The regulatory framework surrounding cryptocurrencies continues to take shape. Earlier this week, Treasury and the IRS issued Announcement 2024-4, which temporarily delays reporting requirements for businesses receiving digital assets in an amount greater than $10,000. But regulations are coming and businesses receiving cryptocurrency worth $10,000 or more will soon be required to report these dealings. The notice does not affect other IRS guidance on cryptocurrencies. The absence of a reporting obligation does not, for example, relieve taxpayers from including receipts of any amount of cryptocurrency in taxable income, per IRS Notice 2014-21.
The Infrastructure Investment and Jobs Act, passed in November 2022, amended Section 6050I's mandate that cash receipts greater than $10,000 be reported on Form 8300. Specifically, the Act includes "any digital asset" in its definition of "cash," thereby expanding this reporting obligation to include taxpayers who accept cryptocurrency. These changes to Section 6050I were originally scheduled to take effect after December 31, 2023, but the Notice places that obligation on hold.
Nonetheless, the cryptocurrency filing obligations' delay serves as a stark reminder of the impending challenges to be faced by businesses that accept virtual currencies. The breadth of these reporting burdens is particularly important, as they apply to any person who is engaged in a trade or business that receives $10,000 in cash in a transaction, or series of related transactions. These obligations will affect any person who accepts payment in cryptocurrency and engages in a single transaction (or related transactions) above this threshold. Importantly, the law makes no distinction between service providers, cryptocurrency exchanges, and your local car dealership, any of which would be easily capable of triggering a reporting obligation. A software engineer receiving cryptocurrency in exchange for services would be subject to this reporting obligation.
A penalty of $310 applies for each failure to file Form 8300, capped at $3.783 million ($1.261 million if annual gross receipts do not exceed $5 million). If the failure is due to "intentional disregard," the penalty is the greater of $25,000 or the amount of cash received in the transaction (up to $100,000).
In sum, as use of cryptocurrencies continues to grow, so too does the surrounding compliance and regulatory burden.
This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.