U.S. Treasury Department Provides Clarity on Crypto Miners’ and Stakers’ Tax Reporting Obligations

As Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, discussed last year, the 2021 Infrastructure Investment in Jobs Act (IIJA) contains some important – and potentially troubling – provisions for cryptocurrency investors and others in the crypto space. In particular, the IIJA contains multiple new reporting requirements, including a requirement for “brokers” to report their customers’ transactions to the Internal Revenue Service (IRS). However, the legislation leaves “brokers” undefined, and the statute’s operative language is broad enough that this term could potentially encompass miners and stakers, among others.

The U.S. Treasury Department published a letter in February that provides clarity; and, fortunately, this clarity favors miners and stakers.

U.S. Treasury Department: Miners and Stakers are Not “Brokers” Under the 2021 IIJA

The U.S. Treasury Department sent its letter in response to comments from several Senators expressing concern over the potential application of the IIJA’s reporting requirements to individuals and entities that would be unable to comply due to their lack of access to customers’ transaction data. As explained in a recent article on CoinDesk:

“Industry participants pointed out that miners, stakers and other parties don’t typically have access to customer information that exchanges have when they facilitate transactions. [As a result, a]n overly broad definition might be impossible for some entities to comply with. . . .”

Taking this concern into account, the U.S. Treasury Department stated that it presently has no intention of enforcing the IIJA’s broker reporting obligations on parties that have no means of compliance. According to the letter:

“[A]ncillary parties who cannot get access to information that is useful to the IRS are not intended to be captured by the reporting requirements for brokers. For example, persons who are just validating transactions through a consensus mechanism are not likely to know whether a transaction is part of a sale. And persons who are only selling storage devices used to hold private keys or persons who merely write software code are not carrying out broker activities. . . .”

The letter also acknowledges the “significant differences between the securities and digital asset markets in light of the technological characteristics that drive the digital asset space,” and it acknowledges that existing securities broker reporting requirements (which the IIJA’s reporting requirements are intended to mirror) apply only to, “market participants engaged in business activities that provide them with access to information about sales of securities by taxpayers.”

As the U.S. Treasury Department continues its efforts to implement the IIJA’s cryptocurrency reporting requirements, it will be important for investors and others to continue monitoring for updates. Of course, investors must ensure that they are meeting their own cryptocurrency tax reporting and payment obligations as well.

Contact Boston Tax Lawyer Kevin E. Thorn

Do you have questions about your cryptocurrency-related federal tax obligations? If so, Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, can help. To arrange a confidential initial consultation, please call 617-692-2989, email ket@thornlawgroup.com or inquire online today.