Questions remain about how to interpret and enact new rules requiring large cryptocurrency payments to be reported to the IRS along with the sender’s personal data.
According to Coin Center’s interpretation of the proposed amendments to the U.S. Internal Revenue Code, U.S. cryptocurrency users engaged in trade or business will now be required to report all cryptocurrency transactions over $10,000 to the Internal Revenue Service.
Coin Center Executive Director Jerry Brito pointed out the amendments that went into effect on January 1 in a post on Tuesday. Amendments introduced in the Infrastructure Investment and Jobs Act of 2021 would apply the same reporting to digital asset transactions. It is defined as a cash transaction.
This means anyone who receives more than $10,000 in cryptocurrency in one or more related transactions must report it to the IRS within 15 days or face felony charges, Brito wrote on the Coin Center blog. The report must include the name, address and Social Security number of the person receiving the funds, the amount received, and the date and nature of the transaction.
At the same time, the question of when the new norms will come into effect is also open. For example, Shehan Chandrasekra, head of tax strategy at CoinTracker, argues that people who use cryptocurrencies “as a hobby”: In a place out of reach of new rules.
“The majority of the average cryptocurrency investor in the United States does not have a ‘trade or business’ for tax purposes,” Chandrasekra told The Block. “In order for an investor to become a trade or business (aka obtain trader status), they must make a tax election with the IRS called Section 475. This currently only applies to high-frequency stock traders. So, under current taxes, a cryptocurrency investor must make a tax election (aka obtain trader status). Even if you do), you technically cannot have a ‘trade or business’,” he added.
The IRS did not respond to The Block’s request for comment by press time.
Court Challenge
In 2022, Coin Center challenged the amendment in court, saying it would allow the government to destroy the privacy of blockchain transactions and track how individuals and businesses spend their cryptocurrency.
In July 2023, a Kentucky district judge granted the U.S. Treasury’s motion to dismiss the complaint, saying “the government’s likelihood of doing so is not sufficient to warrant judicial review while weighing its judgment of maturity.” The case is currently in the appeals court.
Without a court ruling, the law is currently in effect, Brito wrote. “This bill is a self-enforcing law, meaning no government agency needs to require any additional regulatory action or enforcement to enforce it,” he said.
legal uncertainty
Aside from the obvious privacy implications, the new rules bring additional legal uncertainty because the IRS has not yet issued specific guidance on this issue, Brito added. Cryptocurrency transactions sometimes do not have a separate sender with a name and social security number.
“For example, if a miner or validator receives a block reward exceeding $10,000, whose name, address and social security number do you report? If you participate in an on-chain decentralized cryptocurrency exchange for cryptocurrency and receive $10,000 “Cryptocurrency, who should I report it to?” Brito wrote.
It’s also not clear to whom the transactions should be reported, because cash transactions are typically reported using Form 8300, which is sent to FinCEN and the IRS. However, Brito added, “Unlike real money transactions, FinCen does not have the authority to collect reports on cryptocurrency transactions, nor does it provide guidance on how to estimate the fiat value of a cryptocurrency.”
“The law is silent on this issue, and the IRS has not issued guidance answering these and other questions,” Brito wrote.
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