New Internal Revenue Service (IRS) tax rules came into effect in the United States, including increased reporting requirements for many digital asset transactions over $10,000, which some may find “difficult to comply.”
As part of the bipartisan infrastructure bill signed into law by U.S. President Joe Biden in 2021, new tax reporting rules were enforced on January 1, requiring many digital asset transactions worth more than $10,000 to be reported to the IRS.
Taxpayers had previously been required to report digital assets transactions on their federal income tax returns, but the new expanded regulations include the additional reporting requirements traditionally associated with cash transactions.
Namely, under the amended section 6050I of the tax code, brokers must now have digital asset exchanges and custodians report transactions greater than $10,000 to the IRS and—crucially—report personal information on transactions to the tax agency, including the sender’s name, address, and social security number.
In the context of the often anonymous or pseudonymous digital asset space, the requirements for personal information have caused some consternation in the industry, with some claiming the information mandated by brokers would be difficult or impossible to collect.
“If a miner or validator receives block rewards in excess of $10,000, whose name, address, and Social Security number do they report?” said Jerry Brito, executive director at Coin Center. In a blog post for the organization, he went on to suggest that many brokers “will find it difficult to comply” with the new reporting rules without further IRS guidance.
“If you engage in an on-chain decentralized exchange of crypto for crypto and you therefore receive $10,000 in cryptocurrency, who do you report? And by what standard should you measure whether an amount of a particular cryptocurrency is equivalent to more than $10,000?” said Brito.
“The really tricky nature of this requirement will become clear when someone makes such a donation but does so anonymously by simply sending us Bitcoin or Ether to our public addresses. Who could we possibly list as the sender in that case?”
Coin Center is a non-profit focused on the policy issues facing digital assets. In June, the organization filed a lawsuit against the U.S. Treasury, challenging the new rules implemented as part of the infrastructure bill as unconstitutional.
“Our suit leads with two major claims,” said Coin Center when announcing the suit. “(1) forcing ordinary people to collect highly intrusive information about other ordinary people, and report it to the government without a warrant, is unconstitutional under the Fourth Amendment; and (2) demanding that politically active organizations create and report lists of their donors’ names and identifying information to the government is unconstitutional under the First Amendment.”
The case is ongoing, but in August, Coin Center also proposed the IRS to establish a de minimis exemption for digital asset transactions to solve the purported problems many may have complying with the new rules.
Watch: It’s time for corporates to turn to public blockchain solutions
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.
