The Infrastructure Investment and Jobs Act (HR 3684) has put crypto in the crosshairs, where Congress and the Internal Revenue Service (IRS) hope to collect huge taxes. This reporting regime is expected to bring in $ 28 billion over the next ten years. Nothing else in this massive, recently enacted federal law is supposed to produce tax dollars that are even close. If you don’t think that means the IRS is coming for your crypto in a very big way and Congress is working to facilitate it, think again.
The crypto community was outraged when the measure was first proposed and tried to push back harshly. This effort resulted in some shrinking, but the provisions were passed anyway. Some people are still talking about a repeal effort, but it could prove to be a tough sell when there is $ 28 billion at stake that the Biden administration may need. As promulgated, Form 1099 and other reporting rules do not take effect until December 31, 2023. Even so, since Form 1099 reports are made in January for the previous year. This means that 2023 will be an important fiscal year.
And with 2022 just around the corner and 2021 tax returns due soon after, now is a good time to get your tax affairs in order. The key new questions are whether you are a broker and who is. And how will these onerous and drastic reporting rules be enforced? With potential civil and even criminal penalties, you can bet that most exchanges, and others that might be in doubt as to whether they are brokers subject to the new law, can resolve any doubts in favor of reporting. . Surprisingly, what exactly constitutes being engaged in a trade or business can also be open questions.
Related: The main cryptocurrency tax myths debunked
The IRS still says a lot of people don’t report their crypto, but more reporting inevitably means a lot more compliance, worth $ 28 billion. The definition of broker under Article 6045 of the Tax Code now includes:
“Anyone who (for a fee) is responsible for regularly providing any service that transfers digital assets on behalf of another person. “
Digital assets are defined as “any digital representation of value that is recorded on a cryptographically secure distributed ledger or similar technology as specified by the secretary [of the Treasury]”. Digital assets are now specified securities that are subject to reporting on IRS Form 1099-B. This is the same form that brokers use to report sales of stocks if you are selling Amazon stocks or other stocks.
The new law gives the Treasury Department and the IRS the ability to draft regulations on these new rules. There are broker-to-broker rules and others.
Over $ 10,000 in crypto reports
The broker who reports on Form 1099-B pales in comparison to the new cash report form requirements with their staggering criminal liability. In 2014, the IRS announced that it would treat crypto like property, not money. The impact of this rule on your taxes is enormous. This is the reason why just about every successive transfer or exchange of crypto (even for other crypto) triggers more taxes. Yet ironically, Congress and the IRS are now taking a page out of treasury reports.
For decades, transactions over $ 10,000 in cash have required any business to file an IRS Form 8300 within 15 days, to report the cash transaction to the IRS. Buy a car with more than $ 10,000 in cash and the car dealership should report it to you. If you go to the bank and take out your own $ 10,001 in cash, the bank is required to report you to the IRS. Pay a consultant with over $ 10,000 in cash and your consultant should report you to the IRS.
Related:No more IRS crypto reports, no more danger
If you make successive smaller withdrawals or payments to avoid the cash report, it “structures” your transactions to evade the rules, and is in itself a federal criminal offense. Many people have been caught by this rule, trying to cover up embarrassing but legal payments, and have unwittingly committed a felony, been convicted of a felony, fined and then jailed for up to five years. Whether it’s for structuring or ignoring the rules, you don’t want to go wrong with these cash reporting rules.
The bank, merchant or person in business must provide the person’s full name, date of birth, address, social security number and occupation. And now Congress and the IRS also require this form for crypto. As amended, the new law redefines “cash” to include “any digital representation of value” involving distributed ledger technology, such as blockchain. In an anonymous system, will this work?
As of January 1, 2024, a crypto transaction can trigger a Form 8300 filing when a “person” (including an individual, business, corporation, partnership, association, trust, or estate) receives assets. digital in connection with a trade or business with a value greater than $ 10,000. Valuation is done on the day of receipt, and as with anything crypto-related, valuation matters a lot. Again, structuring transactions into smaller receipts to avoid reporting them is a crime. And since receipts must be aggregated if they are tied to a series of connected transactions, virtually any receipt of digital assets is potentially reportable, regardless of its dollar value.
Of course, the IRS ‘interest in crypto is nothing new. Everyone is already required to report crypto gains to the IRS. There is even a “do you crypto” question on every IRS Form 1040 or personal income tax return now. This is often compared to the “do you have an overseas bank account” question that appears in Schedule B, and which has led to numerous criminal convictions for the IRS and heavy civil penalties.
The new requirements are considerable. And while there is a grace period until December 31, 2023, many changes will be needed to make them appropriate and enforceable. The new law requires that a recipient of more than $ 10,000 in crypto who is in business must collect, verify and report a sender’s personally identifiable information within 15 days. If you don’t, you risk fines and even criminal liability.
Saying that you are an investor and that you are not in business may sound appealing if you have a strong case for it. However, there is a huge body of tax law on this subject, with discernible standards, and the stakes are high. Will all of this be easy in what is often an anonymous peer-to-peer system? Probably not, but there will likely be some fears about the new rules and some degree of ranking to be sure rather than sorry.
This article is for general information purposes and is not intended to be and should not be construed as legal advice.
The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Robert W. Wood is a tax lawyer representing clients worldwide from Wood LLP’s San Francisco office, where he is a Managing Partner. He is the author of numerous tax books and writes frequently on taxes for Forbes, Tax Notes and other publications.