The Infrastructure Investment and Jobs Act (IIJA) signed into law on November 15, 2021, includes two provisions that affect U.S. taxpayer reporting involving digital assets, including cryptocurrencies. ) terms of the transaction. The first provision expands information reporting requirements to include transfers of digital assets. The second provision adds digital assets to current rules requiring businesses to report cash payments over $10,000. Both provisions apply to returns that need to be filed after December 31, 2023. The law will officially take effect on January 1, 2024.
1. Main contents of the new encryption tax law
< strong>1.1 Two Requirements
1.1.1 Form 1099-B
IIJA Section 80603 amends Internal Revenue Code (IRC) § 6045 (c)(1) so that certain digital asset transfers must be reported on Form 1099-B. This reporting scope applies to brokers or anyone responsible for regularly providing any services that enable the transfer of digital assets on behalf of others. Previously, cryptocurrency exchanges, miners, and software developers (e.g., creators of software and hardware wallets) were not required to issue Form 1099-B.
It is worth noting that before IIJA was passed, a U.S. Treasury official informally stated that the Treasury Department would not target non-brokers such as miners and certain software and hardware developers impose this reporting requirement. However, the revised provisions of IIJA indicate that even non-brokers who are included in the scope of "regularly providing any services to realize the transfer of digital assets on behalf of others" will be required to provide 1099-B to customers and the Internal Revenue Service (IRS). sheet. Therefore, Any person who regularly provides services that enable the transfer of digital assets should comply with IIJA’s Form 1099-B reporting requirements. Ultimately, the main purpose of this form is to combat money laundering.
At the same time, the establishment of Form 1099-B reporting requirements also faces challenges because cryptocurrencies are designed to be able to be traded across borders without the intervention of a central authority Send it to your wallet. As a result, Exchanges, miners and software developers may not have access to all information required to be reported on Form 1099-B, such as name, Social Security number, address, date of acquisition and cost basis. As a result, brokers that meet the new definition of IRC6045(c)(1) may be forced to file Form 1099-B with a cost basis shown as zero, potentially resulting in overstated earnings reported to the IRS. Taxpayers must keep detailed records of their cryptocurrency transactions to accurately report taxable gains or other income.
1.1.2 Form 8300
IRC Section 6050I Requires individuals or businesses to file Form 8300 for receipt of more than $10,000 in cash in one transaction or two or more related transactions. The form needs to be reported to the IRS Criminal Investigation Division within 15 days. Section 80603 of IIJA amends IRC section 6050I, subparagraph (d), expanding the Form 8300 reporting requirements to include digital asset transactions. For example, under the new regulations, if an individual purchases a single non-fungible token (NFT) directly from an artist for $15,000 in Bitcoin, the seller will be required to file Form 8300 within 15 days to report receipt of the cryptocurrency Case. In order to accurately complete Form 8300, the seller will need to collect information including, but not limited to, the buyer's name, taxpayer identification number, date of birth, and address. For purposes of the $10,000 limit, all transactions occurring within a 24-hour period between two parties with transactions exceeding $10,000 will be considered related transactions.
Failure to comply with the rules set forth in Section 6050I(d) risks significant penalties. Negligent failure to file Form 8300 may result in penalties of up to $280 per incident, with a maximum limit of $3,302,000 per calendar year. Intentional failure to disclose transactions covered by Section 6050I(d) may result in civil and criminal penalties, as well as felony prosecution. Willful neglect of a Form 8300 report may result in civil penalties equal to the cash value received in the transaction, and this provision applies to each instance of willful failure to comply. Willful disregard of reporting requirements can result in criminal penalties of $25,000 or $100,000 for individuals and companies, and/or five years in prison. For causing or attempting to cause an industry or business to fail to file a required report, causing an industry or business to file a required report that contains a material omission or erroneous statement of fact, or attempting to structure a transaction in a manner to avoid the reporting requirements of section 6050I(d) Individuals and companies will also be punished. These violations may result in criminal penalties of up to $100,000 for individuals, $500,000 for companies, and/or three years in prison.
1.2 Scope of Impact of the New Cryptotax Law
The new rules equate digital asset reporting rules to “cash” reporting rules, with both parties to crypto transactions required to provide each other with information about each other. This is an unusual law in that although it is part of the tax code, it is not really a tax provision. First, unlike other IRS information reporting requirements, transaction reports must be filed within 15 days, and violating this provision would be a felony; second, it is not limited to “brokers” or crypto exchanges, it applies to all businesses, Including individuals. The only ones exempt from it are banks and financial institutions.
