EEI International Tax & Information Reporting Conference Takeaways

EEI International Tax & Information Reporting Conference

On June 6th and 7th, TAINA representatives attended the EEI International Tax & Information Reporting Conference in New York. There were several great panels that provided significant insights into the evolving landscape of tax information reporting with a particular focus on crypto reporting regulations. Some key takeaways of noteworthy topics that interested the audience of tax professionals and experts.

Conference Key Takeaways

• Proposed Crypto Reporting Regulations
• CARF and CRS
• Implementation Challenges for Crypto
• Documentation & Reporting Updates

Proposed Crypto Reporting Regulations

The conference started with a great panel on the Proposed Crypto Reporting Regulations by Beatriz Castaneda (Coinbase), Seth Wilks (IRS), Erin Fennimore (TaxBit) and Tara Ferris (EY).

The panel emphasized the significant effort required from both the industry and regulatory bodies to implement the new reporting standards for digital assets, whilst also highlighting the important aspects of the proposed regulations and effective dates.

Key effective dates include:

• Cost basis reporting for digital asset acquisitions starting January 1, 2023.

• Gross proceeds reporting for sales starting January 1, 2025.

• First reporting of cost basis on January 1, 2026
• Backup withholding of 24% on sales proceeds if documentation is missing or mismatched, starting January 1, 2025

Reporting & Backup Withholding

The panel gave an insightful overview of the proposed rules that require brokers to report transactions involving digital assets, with detailed requirements for components of reporting (Basis, Gross proceeds and Ordering rules) and backup withholding to ensure compliance​.

Components of Reporting:

• Basis: The basis of a digital asset is the cost of acquiring it plus any transaction costs.

• Gross Proceeds: The gross proceeds from the sale or disposal of a digital asset are calculated as Cash received + the FMV of property or services received + the amount of debt associated with the asset - transaction costs​​.

• Ordering Rules: First-In, First-Out (FIFO) and Specific Identification (Spec ID)

Backup Withholding

Starting January 1, 2025, backup withholding will be required if there is no Form W9 or Form W8 at the time of sale, or if there is a Name/TIN mismatch. This includes various types of transactions such as crypto-to-fiat, crypto-to-crypto, and crypto purchases of goods and services​

Draft Form 1099-DA

The panel also discussed the Draft Form 1099-DA, which was released in April 2024. This form will be used to facilitate the reporting of digital assets by brokers. Currently the form is still in draft providing only proposed guidance, however updates will be made to comply with final regulations. The proposed implementation date is Reporting to begin in 2026 for transactions occurring on or after January 1, 2025. Panellist shared concern regarding implementation issues given the Approximate seven-month window with no final regulations yet.

Crypto-Asset Reporting Framework (CARF) and Common Repoting Standard(CRS)

Another great panel on day one focussed on hot topics including updates on CARF and CRS 2.0 by Jenny Turner (UBS), Cyrus Daftary (KPMG), Susan Segar (Deloitte) and Rob Limerick (PWC).The panel provided a comprehensive overview of the Crypto Asset Reporting Framework (CARF) and Amendments to Common Reporting Standard (CRS 2.0).

G20 mandated OECD to develop a framework for reporting crypto assets in 2018. Final proposed “CARF” issued by OECD in June 2023. Still awaiting schema and implementation guidance. Regulatory bodies are expected to provide continuous updates and clarifications as these regulations are implemented.

CARF and CRS Amendments Overlap:

The amendments look to expand the scope of the CRS regulations to include certain digital products like e-money and central bank digital currency wallets in CRS reporting. Crypto assets held by RFIs are now included in balance and income reporting.

• New Reporting Schema: Additional information on account types, holders, and due diligence processes.

• Excluded Accounts and Institutions: Introduction of new categories such as capital accounts and qualified non-profit institutions.
• Due Diligence Enhancements: Emphasis on AML/KYC procedures and measures to ensure collection of self-certifications on account opening.

Implementation Timelines:

The OECD CARF and EU DAC8 Updates are set to take effect in 2027, with reporting requirements for tax year 2026 data. From a technological integration perspective, Entities will need advanced technologies and new software solutions to meet detailed reporting requirements.

The panel also touched on the US challenges when implementing CARF. If the US want to obtain information on US crypto investors who use non-US service providers, the exchange has to be reciprocal.  If not CASPs may be subject to US Digital Asset and CARF reporting.

Implementation Challenges for Crypto

Following on from the previous two Crypto focussed panels, this great panel by Dana Flynn (Coinbase), Jill Dymtrow, (Gemini), Seth Wilks (IRS), Cyrus Daftary (KPMG), Stevie Conlon (Principal at EY) focussed on the implantation challenges around the proposed US and CARF reporting regutions.

