Things to know (and fear) about new IRS crypto tax reporting

The Law on Employment and Investments in Infrastructure (HR 3684) put cryptocurrencies in the crosshairs, where Congress and the Internal Revenue Service (IRS) hope to get huge tax dollars. This reporting regime is projected to generate a staggering $ 28 billion over the next ten years. No other provision in this huge, recently enacted federal law is supposed to produce even close tax dollars. If you don't think that means the IRS is coming for your crypto in a big way and that Congress is trying to make it easy, think again.

the the crypto community was outraged when the measure was first proposed and tried to push back hard. That effort resulted in some curtailment, but the provisions were enacted anyway. Some people are still talking about a repeal effort, but that could prove a tough sell when there's $ 28 billion at stake that the Biden administration might need. As enacted, Form 1099 and other reporting rules do not go into effect until December 31, 2023. Still, since Form 1099 reporting is done in January for the prior year. That means 2023 will be a great fiscal year.

And with 2022 just around the corner and 2021 tax returns due shortly after, it's a good time to get your tax affairs in order. The new key questions are whether and who you are a broker. And how will these extensive and burdensome reporting rules be enforced? With possible civil and even criminal penalties, you can bet that most exchanges, and others who may have doubts as to whether they are brokers subject to the new law, can resolve any concerns in favor of the complaint. Surprisingly, what exactly constitutes being involved in a trade or business can also be open questions.

Related: Top Crypto Tax Myths Debunked

The IRS still says that many people don't report their crypto, but more reporting inevitably means a lot more compliance, worth $ 28 billion. The definition of a broker under section 6045 of the tax code now includes:

"Anyone who (for consideration) is responsible for regularly providing any service that performs digital asset transfers on behalf of another person."

Digital assets are defined as “any digital representation of value that is recorded in a cryptographically protected distributed ledger or any similar technology as specified by the Secretary [of the Treasury]". Digital assets are now specific securities that are subject to reporting on IRS Form 1099-B. That's the same form that brokers use to report share sales if you sell Amazon shares or other stocks.

The new law gives the Department of the Treasury and the IRS the ability to write regulations on these new rules. There are runner-to-runner rules and others.

Over $ 10,000 crypto reports

The broker reporting on Form 1099-B pales in comparison to the new cash-like reporting form requirements with its staggering criminal liability. In 2014, the IRS announced that it would treat cryptocurrencies like property, not money. The repercussions of that rule on your taxes are enormous. That is the reason why almost all successive transfers or exchanges of cryptocurrencies (even for other cryptocurrencies) generate more taxes. Yet ironically, Congress and the IRS are now taking a page from cash reports.

For decades, transactions of more than $ 10,000 in cash have created a requirement for 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 dealer will have to report it. If you go to the bank and take out your own $ 10,001 in cash, the bank must report it to the IRS. Pay a consultant with more than $ 10,000 in cash and your consultant must report it to the IRS.

Related:More crypto reports from the IRS, more danger

If you make successive withdrawals or smaller payments to avoid cash reporting, that is "structuring" your transactions to evade the rules, and is itself a federal criminal offense. Many people have been caught by this rule, trying to cover up some embarrassing but legal payments, and have unknowingly committed a crime, been convicted of a felony, fined, and then jailed for up to five years. Whether it's to structure or ignore the rules, you don't want to waste time with these cash reporting rules.

The bank, merchant, or person in business must fill in the person's full name, date of birth, address, social security number, and occupation. And now Congress and the Internal Revenue Service require this form for cryptocurrencies as well. As amended, the new law redefines "cash" to include "any digital representation of value" that involves distributed ledger technology, such as blockchain. In an anonymous system, will this work?

Beginning January 1, 2024, a crypto transaction can trigger the filing of Form 8300 when any "person" (including an individual, business, corporation, partnership, partnership, trust, or estate) receives digital assets in the course of a trade. or business with a value greater than $ 10,000. Valuation takes place on the day of receipt and, as with all cryptocurrencies, valuation is very important. Again, structuring transactions into smaller receipts to avoid reporting is a crime. And since receipts must be aggregated if they are related in a series of connected transactions, virtually any receipt for digital assets is potentially reportable, regardless of dollar value.

Of course, the IRS's interest in cryptocurrencies is nothing new. Everyone is already required to report crypto earnings to the IRS. There is even a question of "Figures?" On every IRS Form 1040 or individual income tax return now. It is often compared to the question "do you have a foreign bank account?" Which is listed on Schedule B, and which has resulted in many criminal convictions for the IRS and large civil penalties.

The new requirements are sweeping. And while there is a grace period until December 31, 2023, many changes will be needed to make them appropriate and applicable. The new law requires that a recipient of more than $ 10,000 in cryptocurrency who is in business must collect, verify and report a sender's personally identifiable information within 15 days. If you don't, you can face fines and even criminal liability.

Saying that you are an investor and not a business may sound attractive if you have a strong case for it. However, there is a huge body of tax law on that subject, with some discernible standards, and the stakes are high. Will any of this be easy in what is often an anonymous peer-to-peer system? Probably not, but there will probably be fear about the new rules and some degree of submission to be safe rather than regret.

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 those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.