Do you know what the IRS buried in the 1.2trillion-dollar infrastructure bill that was passed into law on November 15, 2021?  There’s a paragraph that states cryptocurrency exchanges are going require you to give your clients a 1099 beginning in 2023, just like brokerage houses do.  If the cryptocurrency exchange does not have a W9 with your client’s Social Security number, the exchange is mandated to withhold 24% withholding and pay that money over to the IRS.  Last year the IRS dedicated 400 special revenue officers to go after cryptocurrency exchanges and taxpayers who are not reporting their gains on their cryptocurrency transactions.

This year’s Form 1040 asks if your client had a virtual currency transaction during 2021, a clear yes or no question. Why? Because when 2022 rolls around, the IRS is going to use that information to go after your clients if they don’t answer that question correctly. Remember, your client signs their 1040 under Penalties of Perjury.  And the fines and penalties are stiff for cryptocurrency transactions not being reported. The IRS can assess, not only civil penalties, but can go after your clients criminally as well.  Remember that beginning in 2023, when you file 2022 tax returns, your clients need to provide you with the 1099 they received from the cryptocurrency exchange.  And if the exchanges don’t have a W-9 from your client, the exchanges are required to withhold 24% of those proceeds as back-up withholding taxes and pay that over to the IRS.

As cryptocurrency values skyrocketed in 2020 and 2021 more people invested in bitcoin and other digital currencies. With the evolving rules and regulations regarding cryptocurrency, your knowledge is a valuable resource to your clients. Keep following the blog for more insights in the tax industry.