The panel began by discussing the need for the digital asset industry to implement comprehensive broker reporting systems and onboarding policies.

Implementation Challenges

Panellists shared concerns around challenges of implementing these new regulations, including internal system builds, validation of withholding certificates, and ensuring proper training and education for both internal teams and clients. The panel believed these challenges could be addressed in the following ways.

• Regulatory Preparedness: Both the IRS and the digital asset industry need to prepare for the upcoming reporting requirements by developing robust systems and processes.
• Educational Efforts: Significant emphasis on educating internal teams (onboarding, customer experience, business, marketing, legal, and tax) and clients (to address resistance, misunderstandings, and privacy concerns) about the new regulations and compliance requirements.
• Technological Adaptation: Importance of leveraging advanced technologies to meet the detailed data and reporting needs.
• Industry Collaboration: Ongoing dialogue between regulatory bodies and industry participants to address implementation challenges and ensure smooth compliance transitions.

Data Challenges

Issues with general enterprise data systems and the need for accurate transaction data were highlighted. Specific challenges include tracking cost basis and managing the volatility of digital assets in relation to withholding and reporting.

Transaction Data:

• Tracking cost basis for assets purchased after January 1, 2023, using FIFO method.
• Challenges with capturing historical tax lot tracking and storing wallet addresses for asset transfers.

 Customer Data:

• Need for detailed information on tax beneficial owners from Form W-9.
• Additional U.S. indicia for offshore exchange entities, such as communication from U.S. IP addresses or asset transfers from U.S. crypto brokers.

Form 1099-DA Data:

• Detailed reporting requirements for digital asset transactions, including handling of fractional shares and time zone considerations.

Forms W-8, W-9 AND 1042-S Developments

Another great panel by Chip Collins (UBS), Danielle Nishida (PWC), and David Weisner (BBH) focussed on the latest regulatory development and form updates.

The panel began by discussing the changes associated with the new Forms W-8, W-9, and Form 1042-S This session provided an overview of the revisions and highlight some operational challenges you must consider. 

Documentation Updates:

Form W-9 Updates:

• A new version of Form W-9 was released in March 2024.
• Updated instructions for completion by disregarded entities for clarity.
• Introduction of a new Line 3b to indicate if a partnership, trust, or estate has a direct or indirect foreign partner, owner, or beneficiary.
• No need to re-document existing Form W-9s, but the new form must be used by October 2024.

Substitute Form W-9:

• K-2/K-3 issuers must update substitute Forms W-9 by October 2024.
• FATCA certifications are mandatory for all Forms W-9.
• Ensure certifications stand apart from the rest of the form with a separate signature.

US TIN Requirement for Partners Earning ECI:

• Clarification that partners in partnerships earning effectively connected income (ECI) must provide their US TIN on Form W-8.
• QIs receiving documentation for Section 1446(a) or (f) must also have US TIN.

Reporting Updates:

Form 1042 Electronic Reporting Requirements:

• TD 9972 requires e-filing if a withholding agent files 10 or more returns of any type during the year.
• Financial institutions and partnerships with over 100 partners are required to e-file regardless of the number of returns.
• Notice 2024-26 provides delays for e-filing requirements for Form 1042 to accommodate difficulties with modernized e-filing.

Form 1099-K Updates:

• Reporting applies to payment settlement entities including merchant acquiring entities and third-party settlement organizations (TPSOs).
• IRS has sent out notices to potential TPSOs with obligations complicated by broad definitions and limited guidance regarding electronic payment facilitators.

1099-K Reporting - De Minimis Thresholds:

• No de minimis threshold for payment card transactions.
• For TPSO transactions, the prior threshold of $20,000 and 200 transactions applies for 2023, with a pending new threshold of $600 for 2024.
• IRS is planning a phased-in de minimis threshold of $5,000 but nothing formal has been issued yet.

In conclusion, the discussion highlighted the importance of adhering to updated documentation and reporting requirements to ensure comprehensive tax compliance.

How Can TAINA Help?

In summary, many items discussed will drive a change in policies and procedures, plus create new documentation requirements. Now more than ever it is important to think of an automated solution in the tax operations space. There are limits to how much we can stretch internal resources.

Let's focus on automating repetitive processes. The TAINA Platform takes care of your Form W-8 and W-9 collection and validation, as well as maintaining FATCA and CRS reporting compliance in a seamless end-to-end process. Attending these types of events ensures TAINA is maintaining an up to date, robust and detailed ruleset meeting our clients' needs. 

We would love to talk to you more about your current documentation validation process and how our award-winning Forms W-8 and W-9, FATCA and CRS self-certification form Validation platform may add value to your organization.

For more information on how our fully automated platform can add value to your business, get in touch or request a demo to see it in action.