On Monday November 15, 2021 President Biden signed the bipartisan Infrastructure Investment and Jobs Act (the “Act”). The Act contains two tax provisions of note.
The one that may require immediate action by some taxpayers is the retroactive repeal of the Employee Retention Tax Credit as of September 30, 2021. This credit, enacted by the CARES Act in March 2020, provided for refundable payroll tax credits to eligible employers to assist with maintaining payroll during the pandemic. The American Rescue Plan extended the credit to wages paid through December 31, 2021.
The repeal does not apply to employers classified as Recovery Start Up Businesses which are defined as businesses that began carrying on a trade or business on or after February 16, 2020 and had average annual gross receipts for the three prior taxable years of $1,000,000 or less.
For employers that anticipated qualifying for the credit for the fourth quarter of 2021 and reduced payroll tax deposits accordingly, adjustments to such deposits need to immediately be addressed to avoid potential penalties for underpayment of payroll taxes.
While both the Internal Revenue Service and Congress have been pressed to provide relief from such penalties, the Act as written does not provide for such relief.
In an effort to capture information related to cryptocurrency trading, the Act extends information reporting rules that currently apply to securities brokers to those that provide such services to the trading of digital assets. The Act provides that the definition of broker includes "any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.'' and that a digital asset is a specified security. Brokers will now be subject to new reporting requirements for purchases, sales, transfers and transactions involving cryptocurrency.
In addition, there are new reporting requirements for transfers of a digital asset from a broker to an account which is not maintained by a person that the broker knows or has reason to know is a broker. Furthermore, a digital asset is treated as cash for the $10,000 reporting purposes.
The effective date for the treatment of a digital asset as a specified security is for digital assets acquired on or after January 1, 2023 and the reporting requirements are effective for returns required to be filed after December 31. 2023.
Please reach out to your Citrin Cooperman advisors if you have questions.