- US taxpayers face new reporting requirements.
- Crypto users are expected to collect identity information.
- The new requirements are being challenged in the US court system.
Dealing with crypto taxes is already complicated, with pitfalls such as appropriately accounting for yield farming and handling erratic events like token airdrops. However, starting from January 1, US crypto users face further confusion due to a new Inland Revenue Service (IRS) requirement that mandates reporting all cryptocurrency receipts of $10,000 or more.
New IRS Reporting Requirement
A tax code amendment under the Infrastructure Investment and Jobs Act, which passed in November 2021, dictates that any American receiving $10,000 or more in cryptocurrency must file a report of the transaction to the IRS within 15 days.
Taxpayers must report identity details of the party sending them over $10,000 worth of cryptocurrency. This includes the name, physical address, social security number, transaction amount, and nature of the transaction.
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The new rule applies to individual crypto holders and businesses dealing with digital currencies. It mandates reporting sender information even if the party’s identity information is unknown or the transaction context does not allow identity information collection. A failure to meet the reporting requirement gives way to potential felony charges for non-compliance.
Social media is awash with comments slamming the impracticality of complying with the new reporting requirement. One Reddit user summed up the general sentiment by saying, “Old people are trying to apply rules to something they don’t understand… Again.” Others rehashed the debate on all taxation being theft.
Crypto advocacy group Coin Center appraised the reporting requirement by calling the new law unconstitutional and “virtually impossible to comply with.”
Coin Center Fights Back
According to Coin Center, the new cryptocurrency reporting requirement is difficult to comply with due to numerous scenarios involving an unknown counterparty, such as miners or validators earning block rewards paid by decentralized protocols rather than an identifiable party. This situation also applies to decentralized exchange (DEX) users engaging in crypto trading.
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To complicate matters further, Coin Center stated that the IRS has not issued guidance on key matters, such as the rules on determining the $10,000 threshold amount and how or where to send the report.
On the Flipside
- Coin Center is in the process of challenging this reporting requirement in the US court system.
- As a pending court case, the reporting requirement remains in effect.
- Cryptocurrency’s decentralized and global nature sometimes makes enforcing a broad US reporting requirement exceptionally difficult.
Why This Matters
This ill-conceived reporting requirement suggests those in charge lack blockchain expertise to determine crypto tax laws. This is concerning because it highlights how inadequate policymaking can negatively impact, yet no bureaucrat will be held accountable for the glaring oversights.
Read more on US lawmakers pushing for fairer tax reporting rules here:
FSC Chair Urges Revision of Proposed U.S. Crypto Tax Regime
Find out about DeFi’s continued rise into the new year here:
DeFi TVL Continues 2023 Recovery to Hit 16-Month High
