Controversial tax law requires reporting of crypto transactions over $10,000

The United States has ushered in the new year by implementing a contentious tax law, demanding that its citizens report cryptocurrency transactions exceeding $10,000. 

This law, included in the Infrastructure Investment and Jobs Act, took effect on January 1, 2024, providing the Internal Revenue Service (IRS) with a substantial influx of data on crypto users.

The reporting requirement

Under the new law’s provisions, anyone engaged in a trade or business who receives $10,000 or more in cryptocurrency must report the transaction to the IRS. The reporting must include comprehensive details such as the name, address, and Social Security number of the person from whom the funds were received, the transaction amount, and the date and nature of the transaction. 

This is the 6050I law that Coin Center challenged in federal court and our case is in appeals. Unfortunately for the time being there is an obligation to comply – but it's unclear how one can comply.

The existing form for "cash" transactions isn't applicable, and there are many…

— Jerry Brito (@jerrybrito) January 2, 2024

Individuals failing to file the necessary report within 15 days of receiving such a transaction could potentially face felony charges.

This law marks a significant expansion of the IRS’s ability to monitor cryptocurrency transactions, as the agency has long been concerned about the potential for cryptocurrency to be used for tax evasion. With this enforcement, the IRS now possesses a powerful tool to combat tax evasion involving cryptocurrencies.

However, implementing this law may introduce challenges to the adoption and innovation within the crypto space. The $10,000 threshold might discourage many individuals and entities from using popular cryptocurrencies like Bitcoin, USDT, or Ethereum, knowing that each transaction must be reported to the IRS. This apprehension could potentially hinder the growth and development of the cryptocurrency industry.

Legal challenge by crypto advocacy group

Before the law’s implementation, Coin Center, a crypto advocacy group, filed a lawsuit challenging its constitutionality. The central argument put forth by Coin Center is that the new law is ambiguous and presents significant compliance challenges for crypto users and businesses.

They contend that the law lacks the necessary clarity given the vast diversity of participants in the crypto space, ranging from casual transactors to miners and validators. Furthermore, the IRS has not provided sufficient guidance on its enforcement.

The outcome of Coin Center’s lawsuit remains uncertain, and it is yet to be seen whether it will succeed. In the United States, cryptocurrency assets are considered properties, necessitating the reporting of capital gains or losses for tax purposes. The applicable tax rate varies depending on the duration for which the asset is held.

Impact on the crypto community

The implementation of this law has generated mixed reactions within the crypto community. On one hand, it reinforces the regulatory framework and could potentially address tax evasion concerns. On the other hand, it may deter some users from participating in the crypto market due to the reporting requirements, potentially stalling the industry’s growth and innovation.