- The Infrastructure Bill, signed in 2021, pledged significant changes in cryptocurrency regulations
- A crucial alteration to the definition of a broker, affecting users, wallet makers, and exchanges, was postponed until 2024
- The impending definition change in the New Year holds importance for cryptocurrency users, necessitating awareness of forthcoming implications.
When the Infrastructure Bill was signed into law in 2021, it promised major changes in the way that cryptocurrencies were handled. One of the changes that was delayed until 2024 was the definition of a broker and the knock-on effect for cryptocurrency users, wallet makers, exchange operators, and more. This definition change will take place in the New Year, and it’s important to know what is in line for crypto users.
What is a Broker?
Under Section 8062 of the Infrastructure Bill, the definition of a broker is expanded to encompass “any person who, for compensation, facilitates transfers of digital assets on behalf of another.” This broadened language will encompass US cryptocurrency asset exchanges and digital wallet providers, as well as developers of decentralized finance software, miners, nodes, transaction validators, currency miners, validators, and developers.
“Digital asset” is defined as “any digital representation of value recorded on a cryptographically secured distributed ledger or a similar technology.”
The bill mandates that a broker will have to report any digital asset transfer moved to the account of an unknown person or address, which will put tremendous emphasis on a broker’s Know Your Customer (KYC) and tax information reporting systems. Consequently, non-broker entities may find themselves obligated to register with the Securities and Exchange Commission (SEC), facing the potential imposition of the intricate and onerous reporting obligations typically associated with brokers.
IRS Reporting Requirements Expanded
Before the passage of the Act, Section 6050I of the Code mandated that businesses receiving over $10,000 in cash or similar untraceable instruments file a Form 8300 with the IRS. This form included details such as names, addresses, and taxpayer identification numbers of both the payer and the recipient. However, this rule did not apply to financial institution transactions or traceable electronic transactions.
The Infrastructure Bill alters Section 6050I by expanding the definition of “cash” to include digital assets. This means that, starting in 2024, individuals or businesses receiving over $10,000 worth of digital assets in the course of their trade or business must file Form 8300 reports. Failure to comply can lead to civil penalties, with intentional disregard of filing requirements carrying higher penalties.
Wilful violation is a federal felony, punishable by up to 5 years imprisonment for individuals and fines of up to $100,000 for corporations.
With these changes coming into effect, it’s important that you have a full grasp of your requirements when it comes to digital asset handling to avoid a nasty surprise in the New Year.
