January 16, 2024 Update
The Treasury Department and the IRS have confirmed that business taxpayers receiving over $10,000 in crypto assets do not have to report this in the same manner as cash receipts must be reported until regulations are issued. No timeline has been provided, but when the regulations are proposed, there will be an opportunity for the public to comment and if necessary, a public hearing, after which final regulations will be issued. Any potentially impacted businesses should remain vigilant for these upcoming regulations.
A significant amendment to the Internal Revenue Code Section 6050I, introduced by the Infrastructure Investment and Jobs Act of 2021, now requires those engaged in a trade or business receiving payments greater than $10,000 in crypto assets received on or after January 1, 2024, to report these payments. This update, mirroring cash transaction regulations, aims to enhance tax compliance and combat financial crimes. However, given the lack of regulations or guidance, there has been a lot of confusion on this requirement. CryptoTaxAudit breaks this down so you are up to date with all your reporting requirements and aware of potential changes.
General Requirements - $10,000 Cash Payments
Any person engaged in a trade or business who, in the course of such trade or business, receives more than $10,000 in cash in one transaction (or two or more related transactions) must file a return (Form 8300) reporting such transaction within 15 days after receiving the payment. This requirement is set by the Internal Revenue Code Section 6050I.
Why do these requirements exist? This is due to attempts by criminals of laundering money through businesses in order to “clean” the money. The USA PATRIOT Act of 2001 increased the scrutiny and reporting under these laws to help trace funds used for terrorism. By reporting large cash payments, the government can effectively trace laundered money to such payments, and it helps in its fight against tax evasion and other criminal activities. Concerns surrounding money laundering with crypto have been a hot topic as of late, and this is the first in many steps to aim to combat criminal activities with crypto.
Amendments by the Infrastructure Bill
The Infrastructure Investments and Jobs Act amendment includes digital assets within the definition of "cash" for reporting transactions of over $10,000. This means transactions with crypto assets that meet the definition of §6050I would have to be reported on Form 8300. Generally, Form 8300 is due within 15 days after receiving such payment.
This change to §6050I is effective for payments received on or after January 1, 2024. However, the Treasury and the IRS have not released regulations or other guidance as of this writing. Representatives from the Department of Justice have clarified that the January 1, 2024, start date will not go into effect automatically, but that Regulations must be issued before the reporting requirement amendments take effect. While this means that until further notice, it does not appear that the new reporting requirements for crypto transactions are in effect yet, we expect the Treasury and IRS to comment in the very near future, given the effective date of the amendments.
When to File - Breakdown of §6050I
To understand when you may need to file Form 8300, we need to look at §6050I. Based on the requirements:
(1)who is engaged in a trade or business, and
(2)who, in the course of such trade or business, receives more than $10,000 in cash in 1 transaction (or 2 or more related transactions),
…will need to file Form 8300.
First, it applies only to those engaged in a trade or business. This means that most individual cryptocurrency investors will not have to worry about such forms - this seems to primarily concern businesses receiving crypto as payments.
You must receive a payment in the course of such trade or business. For example, a business owner who sells his personal vehicle for $11,000 in cash does not have to report this transaction.
You must receive over $10,000 in cash in a single or multiple related transactions. It is key to keep an eye on the cumulative requirement as two or more transactions, each individually under the $10,000 threshold, could be over $10,000, thus being reportable.
The definition of 'cash' for this purpose isn't limited to physical currency; it includes monetary instruments like cashier's checks and money orders if they meet certain conditions. In addition, this recent amendment will also include digital assets - cryptocurrency. If you receive over $10,000 in crypto as a payment in your trade or business, you will need to file Form 8300.
We must also understand what is included as a ‘transaction’ for reporting purposes. In general, a transaction is any activity that initiates a cash transfer. This includes many activities, including but not limited to the sale of goods, services, or real property, rentals of property, an exchange of cash for other cash, and financial arrangements like custodial, trust, or escrow accounts. It also covers debt payments, conversions of cash to negotiable instruments, expense reimbursements, and the issuance or repayment of loans.
So, if you go through the above requirements and meet all of them, you have to file Form 8300.
As stated earlier, the mandate to report payments greater than $10,000 with crypto assets is effective for payments received on or after January 1, 2024. However, as the Department of Justice has already clarified, regulations must be issued for the reporting requirement changes to go into effect. That is probably a good thing, as there is also a notable gap in IRS guidance regarding this change.
One key uncertainty is when a crypto asset transaction qualifies as a business activity versus a personal investment. As it stands today, most crypto investors would not need to report transfers unless done within a trade or business. However, it is possible this requirement could be expanded to include other types of crypto transactions. Another question is on the form itself; while it is likely that Form 8300 will also be used for crypto payments, no changes have been made to the form yet to accommodate these new requirements.
Beyond these, many other questions exist caused by the unique challenges with crypto payments. For example, the pseudo-anonymity of some users might make it difficult for some filers to have all the information required on the payers. High volatility and valuation issues might raise questions about the dollar amount of the payments. Meanwhile, the existence of third-party crypto payment processors might further complicate receiving crypto payments for other businesses unless filing requirements are clear. Furthermore, foreign transactions occurring outside of the US are excluded. This leads to many more questions about the sourcing of certain crypto payments.
While we expect that the Treasury and IRS should provide guidance on some of the above questions once they address this issue, it is likely that open questions will remain even after guidance is issued.
Do I Need to File Form 8300 if I Already Received Crypto Payments Greater Than $10,000?
So what should you do if you are in a trade or business and receive a payment of over $10,000 in crypto? Given the criminal penalties for noncompliance, we recommend keeping track of such transactions as reportable and consulting with your tax advisor immediately on the best course of action. Be prepared to file and provide the necessary data to your tax accountant when we see regulations.
While filing may not be required today, you certainly should keep up with this topic over the following weeks as this could change any day, and filing could be retroactive for all 2024 qualifying transactions.
Understanding and complying with the new $10,000 cryptocurrency reporting requirement is essential for anyone involved with crypto assets, especially in a trade or business. As regulations evolve, staying prepared and seeking expert advice will be key to navigating these changes. At CryptoTaxAudit, we are dedicated to providing you with the most current information and guidance to ensure your compliance with these new regulations.
For additional information on Publication 1544 (09/2014), Reporting Cash Payments of Over $10,000. Schedule a free consultation today if you have further questions or need help with your crypto tax matters.