There are still concerns about the interpretation and implementation of a new law that mandates that large cryptocurrency payments and the senders’ personal information be reported to the IRS.
According to Coin Center’s interpretation of a change to the U.S. Internal Revenue Code, cryptocurrency users in the United States who are involved in trade or commerce are now required to disclose any cryptocurrency transactions of $10,000 or more to the Internal Revenue Service.
Coin Center’s Executive Director Jerry Brito mentioned the January 1st amendment in a post on X on Tuesday. The 2021 Infrastructure Investment and Jobs Act contains an amendment that subjects transactions involving digital assets to the same reporting requirements as those pertaining to cash transactions.
According to Brito, who posted on the Coin Center blog, this means that anyone who obtained cryptocurrency worth $10,000 or more in one or more related transactions has to report it to the IRS within 15 days, failing which they may be charged with a felony. The report needs to include the amount received, the date and type of the transaction, the name, address, and social security number of the person from whom the money were obtained.
In addition, it is unclear exactly when the new rule will take effect. For example, according to Shehan Chandrasekra, Head of Tax Strategy at CoinTracker, those who engage in cryptocurrency as a “hobby” are exempt from the new law.
Most American casual cryptocurrency investors don’t have a ‘trade or for tax purposes, the business’,” Chandrasekra said to The Block. “Investors must file a tax election under IRS section 475 in order to establish a trade or business, sometimes known as obtaining trader status. For now, this is limited to traders who trade stocks frequently. Thus, he continued, “a crypto investor cannot technically have a ‘trade or business’ under the current tax code, even if they wish to be a trade or business.”
When The Block asked the IRS for a response, the agency did not reply by the deadline.
Coin Center filed a legal challenge against the proposal in 2022, claiming that it would give the government access to disrupt blockchain transaction privacy and track how people and companies use cryptocurrency.
The U.S. Treasury moved to have the case dismissed, and the Kentucky district judge granted it in July 2023, stating that “the probability of the Government doing so is not substantial enough to warrant judicial review, weighing against a finding of ripeness.” The court of appeals is now handling the matter.
The statute is now in effect because there is no court verdict, according to Brito. “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,” he said.
Uncertainty in law
The IRS hasn’t released any explicit guidance on the subject, so in addition to the apparent privacy problems, the new rules also provide more legal uncertainty, according to Brito. There are instances when a cryptocurrency transaction even lacks an identifiable sender with a name and social security number.
When a miner or validator gets more over $10,000 in block rewards, for instance, to whom do they submit the name, address, and Social Security number? Who do you report if you participate in an on-chain decentralized bitcoin trade and earn $10,000 in cryptocurrency as a result? Brito composed.