1.3 Reporting requirements of the new crypto tax law
According to the new The law states that anyone engaged in a trade or business who receives $10,000 or more in cryptocurrency must report the transaction to the IRS. Reports must include comprehensive details such as the name, address and Social Security number of the person who received the funds, the amount of the transaction, and the date and nature of the transaction. Individuals who fail to file required reports within 15 days of receiving such transactions may face felony charges.
2. What situations involve reporting obligations under the new regulations?
2.1 "Agent"
All cryptocurrency exchanges (Coinbase, Robinhood, etc.) are now considered "brokers" in the same way as traditional brokers. Specifically, the bill states that a "broker" is "any person responsible for regularly providing services to transfer digital assets on behalf of others," but there is no clear scope and app developers, wallet providers, and miners may also be classified as a "broker".
2.2 Tax treatment of “digital assets” under new regulations
"Digital asset" is defined as "any digital representation that is recorded on a cryptographically protected distributed ledger or any similar technology". Digital assets will be treated like capital gains/losses on securities. In the past, digital assets were classified as property and therefore taxed based on gains or losses. The tax treatment of digital assets is now essentially the same as before: capital gains must be taxed. In other words, the new rules only affect declarations, not tax treatment.
However, securities also face regulation by the U.S. Securities and Exchange Commission (SEC), which is not mentioned in the legislation. The SEC will require traditional securities companies such as stocks to submit quarterly reports and provide prospectuses detailing risks. There are no clear rules on whether cryptocurrencies should submit similar documents to the SEC.
2.3 Information reporting obligations of crypto exchanges
Crypto Exchanges must provide customer information to the IRS. The new tax law reports the following information to the IRS: (1) the name, address, and phone number of each customer; (2) the total proceeds from any sale of digital assets; (3) the capital gain or loss, and what the capital gain or loss was Short-term (held for one year or less) or long-term (held for more than a year).
2.4 Legal Consequences of Failure to Report
Crypto Exchanges Failure to report this information as required will result in severe penalties. Form 1099-B: Failure to file as required will result in a penalty of $250 per customer, up to a maximum of $3 million (under 26 U.S.C. § 6722, "Failure to Provide a Proper Payee Statement" ). As for Form 8300, everyone is required to report any amount over $10,000. Negligently failing to file Form 8300, intentionally not disclosing a transaction, willfully neglecting to report on Form 8300, willfully ignoring reporting requirements, etc. all face severe penalties, including fines or criminal liability. Before the law was implemented, cryptocurrency advocacy group CoinCenter filed a lawsuit challenging its constitutionality. The central argument advanced by Coin Center is that the new law is vague and creates significant compliance challenges for crypto users and businesses. They argue that the law lacks the necessary clarity given the vast diversity of participants in the cryptocurrency space, from casual traders to miners and validators. Additionally, the IRS has not provided adequate guidance on its enforcement. As of now, the outcome of Coin Center’s lawsuit is still uncertain, and it remains to be seen whether it can win.
3. Impact and potential consequences of the new crypto tax law
The main goal of the new tax law provisions that have been implemented this time is to collect information on crypto asset users. It also plays an important role in anti-crime, as reports received can be used by governments to investigate suspicious activities. The law marks a significant expansion of the IRS’s ability to monitor cryptocurrency transactions, as the agency has long been concerned about the possibility of cryptocurrencies being used to evade taxes. With this enforcement, the IRS now has powerful tools to combat tax evasion involving cryptocurrencies.
However, implementing the law could create challenges for adoption and innovation in the cryptocurrency space. The $10,000 threshold may prevent many individuals and entities from using Bitcoin, USDT, or Ethereum because they know that every transaction must be reported to the IRS. This concern could hinder the growth and development of the cryptocurrency industry.
At the same time, the implementation of the law has caused mixed reactions within the crypto community. On the one hand, it strengthens the regulatory framework and may address tax evasion. On the other hand, it may prevent some users from participating in the cryptocurrency market due to reporting requirements, which may hinder growth and innovation in the cryptocurrency industry. Therefore, there are changing U.S. federal income tax implications and reporting obligations that need to be considered with respect to the rapidly growing popularity of virtual currencies. The tax implications of virtual currencies are complex, and transactions can result in unintended tax consequences.
References
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