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[co-author: Benjamin Cantor]*

On February 11, 2022, in a letter addressed to certain U.S. Senators, the U.S. Department of the Treasury indicated that cryptocurrency miners, cryptocurrency stakers or related hardware or software providers would not be considered to be brokers, as defined, for purposes of the information reporting tax rules included in the Infrastructure Investment and Jobs Act (the Act), enacted on November 5, 2021.

The Act amended the definition of broker for tax information reporting purposes to include any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person. The Act defined digital asset as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary. As a result of these changes, a broker of digital assets must file IRS Form 1099-B reporting the name and address of each customer and for a digital asset acquired after January 1, 2023, the customer's adjusted basis in the digital asset and whether gain or loss if any with respect to such digital asset is long-term or short-term, and a failure to file may result in civil penalties.

In its letter, the Treasury stated that certain statements previously made in the U.S. Senate were consistent with the Treasurys view that ancillary parties who cannot get access to information that is useful to the Internal Revenue Service are not intended to be captured by the reporting requirements for brokers. The statements that the Treasury referred to were made by U.S. Senators Rob Portman (R-Ohio) and Mark Warner (D-Virginia) on August 9, 2021, with reference to the proposed draft of the Act (find link here). Specifically, Senators Portman and Warner indicated that the following categories of persons would be excluded from the definition of broker in the legislation: (i) persons solely involved with validating distributed ledger transactions through proof of work (commonly known as miners), (ii) persons solely staking digital assets for the purpose of validating distributed ledgers transactions (commonly known as stakers), or solely involved with validating distributed ledger transactions through other validation methods, now or in the future, associated with other consensus mechanisms that are developed and might come into the market as the technology evolves, and (iii) persons solely engaged in the business of selling hardware or software for which the only function is to permit persons to control private keys which are used for accessing digital assets on a distributed ledger. Senators Portman and Warner reiterated their views in a letter addressed to the Treasury, dated December 14, 2021, which was signed by four other senators (find link here).

In its letter, the Treasury also stated that it will consider the extent to which other parties in the digital asset market, such as centralized exchanges and certain exchanges described as decentralized exchanges and peer-to-peer exchanges, should be treated as brokers in light of the clarification provided by the Act. The Treasury also stated that it intends to propose regulations that reflect its view of the appropriate scope of the definition of broker.

*Law Clerk

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U.S. Treasury Signals that Cryptocurrency Miners & Stakers Will Not Be Subject to Broker Information Reporting Tax Requirements - JD Supra