The Internal Revenue Service (IRS) is set to start enforcing certain aspects of President Joe Biden’s 2021 Infrastructure Investment and Jobs ACT, including the requirement that all digital asset transactions worth more than $10,000 be reported to the tax collector.
The bill, which was passed by both houses of Congress and signed into law by President Biden, included the addition rule 6050I, which requires brokers to report all transactions received from crypto exchanges and custody providers that meet or exceed the $10,000 threshold.
The rule was put in place as part of an effort to reduce the possibility of money laundering, tax evasion, and terrorism financing.
The new reporting requirement, which was initially scheduled to take effect in January 2023, only applies to businesses handling crypto assets and does not impact individuals. U.S. taxpayers have been required to report any digital asset transactions since 2019.
“This law became effective on January 1st and all Americans are now subject to it,” said Jerry Brito, executive director for the crypto advocacy think tank Coincenter. “It is a self-executing law, meaning that there is no requirement for any additional regulatory action or implementation by a government agency for it to be enforced. Once it was passed and signed into law, it was immediately operational and enforceable on its effective date, which in this case was January 1, 2024.”
Numerous lawmakers pushed back against the new requirement at the time the bill passed, saying that the information required from brokers would be difficult or impossible to collect. Some recommended the addition of new legislation to “fix” the reporting requirement, but those efforts have received little attention thus far.
“This is the 6050I law that Coin Center challenged in federal court and our case is in appeals,” Brito tweeted. “Unfortunately for the time being there is an obligation to comply – but it's unclear how one can comply.”
Included in the mandate is the requirement for crypto brokers to collect relevant information, including the sender’s name, address, and social security number, and report the details to the IRS within 15 days from the time of the transaction. Failure to do so could result in a felony charge.
“The existing form for ‘cash’ transactions isn't applicable, and there are many unanswered questions like, What if you receive funds from a block reward or a DEX transaction? Who do you report as the sender?” Brito said.
“The problem is many will find it difficult to comply with what is supposedly a straightforward (if unconstitutional) new obligation,” he added. “For example, if a miner or validator receives block rewards in excess of $10,000, whose name, address, and Social Security number do they report? If you engage in an on-chain decentralized exchange of crypto for crypto and you therefore receive $10,000 in cryptocurrency, who do you report? And by what standard should you measure whether an amount of a particular cryptocurrency is equivalent to more than $10,000? The law is silent on this matter and the IRS has not issued any guidance answering these and other questions.”
How to report the information is also an issue, according to Brito. “Where do you even send your report? The law says that one must make a report ‘in such form as the Secretary [of the Treasury] may prescribe.’ The Secretary requires ‘cash’ to be reported using Form 8300, but has not explained how cryptocurrency, which is now a form of ‘cash’ under the law, should be reported on this form,” he said.
Brito suggested that if the IRS doesn’t issue guidance or an updated form and submission process soon, “People who receive qualifying amounts will find themselves in an odd position and will no doubt try to comply by notifying the IRS in any number of ways just to demonstrate goodwill.”
He gave the example of someone donating $10,000 in crypto to Coin Center, which would put the firm “on the hook for complying and will have to figure out a way to do so.”
“The really tricky nature of this requirement will become clear when someone makes such a donation, but does so anonymously by simply sending us Bitcoin or Ether to our public addresses,” he said. “Who could we possibly list as the sender in that case? These are all questions the Treasury Department has yet to answer.”
Twitter user Crypto Max said he spoke with his lawyer, who told him that “The IRS is expected to issue guidelines or regulations regarding this 2021 amendment, as these are included in the IRS ‘Priority Guidance Plan’ for 2024.”
“Once these regulations are released, it's anticipated that the IRS will update Form 8300 accordingly and provide detailed instructions on how to report cryptocurrency transactions in a manner akin to cash transactions,” he said.
