Businesses who accept cryptocurrency as payment were relieved to hear that the IRS has delayed the requirement for reporting digital asset transactions that exceed $10,000 on Form 8300 until Treasury provides further regulations.
Internal Revenue Code Section 6050I requires any person who is “engaged in a trade or business” and who, “in the course of such business, receives more than $10,000 in cash in 1 transaction (or 2 or more related transactions)” to file FinCEN Form 8300 to report the transaction. The Infrastructure Investments and Jobs Act of 2021 extended the definition of cash to include digital assets. The digital assets provision of the law took effect on January 1, 2024 and created confusion bordering on panic among many cryptocurrency enthusiasts despite the fact that, according to Matt Metras, an EA who specializes in clients with digital assets, “This has no impact on the casual investor or crypto user.”
Before the new guidance was issued, businesses to whom the new provision of the law applied could either attempt to comply with the law in good faith or adopt a much riskier “do nothing and wait for guidance” approach. Notice 2024-4 clarified that businesses can delay reporting until further regulations are issued and was greeted with relief by many in the crypto industry.
The lack of regulatory guidance creates legitimate consternation among tax professionals who serve clients in the crypto space. Tynisa Gaines, EA and Senior Project Manager for Token Tax pointed out “Despite the Infrastructure Investment and Jobs Act of 2021 being passed two years ago, Form 8300 was updated in December 2023 and does not include digital assets.” A quick look at Part III, Line 32 of Form 8300 confirms this. The line list types of cash as U.S. currency, foreign currency, cashier’s checks, money orders, bank drafts, and traveler’s checks. Digital assets are not included. According to Gaines, “Firms receiving payments in cryptocurrency are unclear on which item to choose for a crypto transaction. Digital assets are not U.S. currency, so that doesn’t seem right. Is it foreign currency if my client is overseas?”
Gaines notes “As a crypto firm, we may provide crypto reconciliations for clients who may file their own taxes or use their own preparer. Therefore, we don’t have names, addresses, or social security numbers for all clients.” Depending on complexity and transaction volume, the cost of a professional cryptocurrency reconciliation can easily run into the four or five figures and many firms who specialize in providing these reconciliations to clients also accept digital assets as payment. Preparing standalone cryptocurrency reconciliations without an associated tax return can be done without the investor providing any personally identifying information to their provider. Asking privacy-obsessed cryptocurrency investors for the information necessary to complete Form 8300 may cause compliance-oriented firms to lose clients to firms who are willing to flout the law, especially absent specific guidelines from Treasury to fall back on.
The new law also raises issues for businesses such as digital art galleries. Even though the NFT art market has gone cold (for now) a single NFT
NFT
purchase could easily trigger a Form 8300 reporting requirement for the artist or other seller when the sale is transacted entirely on the blockchain and largely anonymously. Despite crypto enthusiasts’ insistence that blockchain transactions are entirely anonymous, they can be traced if enough resources are allocated to the effort.
This is the second high-profile and unilateral delay of a new tax statute by the IRS. The other was the recent delay in the new, lower Form 1099-K reporting threshold. It begs the question of whether the IRS has the statutory authority to delay the implementation of laws passed by Congress even when the delay is welcomed and perhaps when the law is well-intentioned but poorly written. It wouldn’t be the first time Congress passed a law and left sorting out the pesky implementation details to the IRS and others (e.g., the Affordable Care Act).
IRC Section 7803 gives the IRS Commissioner relatively broad discretion to “administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws or related statutes and tax conventions to which the United States is a party.” Nevertheless, it appears the IRS may be selectively applying its powers to laws it finds inconvenient to implement or overly burdensome or, perhaps, beyond its comprehension. According to Metras, who also teaches digital asset taxation to other tax professionals, the industry is still waiting on guidance on issues that predate the current one by more than a decade. In other words, now that the Notice has said it’s OK to wait for regulations, businesses could have plenty of time to prepare for the reporting requirement.