Things to know (and fear) about the new IRS encrypted tax report
Infrastructure Investment and Employment Act (Human resources 3684) Putting cryptocurrency in the crosshairs, Congress and the Internal Revenue Service (IRS) hope to get huge taxes. It is expected that this reporting system will generate a staggering $28 billion in revenue in the next ten years. In this large-scale federal law recently enacted, there are no other provisions that should generate even close taxes. If you don’t think this means that the IRS will acquire your cryptocurrency in a very large way, and Congress is working hard to promote it, please think again.
this The crypto community is angry When the measure was first proposed and tried to force a counterattack. This effort has led to some reductions, but these regulations have been promulgated anyway. Some people are still talking about repealing the bill, but when the Biden administration may need $28 billion, this may prove to be a difficult sale. According to promulgated regulations, Form 1099 and other reporting rules will not take effect until December 31, 2023. Even so, because the report on Form 1099 was completed in January of the previous year. This means that 2023 will be an important tax year.
As 2022 is approaching and the 2021 tax return is about to expire, now is a good time to keep your tax affairs in order. The key new question is whether you are a broker and who is the broker. How will these onerous reporting rules be applied? Due to potential civil and even criminal penalties, you can bet that most exchanges and others who may doubt whether they are brokers under the new law may resolve any doubts in favor of reporting. Surprisingly, the exact composition of the trade or business may also be an open question.
The IRS still states that many people do not report their cryptocurrency, but more reports inevitably mean more compliance, valued at $28 billion. The definition of a broker under Article 6045 of the Tax Code now includes:
“Anyone (for consideration) who 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 the value recorded in a cryptographically secured distributed ledger or any similar technology. [of the Treasury]”. Digital assets are now specific securities and need to be reported according to IRS 1099-B. If you sell some Amazon or other stocks, this is the same form used by brokers to report stock sales.
The new law gives the Ministry of Finance and the Internal Revenue Service the ability to formulate regulations related to these new rules. There are broker-to-broker rules and other rules.
Encrypted report of more than $10,000
Compared with the new cash-like reporting form requirements and their surprising criminal liability, brokers reporting on Form 1099-B pale in comparison. In 2014, the U.S. Internal Revenue Service announced that it would treat encryption as property, not money. The impact of this rule on your taxes is huge. This is why almost every continuous transfer or cryptocurrency transaction (even other cryptocurrencies) triggers more taxes. Ironically, however, Congress and the IRS are now learning from the cash report.
For decades, cash transactions in excess of $10,000 have required any business to submit IRS Form 8300 within 15 days to report cash transactions to the IRS. If you buy a car with more than $10,000 in cash, the car dealer will report you. If you go to the bank to withdraw your $10,001 in cash, the bank must report you to the IRS. To pay more than $10,000 in cash to the consultant, your consultant must report you to the IRS.
If you continuously make small withdrawals or payments to avoid cash reports, that is “structuring” your transaction to evade the rules, which in itself is a federal criminal offense. Many people are caught by this rule, trying to cover up some embarrassing but legal payments, committing crimes unknowingly, being convicted of felony, fined, and then jailed for up to five years. Whether structured or ignoring the rules, you don’t want to mess up these cash reporting rules.
The bank, merchant or operator must fill in the person’s full name, date of birth, address, social security number and occupation. Now, Congress and the IRS also require the use of this form of cryptocurrency. After the amendment, the new law redefines “cash” to include “any digital value representation” involving distributed ledger technology (such as blockchain). Does this work in an anonymous system?
Starting from January 1, 2024, when any “person” (including individuals, companies, companies, partnerships, associations, trusts or estates) receives digital assets in the course of trade or business with the following institutions, encrypted transactions may Will trigger the filing of Form 8300. The value is more than 10,000 US dollars. The valuation is completed on the day of receipt, and as with all cryptocurrencies, valuation is very important. Likewise, dividing the transaction into smaller receipts to avoid reporting is a felony. And because receipts must be aggregated if they are related in a series of related transactions, almost any digital asset receipts may need to be reported, regardless of the dollar value.
Of course, the IRS’s interest in cryptocurrencies is nothing new. Everyone has been required to report cryptographic gains to the IRS. Now every IRS 1040 form or personal income tax return even has a “Are you encrypted?” question. It is usually on par with the “Do you have a foreign bank account” question that appeared in Schedule B, which resulted in the IRS being convicted and subject to severe civil penalties.
New requirements are sweeping in. Although there is a grace period before December 31, 2023, many changes still need to be made to make it suitable and applicable. The new law stipulates that commercial recipients who accept more than $10,000 in cryptocurrency must collect, verify, and report the sender’s personally identifiable information within 15 days. If you don’t do this, you may face fines and even criminal liability.
If you have a strong argument on this point, it seems attractive to say that you are an investor rather than a business activity. However, the number of tax laws on this subject is huge, there are some obvious standards, and the risks are high. In the usually anonymous peer-to-peer system, is any of these easy? Probably not, but may worry about the new rules and a certain degree of filing is safer than sorry.
This article is for general reference only and should not and should not be regarded as legal advice.
The views, thoughts and opinions expressed here are only 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 global clients in the San Francisco office of Wood LLP, where he is the managing partner. He is the author of numerous tax books and frequently writes articles about tax for Forbes, Tax Notes, and other publications.