What happened? There is a new requirement from the U.S. Internal Revenue Service (IRS) for individuals or businesses that receive more than $10,000 in digital assets to report these transactions to the IRS and the Treasury’s Financial Crimes Enforcement Network (FinCEN). This requirement was put into place by an amendment to Internal Revenue Code Section 6050I, which was part of the Infrastructure Investment and Jobs Act passed in 2021. This means that, like cash transactions over $10,000, transactions involving cryptocurrencies or other digital assets that exceed this amount must be reported to the IRS and FinCEN to ensure tax compliance and to combat money laundering and tax evasion.
Effective Date: The statute is effective for returns required to be filed after December 31, 2023. Although there are regulations and an IRS form (Form 8300) implementing Section 6050I prior to the amendment, the IRS has not provided any guidance on how the reporting requirement applies to digital asset transactions.
On December 4, the Department of Justice, representing Treasury Secretary Janet Yellen, in a brief to the United States Court of Appeals for the Sixth Circuit stated, “the mere fact that the amendment to Section 6050I has a January 1, 2024 effective date does not mean that the statute’s new reporting requirement will automatically go into effect on that date.”[1] Furthermore, the brief states “Like other provisions of the Internal Revenue Code that have similar language, Section 6050I’s reporting requirements are not self-executing and will become effective following the promulgation of implementing regulations.”[2]
These statements would indicate then that the effective date is delayed until there are implementing regulations clarifying how Section 6050I would apply to digital asset transactions.
What’s next? Given this uncertainty and the complexities surrounding the application of Section 6050I to digital assets, and the criminal penalties for noncompliance, we strongly encourage all digital asset businesses to consult with legal and tax counsel. It is crucial to understand how this new law may impact your business operations and reporting requirements. Legal and tax counsel can provide tailored advice and help you navigate these changes effectively, ensuring that your business remains compliant with the evolving regulatory landscape.
We understand that these changes can be challenging or near impossible to adapt to, especially in a rapidly evolving industry like digital assets. Please know that The Chamber of Digital Commerce is committed to advocating for additional clarity and providing our members and the broader digital asset community with the most up-to-date information and resources to assist you during this transition.
[1] Hubbert, D. A., Ugolini, F., Delsol, E. P., & Klimas, G. J. (2023). Brief for the appellees in Dan Carman, Coin Center, Raymond Walsh, and Quiet Industries Corp. v. Janet Yellen, U.S. Department of the Treasury, Daniel Werfel, Internal Revenue Service, Merrick B. Garland, and United States of America [Brief for the appellees]. No. 23-5662. In the United States Court of Appeals for the Sixth Circuit.
[2] Ibid.