August 30 2021

Congressional Research Service Outlines Reporting of Cryptocurrency Transfers

Source: IBFD Tax Research Platform News

The Congressional Research Service (CRS) of the US Library of Congress has issued a report with an overview of current information reporting requirements, as well as policy proposals and consideration, for certain cryptocurrency transfers. The CRS report is entitled "Cryptocurrency Transfers and Data Collection" (IF11910, 25 August 2021).

For US federal tax purposes, taxpayers should treat cryptocurrency transactions in the same manner as transactions involving other mediums of value, such as cash, checks and stocks. Accordingly, cryptocurrency transactions are subject to the capital gains and losses rules of the US Internal Revenue Code (IRC). Similarly, US federal income and employment tax rules apply when a business uses cryptocurrency to compensate an individual for a service provided. Cryptocurrency transactions are also generally subject to the same information reporting requirements as non-cryptocurrency transactions.

The Biden Administration's fiscal year (FY) 2022 Budget proposes:

  • requiring cryptocurrency exchanges and custodians to file information returns with the US Internal Revenue Service (IRS) that report the amount flowing into and out of customer accounts with gross flows above USD 600 with a separate reporting requirement for inter-broker cryptocurrency transfers;
  • requiring businesses that accept cryptocurrency to report crypto transactions exceeding USD 10,000 in value to the IRS; and
  • expanding the information reporting requirements for brokers, including cryptocurrency exchanges and wallet providers, to include information on US and certain foreign account owners to allow for automatic information sharing with foreign tax jurisdictions in exchange for information on US taxpayers transacting in cryptocurrency outside the United States.

The Infrastructure Investment and Jobs Act (H.R. 3684), as passed by the US Senate on 10 August 2021 would, if enacted:

  • require a party facilitating the transfer of cryptocurrency to file an information return as a broker with the IRS; and
  • require a business that receives cryptocurrency worth more than USD 10,000 in a single transaction to report the transaction to the IRS.

The CRS report notes that US policymakers face a trade-off between providing the necessary tools to ensure anti-money laundering (AML) compliance and driving activities out of the US market because cryptocurrency can be used across jurisdictions with relative ease.

Note: The CRS is an agency within the US Library of Congress and serves the US Congress throughout the legislative process by providing legislative research and analysis for an informed national legislature.