The Infrastructure Investment and Jobs Act (HR 3684) put crypto in the crosshairs, where Congress and the Internal Revenue Service (IRS) are hoping for massive taxpayers’ money. This reporting system is expected to raise a staggering $ 28 billion over the next decade. No other provision in this massive, recently enacted federal law is intended to generate taxpayers’ money even remotely as high. If you think this doesn’t mean that the IRS is asking for your crypto on a massive scale and Congress is going out of their way to make this easier, think again.
the The crypto community was outraged when the measure was first proposed and tried hard to roll back. These efforts resulted in some narrowing, but the regulations were enacted anyway. Some people still talk of repeal efforts, but that could prove to be a hard sell with $ 28 billion at stake that the Biden government could possibly need. Form 1099 and other reporting rules, as amended, will not take effect until December 31, 2023. Even so, the reports according to Form 1099 are generated in January for the previous year. That means 2023 will be a big tax year.
And with 2022 just around the corner and your 2021 tax return due soon, it’s a good time to get your tax affairs in order. Important new questions are whether you are a broker and who. And how are these far-reaching, burdensome reporting requirements applied? With potential civil and even criminal penalties, you can bet that most exchanges and others who have doubts as to whether they are brokers subject to the new law will remove any doubts in favor of reporting. Surprisingly, the question of what exactly constitutes an activity in a trade or business can also remain open.
The IRS still says a lot of people don’t report their crypto, but more reporting inevitably means a lot more $ 28 billion worth of compliance. The definition of a broker according to § 6045 of the Tax Code now includes:
“Any person responsible (for a fee) for regularly providing services that effect transfers of digital assets on behalf of another person.”
Digital assets are defined as “any digital representation of value recorded in a cryptographically secured distributed ledger or similar technology as determined by the secretary” [of the Treasury]”. Digital assets are now specified securities that must be reported on the IRS Form 1099-B. This is the same form that brokers use to report stock sales when selling Amazon or other stocks.
The new law gives the Treasury Department and the IRS the ability to regulate these new rules. There are broker-to-broker rules and others.
Over $ 10,000 crypto coverage
The Broker Report on Form 1099-B pales in comparison to the new cash-like report form requirements with their appalling criminal liability. In 2014, the IRS announced it would treat crypto as property, not money. The repercussions of this rule on your taxes are enormous. That is the reason why almost every subsequent transfer or trade of crypto (also for other crypto) triggers more taxes. Yet, ironically, Congress and the IRS are now taking a page off of the box office reporting.
For decades, transactions in excess of $ 10,000 in cash have resulted in any business filing 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 dealership will report you. If you go to the bank and withdraw your own $ 10,000 in cash, the bank must report you to the IRS. Pay an advisor with more than $ 10,000 in cash and your advisor must report you to the IRS.
Relative:More IRS crypto coverage, more risk
If you make successive smaller withdrawals or payments to avoid the checkout, it means you are “structuring” your transactions to circumvent the rules, and this in itself is a federal criminal offense. Many people have been caught by this rule trying to cover up some embarrassing but legal payments and have unwittingly committed a crime, have been convicted of a crime, fined, and then sentenced to up to five years in prison. Whether for structuring or ignoring the rules, you don’t want to play around with these cash reporting rules.
The bank, merchant or entrepreneur must provide the person’s full name, date of birth, address, social security number and occupation. And now Congress and the IRS require this form for crypto as well. As amended, the new law redefines “cash” and includes “any digital representation of value” that includes a distributed ledger technology such as blockchain. Does that work in an anonymous system?
As of January 1, 2024, a crypto transaction may trigger a Form 8300 filing when a “person” (including an individual, corporation, corporation, partnership, association, trust, or estate) in a trade or business with . digital assets are valued in excess of $ 10,000. The rating is done on the day it is received, and as with anything crypto-related, the rating is very important. Again, it is a crime to structure transactions into smaller documents to avoid reporting. And since receipts need to be aggregated when they are related in a series of related transactions, virtually any receipt of digital assets, regardless of dollar value, is potentially reportable.
Of course, the IRS’s interest in crypto isn’t new. Everyone is already required to report crypto profits to the IRS. There is now even a “Do you crypto” question on every IRS Form 1040 or individual income tax return. It is often compared to the “Do you have a foreign bank account” question that appears on Appendix B and has resulted in many criminal convictions for the IRS and heavy civil penalties.
The new requirements are far-reaching. And while there is a transition period ending December 31, 2023, many changes are needed to make it suitable and applicable. The new law requires that a recipient of cryptocurrencies greater than $ 10,000 who is in business must collect, review, and report a sender’s personal information within 15 days. If you fail to do this, you could face fines and even criminal responsibilities.
Saying that you are an investor and that you are out of business may seem attractive when you have a strong argument about it. However, there is a huge tax law on the subject, with some recognizable standards, and a lot is at stake. Will all of this be easy in an often anonymous peer-to-peer system? Probably not, but there will likely be a fear of the new rules and some level of filing rather than an excuse.
This article is for general informational purposes and is not intended and should not be construed as legal advice.
The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
Robert W. Wood is a tax attorney serving clients worldwide from Wood LLP’s San Francisco office, where he is a managing partner. He is the author of numerous tax books and frequently writes about taxes for Forbes, Tax Notes, and other publications.