The IRS has provided relief for some Form 1099 filers. On Dec. 23, 2022, the IRS issued guidance postponing two sets of information reporting rules:
1. the stricter $600 Form 1099-K reporting threshold for third-party settlement organizations (TPSOs) and
2. the new broker reporting requirements for dispositions of digital assets.
Form 1099-K $600 Threshold
A TPSO is an organization providing a third-party payment network that allows purchasers to transfer funds to providers of goods and services. The American Rescue Plan Act of 2021 (ARPA) decreased the reporting threshold for payments by TPSOs. Prior to the ARPA amendments, TPSOs were required to issue a Form 1099-K to a payee if the total dollar amount in transactions exceeded $20,000 and the number of transactions with a participating payee exceeded 200. The changes by ARPA require TPSOs to issue a Form 1099-K to a payee who received $600 in total payments, regardless of the number of transactions, and was set to be effective for the 2022 calendar year.
The IRS has issued a notice effectively delaying the implementation of the $600 threshold for one year, stating that 2022 will be considered a transition year (Notice 2023-10). The new $600 reporting threshold for TPSOs will go into effect for the 2023 calendar year. However, any payers that have collected backup withholding during the 2022 calendar year must file a Form 1099-K. The notice does not make any change to the Form 1099-K reporting requirements applicable to credit and debit card transactions.
Reporting Requirement for Disposition of Digital Assets
The Infrastructure Investment and Jobs Act (IIJA), enacted in 2021, contained a new reporting requirement for digital assets, including cryptocurrencies. The IIJA broadened the definition of securities reportable on Form 1099-B to include digital assets and expanded the definition of a broker to include those who operate trading platforms for digital assets. These changes were set to be effective for the 2023 calendar year.
The IRS has recently received many requests for guidance on the digital asset reporting requirements. Brokers need to understand the requirements in order to update their systems to track customer transactions appropriately. In addition, there is some question as to who is considered a “broker.” The IIJA has been widely criticized for having too broad a definition of the term, an issue Treasury and the IRS plan to address in forthcoming guidance.
The IRS has provided relief in a recent announcement (Announcement 2023-2). Until final regulations are issued, brokers may report gross proceeds and basis and furnish statements on transfers of covered securities as required under the law and regulations in place as of Dec. 23, 2022. Brokers will not be required to furnish additional information with respect to the dispositions of digital assets, issue additional statements or file any returns with the IRS on transfers of digital assets under the provisions enacted in 2021 until the final regulations are issued.
To learn more about developments in the digital asset space, please read our article The ever-changing world of digital asset taxation.
To discuss how the delay in the implementation of the $600 Form 1099-K or digital asset disposition reporting requirements affect your tax situation, please contact your Baker Tilly advisor.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.