IRS Rules for $10K+ Crypto Transactions

The U.S. Internal Revenue Service’s (IRS) new reporting requirements for cryptocurrency transactions over $10,000, effective in 2024, present significant challenges for compliance. Stemming from the 2021 bipartisan infrastructure bill, these rules aim to tighten tax reporting in the digital asset sector.

The legislation mandates that crypto brokers report comprehensive transaction details, including the sender’s personal information, to the IRS within 15 days. This requirement, targeting tax gap reduction in the U.S., initially aimed for implementation in January 2023, pushing companies to start IRS reporting in 2024.

However, Coin Center executive director Jerry Brito highlights the practical difficulties in adhering to these rules. He questions the feasibility of gathering requisite information, especially in decentralized transactions or anonymous donations. Brito’s concerns underscore a broader industry sentiment about potential felony risks for non-compliance, even when efforts are made to follow the law.

Brito further questions the reporting protocol for scenarios like miners or validators receiving block rewards exceeding $10,000 and the identification of senders in anonymous transactions. His remarks reflect the complexity of applying traditional financial reporting standards to the decentralized and often anonymous nature of cryptocurrency transactions.

In response, Coin Center proposed a de minimis exemption for smaller crypto transactions and advised against imposing second-party reporting requirements. This suggestion aims to mitigate the stringent demands of the new IRS rules, which significantly expand upon the digital asset transaction reporting introduced in 2019.

The implementation of these IRS guidelines in 2024 will test the crypto industry’s ability to adapt to regulatory changes while preserving the inherent features of blockchain technology, such as privacy and decentralization. The outcome of this compliance challenge could set a precedent for future regulatory measures in the rapidly evolving digital asset space.