Navigating Incoming Changes Taking Effect On January 1, 2024 Under The 2021 Infrastructure And Jobs Act
Does your business meet the new definition of a digital asset broker under Section 80603 of the 2021 Infrastructure and Jobs Act? Under the 2021 Infrastructure Investment and Jobs Act, digital asset transfers in excess of $10,000 will be subject to KYC and IRS reporting requirements. Failure to comply with this law can trigger negative tax consequences and even possible criminal prosecution.
The Act amends the definition of a broker to include any person who for consideration is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person. This new law goes into effect in 2024 and applies to tax returns and statements required to be made after December 31, 2023. Meanwhile, amendments have been proposed to modify this provision of the law and it remains to be seen how this will all unfold. KYC and AML consultant Carlo D’Angelo can help you navigate and understand these complex changes.
Understanding the New Digital Asset Legislation
The Infrastructure and Jobs Act of 2021 imposes strict reporting requirements on digital asset transactions over $10,000. As of January 1, 2024, businesses and individuals who meet the definition of a broker dealing with digital assets will be subject to new IRS regulations and increased reporting requirements. Notably, the definition of a broker now includes any entity effectuating transfers of digital assets on behalf of another person.
Navigating the Anti-Money Laundering (AML) and Know Your Customer (KYC) Requirements
The Bank Secrecy Act (BSA) mandates financial institutions to support government agencies in identifying and preventing money laundering. This extends to the filing of Suspicious Activity Reports (SARs) for potentially suspicious transactions and Currency Transaction Reports (CTRs) for cash transactions over $10,000 in a single business day.
Our consulting services can help your business establish a robust KYC and AML compliance program, ensuring you have a reliable system of internal controls, designated individuals for managing BSA compliance, and adequate personnel training.
Addressing the Challenges of Section 80603
The specific reporting requirements of the Infrastructure and Jobs Act for digital asset transactions can carry severe penalties, including fines up to $3 million or even felony charges. Recipients of digital assets must also report the sender's information to the IRS, or face penalties or criminal charges.
Despite this, there is no definitive guidance from the United States Department of Treasury on how these provisions will be enforced. Our consulting services will help you stay ahead of these changes and ensure your business is prepared for the implementation of this new law.
Working Towards Clearer Digital Asset Legislation
Amid ongoing discussions around the provisions of the Infrastructure and Jobs Act, we closely follow developments like Senator Patrick McHenry's proposal to delay compliance requirements and seek clearer definitions of "broker" and "cash." Our team will keep you updated and guide your compliance strategy based on the latest regulatory interpretations and adjustments.
In December 2022, Senator Patrick McHenry wrote a letter to Treasury Secretary Janet Yellen requesting that the United States Department of Treasury “prioritize rulemaking for Section 80603 of the Infrastructure Investment and Jobs Act (IIJA) and delay any related compliance requirements.”
“We write to request that you prioritize rulemaking for Section 80603 of the Infrastructure Investment and Jobs Act (IIJA) and delay any related compliance requirements. To date, a number of questions and concerns remain unanswered regarding the scope of Section 80603. These questions and concerns must be addressed to ensure taxpayers have clear direction on the forthcoming requirements and the date required for compliance. As we have previously noted, Section 80603 is poorly drafted. As such it could be wrongly interpreted as expanding the definition of a “broker” beyond custodial digital asset intermediaries. It also directs Treasury to incorporate digital assets into the definition of “cash” for tax collection and reporting purposes. The 6050i reporting requirements jeopardize the privacy of Americans, without a comprehensive analysis of the impact of such change. Treasury’s acknowledgement that “ancillary parties who cannot get access to information that is useful to the IRS are not intended to be captured by reporting requirements for brokers” is a positive step. It is also consistent with the policies outlined in H.R. 6006, Keep Innovation in America Act, which I introduced last year. Treasury must provide clarity regarding the full scope of Section 80603 as emphasized in the bipartisan proposal. Given the significance of these issues, Treasury cannot evade the formal rulemaking process by issuing an interpretive final rule or merely issuing guidance. These provisions were the subject of much debate. Any rulemaking or guidance that fails to appropriately interpret these provisions will damage the privacy of American taxpayers and stifle innovation through rising compliance costs and unnecessary regulatory burdens. We urge Treasury to immediately publish the rules directed under Section 80603 and delay the effective date of Section 80603 to allow market participants to conform to any new requirements. Thank you again for your attention to this important matter.”
According to McHenry’s office, Treasury thereafter responded and released “guidance stating that brokers are not required to report the additional information required until final regulations are issued and much needed clarity is provided on section 80603.
Preparing for the Future of Digital Assets
We understand that the changes to the definition of digital asset brokers and the imposition of reporting requirements can pose significant challenges to businesses and individuals. Our goal is to help you understand these complex regulations so you can come into compliance and avoid hefty penalties or criminal prosecution.
If your business deals with digital assets, don't let the impending changes catch you off guard. Contact our expert legal team today and ensure that you're prepared for the challenges of the Infrastructure and Jobs Act.