furnish relevant digital asset information to the new Crypto Exchange. Additionally, if the transfer is to an account maintained by a party that is not a Crypto Exchange (or broker), the IIJA requires the old Crypto Exchange to file a return with the IRS. It is anticipated that such return will include generally the same information that is furnished in a broker-to-broker transfer.

Digital assets. For the reporting requirements, a "digital asset" is any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology. Furthermore, the IRS can modify this definition. As it stands, the definition will capture most cryptocurrencies as well as potentially include some non-fungible tokens (NFTs) that are using blockchain technology for one-of-a-kind assets like digital artwork.

Cash transaction reporting. You may be aware that when a business receives $10,000 or more in cash in a transaction, that business is required to report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300. The IIJA will require businesses to treat digital assets like cash for purposes of this reporting requirement.

When reporting begins. These digital asset reporting rules will apply to information reporting that is due after December 31, 2023. For Form 1099-B reporting, this means that applicable transactions occurring after January 1, 2023 will be reported. Whether the IRS will refine the Form 1099-B for digital asset nuances, or come up with an entirely new form, is yet to be seen. Form 8300 reporting of cash transactions will presumably follow the same effective dates.

Closing. Some parting thoughts to keep in mind: First, if you use a Crypto Exchange, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so. Second, the transactions subject to the reporting will include not only selling cryptocurrencies for fiat currencies (like U.S. dollars), but also exchanging cryptocurrencies for other cryptocurrencies. Third, a reporting intermediary does not always have perfect information, especially when it comes to an entirely new type of reporting. Thus, the first information reporting cycle for digital assets may be a bit bumpy. Remember that I am here to help you and can provide solutions for any challenges that may develop.

For Businesses:

The Infrastructure Investment and Jobs Act (IIAJ) (signed by President Biden on November 15, 2021), retroactively ended the Employer Retention Tax Credit (ERTC) to apply only through September 30, 2021 (rather than through December 31, 2021), unless the employer is a recovery startup business. As a result of retroactive termination of the ERTC, we may need to review your payroll tax compliance (including tax deposits) to make sure that it conforms with these changes.

Background. Congress originally enacted the ERTC in the Coronavirus Aid, Relief and Economic Security (CARES) Act in March of 2020 to encourage employers to retain employees during the pandemic. Congress later extended and modified the ERTC to apply to wages paid before January 1, 2022.

Eligible employers could claim the refundable ERTC against the employer's share of Medicare (1.45% rate) taxes equal to 70% of the qualified wages paid to each employee (up to a limit of $10,000 of qualified wages per employee per calendar quarter) in the third and fourth calendar quarters of 2021.

For the third and fourth quarters of 2021, a recovery startup business is an employer eligible to claim the ERTC. Under pre-IIAJ law, a recovery startup business was defined as a business that

  1. Began operating after February 15, 2020,
  2. Had average annual gross receipts of less than $1 million and
  3. Didn't meet the eligibility requirement, applicable to other employers, of having experienced a significant decline in gross receipts or having been subject to a full or partial suspension under a government order.

However, recovery startup businesses are subject to a maximum total credit of $50,000 per quarter for a maximum credit of $100,000 for 2021.

IIAJ retroactive termination. The ERTC was retroactively terminated by the IIAJ to apply only to wages paid before October 1, 2021 unless the employer is a recovery start up business. Thus, for wages paid in the fourth calendar quarter of 2021,

  1. The credit applies only to recovery startup businesses and
  2. Other employers cannot claim the credit.

In connection with the continued availability of the ERTC for recovery startup businesses in the fourth quarter of 2021, the IIAJ also modified the definition of a recovery startup business so that a recovery startup business is one that

  1. Began operating after February 15, 2020, and
  2. Has average annual gross receipts of less than $1 million.

 

The pre-IIAJ prerequisite that a recovery startup business must not have otherwise met the requirements for an eligible employer qualifying for the ERTC, i.e., having experienced a significant decline in gross receipts or having been subject to a full or partial suspension under a government order, no longer applies. Thus, because of the modified definition, an employer that was not a recovery startup business in the third quarter of 2021 might qualify as a recovery startup business in the fourth quarter of 2021 and be able to claim the ERTC for the fourth quarter of 2021.

If you retained payroll taxes in anticipation of receiving the ERTC based on post-September 30, 2021 payroll taxes, we need to review your situation and determine how and when to repay those taxes and address any other compliance issues. We anticipate IRS will issue guidance to assist employers in handling any compliance issues.


Temporary 100% deduction. The Taxpayer Certainty and Disaster Relief Act of 2020 (TCDRA; PL 116-260) provides a temporary exception to the 50% limit on the amount that businesses can deduct for food and/or beverages. For expenses paid or incurred in 2021 and 2022, this temporary exception allows businesses a 100% deduction for food and/or beverages provided by restaurants (2021-2022 deduction).

In April 2021, the IRS issued Notice 2021-25, 2021-17 IRB 1118, which provided the definition of "restaurant." For purposes of the 2021-2022 deduction, "restaurant" means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business's premises. However, a restaurant doesn't include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store, specialty food store, beer, wine, or liquor store, drug store, convenience store, newsstand, or a vending machine or kiosk.