New Crypto Tax Rules: Dynamis Quick Take

I. Introduction 

In November of 2021, Congress passed the Infrastructure Investment and Jobs Act, which amended cryptocurrency tax reporting obligations under 26 U.S.C. § 6045. This amendment began to apply “January 1, 2023”, meaning the tax reporting obligations take effect this tax year (unfortunately). 26 U.S.C. § 6045(g)(3)(C)(ii). There is no precedent for this type of tax reporting, and the IRS has yet to release proposed or final regulations to ensure individuals and institutions can comply. Thus, anyone who receives cryptocurrency in the course of their trade or business should be vigilant about tracking these obligations as more information comes to light. 

II. New Rules 

The Infrastructure Investment and Jobs Act amended the existing definition of “specified security” that needs to be reported to include “any digital asset.” 26 U.S.C. § 6045(g)(3)(B)(iv). “Digital asset” is defined to mean “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” 26 U.S.C. § 6045(g)(3)(D). The new tax reporting rule took effect on January 1, 2024, and is self-executing and enforceable without further action. 

A. Who must report? 

The Infrastructure Investment and Jobs Act specifies that anyone who receives $10,000 or more in cryptocurrency in the course of their trade or business must report that transaction to the IRS . This defintion includes individuals, companies, corporations, partnerships, associations, trusts, and estates. As such, if you are a crypto miner or day trader (even as an individual), you are covered by this reporting obligation. Individuals receiving airdrops, mining, or staking rewards may not need to be as concerned as long as they are receiving the rewards in their personal capacity. However, if these rewards are received within a business context, they likely become subject to reporting.  

Although it is unclear what constitutes a ‘trade or business,’ the courts and the IRS often look at several factors to determine if an activity qualifies as a trade or business – (i) regularity and continuity of the activity; (ii) intent to make a profit; (iii) level of activity. See National Ass'n of Postal Supervisors v. United States, 21 Cl. Ct. 310, 318 (1990).

B. How to Report? 

The law states that reports must be made “in such form as the Secretary [of the Treasury] may prescribe.” However, the Secretary has yet to prescribe a form specifically for cryptocurrency.    

Currently, the Secretary requires “cash” to be reported electronically using Form 8300 with FinCEN or with the IRS. Unlike physical cash transactions, however, FinCEN has no authority to collect reports concerning cryptocurrency transactions, so you cannot be required to send Form 8300 there. As such, filing Form 8300 with the IRS may be the best option to avoid trouble. 

Further, like other specified securities under Form 8300, the reporting requirement only pertains to transactions that occur within any of the 50 states, the District of Columbia, or a U.S. possession or territory (American Samoa, The Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands). If you're dealing with offshore DAOs or foreign entities, this reporting rule does not apply. Therefore, if your crypto transactions involve exclusively international parties, you are not subject to Form 8300 reporting. 

Besides filing Form 8300, you also need to provide a written statement to each party whose name you included on Form 8300 by January 31st of the year following the reportable transaction. This statement must include the name, address, and Social Security number (SSN) of the sender, as well as the amount, date, and nature of the transaction. The statement must also indicate that you provided this information to the IRS. It is unclear whether reporting requirements will change since collecting all the information necessary to file will be almost impossible due to the pseudonymous nature of cryptocurrency transactions. 

C. When to report? 

Form 8300 must be filed within 15 days of the transaction. Failure to file could be a criminal offense (although this is unlikely).

III. Why should you care? 

While the new tax rule is extremely ambiguous, for those trading or receiving crypto as a business, it is critical to keep up with federal tax obligations to avoid unnecessary penalties. Department of Justice lawyers have suggested that the law might not be effective before the Treasury Department issues specific regulations, but the IRS has never explicitly said that.  

 Coin Center, a leading non-profit focused on policy issues facing cryptocurrencies, filed a lawsuit in June 2022 that challenges the new tax rule as unconstitutional. Unfortunately, the case has not provided further clarification and is still making its way through the courts.