Are you in the trading or business? Then, be ready to comply with a new $10K reporting rule effective from 1st January 2024.? The new law is that anyone who carries trade or business and receives more than $10,000 in form of any digital assets (cryptocurrency coins, tokens or NFTs) must report the transaction in Form 8300 with the IRS.
This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation. The IRS invites feedback on the threshold of $5,000 for tax year 2024 and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.News on IRS website
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Legislation for Receipt of Crypto $10K Reporting
This requirement parallels existing cash reporting rules, reflecting the recognition that cryptocurrency must report the recency as a legitimate payment instrument.This new law treating crypto transactions similar to cash transactions for reporting purposes was introduced via the Infrastructure Investment and Jobs Act of 2021 (IIJA). Consequently, the definition of “cash” given in section 60501(d) now includes “Digital Asset”.The definition is as follows:
(d) Cash includes foreign currency and certain monetary instruments. For purposes of this section, the term “cash” includes–
(1) foreign currency,
(2) to the extent provided in regulations prescribed by the Secretary, any monetary instrument (whether or not in bearer form) with a face amount of not more than $10,000, and
(3) any digital asset (as defined in section 6045(g)(3)(D)).
Who Must Report Digital Assets Receipt Exceeding $10K?
The rule of reporting “cash” or “digital asset ” applies only when :
- You are a US person ; and
- You are carrying trade or business ; and
- In the course of such business or trade, you received $10K or more from another person who is a US person or entity.
When all the three conditions are satisfied , you have obligation to file return in Form 8300 to the IRS.
How do you report the receipt of cryptocurrency to the IRS?
Form 8300, traditionally used for reporting cash transactions exceeding $10,000, has to be used for reporting receipt of “digital asset” exceeding $10,000 value. IRS has published the new Form 8300 in December 2023 .You must electronically file (e-file) Forms 8300 if :
- you’re required to e-file other information returns, such as Forms 1099 series and Forms W-2. or
- If you’re required to file at least 10 information returns of one or more type(s) other than Form 8300 during a calendar year.
In other case, you can file For, 8300 , electronically. But remember , If you are supposed to e-file by rule , but file by paper and you don’t have a waiver or religious exemption, you will be subject to a failure to file penalty.
Is there a time limit to report cryptocurrency?
Reporting of cash or “digital assets” exceeding $10,000 must be done within 15 days of receiving the cash or “digital assets”. Further , there is a time limit for record keeping of filed Forms 8300. You must keep a copy of Form 8300 for five years. Confirmation receipts is not considered . You should associate the confirmation number with the saved copy.
What are the penalty consequences for non-reporting?
Section 6721 of the Internal Revenue Code (IRC) outlines the civil penalties for not filing a return in Form 8300 by a person carrying business or trade. The following penalties are prescribed:
- Up to $280 per occurrence, not to exceed $3,302,000 in a calendar year.
- If the IRS determines that the failure to file Form 8300 was intentional, penalties equal to the amount of cash (or cryptocurrency) received in the transaction are applicable for each deliberate failure.
- Additionally, the IRS can impose criminal fines of up to $25,000 for individuals and $100,000 for corporations and imprisonment for up to five years for “wilful non-compliance
How does the new reporting rule affect crypto investors?
In cryptocurrency, you do various things, like trading cryptocurrencies, staking, lending, swapping and mining. But the new law of reporting digital assets is applicable, in my considered opinion, to the following class of persons :
- If you trade cryptocurrencies or NFTs, i.e. showing income in your tax return as “business income” on gains of such transaction and receiving more than $10,000 for swapping the cryptocurrencies. If you only invest and declare gains as “capital gains”, this law does not apply to you.
- If you are into mining cryptocurrencies and receive a mining reward exceeding $10,000.
- If you are carrying on any online business or freelancing jobs for which you charge or accept consideration in the form of digital assets (cryptocurrencies), the receipt is more than $10,000 from a payer in a single billing.
How Does the New Rule of Reporting Crypto Transactions Affect Common Investors?
Even though an investor in digital assets (cryptocurrencies or NFTs) is not required to report any receipts exceeding $10,000 (as a rule applies to the person carrying business or trade and payment in cryptocurrencies must be part of trade or business ), IRS will now know many people who paid in form to digital asset to any person carrying on trade or business.
For example, if you pay a crypto exchange with coins valued at more than $10,000, you will require the crypto exchange to report the receipt within 15 days by filing form 8300. Once they do that, the IRS will know the following details, for which Part II of the form 8300 has fields:
- Date of the transaction
- Fair market value of the cryptocurrency received on the date of the transaction
- The total amount of the cryptocurrency received in USD
- Name and address of the payer (sender of the cryptocurrency)
- Payer’s taxpayer identification number (SSN or ITIN)
- Description of the property or service for which the payment was made
Later on, the IRS may use these data for several examinations, like if you file a tax return, whether you showed crypto-related income, etc.
While the information on this site - Internal Revenue Code Simplified-is about legal issues, it is not legal advice or legal representation. Because of the rapidly changing nature of the law and our reliance upon outside sources, we make no warranty or guarantee of the accuracy or reliability of information contained herein.