Transacting more than $10K in crypto? You may soon have to report that to the government
A proposed amendment to the tax code in the infrastructure bill making its way through Congress could lead crypto traders to face fines and jail time for improperly reporting receipt of more than $10,000 in cryptocurrency or NFTs, according to a report by the crypto lobbying group Proof of Stake Alliance.
The amendment that the bill would make to tax code section 6050I would, in a broad range of scenarios, require any business or person conducting business that receives more than $10,000 in digital assets to verify the sender’s personal information, including their social security number, and sign and submit IRS form 8300 to the government within 15 days, the report said.
If the person who received the assets intentionally does not report the transaction, they would face a mandatory fine of at least $25,000 and a possible felony with up to five years in prison.
“The effect of this is just to radically alter the nature of a digital asset receipt or payment,” the report’s author and Proof of Stake Alliance Adviser Abraham Sutherland told Fortune.
Under this amendment, the sender of the digital assets would also be breaking the law if they try to structure transactions to avoid the reporting threshold or encourage the recipient of the assets not to file the report to the government.
Sutherland said this could cause senders of expensive digital assets to be at risk of breaking the law if they don’t want to reveal their identifying information after selling any assets.
The new reporting requirement stems from an amendment to a 1984 law that was meant to discourage large cash transactions and meant to stop drug dealers and smugglers. The law would now be applied to digital transactions including for crypto, NFTs, and any other “digital representation of value,” said Sutherland.
“The old statute regarding cash is so out of place in the context of digital assets, it just doesn’t translate very easily,” he said.
The new requirements pose restrictions and possible conflicts on Americans, Sutherland argues in the report, as it would make them responsible for reporting to the government the personal information of any seller from which they buy digital assets worth five figures or more.
Sutherland said this would be impossible in many cases, especially if a person is buying digital assets from someone without a tax ID number or from someone whose ID cannot be verified and reported, especially in the case of international transactions.
When it comes to enforcing the new reporting requirements, the statute gives discretion to the Treasury Department, which can change with each presidential administration.
Even if one administration’s Treasury Department decides to be lax on regulating the statute, a change in leadership could easily alter that stance, said Sutherland.
One caveat for the reporting requirements: you don’t need to file a seller’s personal information to the government if a financial institution already has to report it, Sutherland said.
“That’s encouraging people to not use digital assets, one,” he said. “And two, even if you want to use digital assets, you might as well use intermediaries like banks or financial institutions, because then they will take care of the surveillance requirements and then you don’t have to.”
In effect, the new reporting requirements will permanently alter the peer-to-peer aspect of the crypto and NFT markets and push them toward more established intermediaries to avoid any violations of the law, Sutherland said.
The changes to tax code section 6050I are not the only ones that would affect the crypto space. When the infrastructure bill was still in the Senate, crypto advocates had objected to certain language in tax code section 6045 that they argued would expand and intensify reporting requirements.
Sutherland said the changes to tax code section 6050I are different from the amended language in section 6045 in that the amendment could potentially apply to normal citizens transacting in crypto or purchasing NFTs through the course of their trade or business.
For now there are still many unknowns in what the ramifications of the amendment will be and how it will apply in certain situations, Sutherland said.
“If you’re a business, working in this area you’re going to want to be careful,” he said.
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