The controversial crypto tax reporting requirements within the bipartisan infrastructure bill signed into law in 2021 are now in effect as of January 1.
These new Internal Revenue Service(IRS)rules mandate that cryptocurrency brokers report personal information on digital asset transactions over$10,000,including customers’names,addresses,and social security numbers,within 15 days.
While the goal is increased transparency and reduced tax avoidance,the rules have drawn criticism for being vague and difficult to comply with.
According to Jerry Brito,executive director at cryptocurrency policy think tank Coin Center,many crypto users“will find it difficult to comply”with the“tricky”reporting requirements without further IRS guidance.
Uncharted Territory for Crypto Investors and Regulators
For investors transacting through centralized exchanges like Coinbase or Kraken,compliance will fall on the platform operator.But for peer-to-peer deals or mining proceeds,the responsibility shifts to the individual.
Brito raised questions about specifics such as which parties will be responsible for reporting in scenarios like miner rewards over$10,000 and decentralized on-chain exchanges.He argued that without more clarity,some filers may attempt compliance but risk accidentally committing a felony in the process.
“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?”Brito questioned.“And by what standard should you measure whether an amount of a particular cryptocurrency is equivalent to more than$10,000?”
Brito also talked about the privacy implications of the tax reporting rules now taking effect.Requiring brokers to collect and share personally identifiable information on customers’crypto transactions with the IRS poses cybersecurity and identity theft risks,he contends.
The enhanced 1099-B tax reporting requirements for digital asset transactions over$10,000 were initially set to begin in January 2023 but were pushed back a year over confusion regarding the rules.
In August 2023,Coin Center proposed that the IRS establish a de minimis exemption for smaller crypto transactions.The new requirements have gone into effect without such an exemption in place,however.
Now the provisions are in effect,meaning crypto brokers must begin sending comprehensive reports to the IRS for all applicable 2024 transactions.