The IRS recently issued new guidance that has brought relief to businesses accepting cryptocurrency as payment. The guidance delays the requirement for reporting digital asset transactions that exceed $10,000 on Form 8300 until further regulations are provided by the Treasury. This change stems from the Infrastructure Investments and Jobs Act of 2021, which expanded the definition of cash to include digital assets.
Prior to the issuance of this new guidance, businesses subject to the law had to decide whether to comply in good faith or take a riskier approach of waiting for further guidance. The recent notice clarified that reporting can be delayed until additional regulations are established, easing the concerns of many in the crypto industry.
However, the lack of regulatory guidance has caused concerns among tax professionals serving clients in the crypto space. The current version of Form 8300, updated in December 2023, does not include provisions for reporting digital assets. This creates confusion for firms receiving payments in cryptocurrency, as they are unsure which category to select for crypto transactions. The form lists various types of cash, such as U.S. currency, foreign currency, cashier's checks, money orders, bank drafts, and traveler’s checks, but digital assets are not included.
This issue becomes even more complex for firms providing cryptocurrency reconciliations to clients without collecting personally identifying information. While these firms are able to prepare standalone reconciliations without the need for personal details, asking for such information to complete Form 8300 may lead compliance-oriented firms to lose clients to non-compliant ones. To navigate this situation, specific guidelines from the Treasury are needed.
The new law also presents challenges for businesses operating in digital art galleries. Even though the NFT art market has cooled down for now, a single NFT purchase made entirely on the blockchain and with a large amount of anonymity could trigger a Form 8300 reporting requirement for the artist or seller. Despite claims that blockchain transactions are entirely anonymous, they can be traced with sufficient resources allocated.
This recent IRS guidance delay is the second high-profile instance where the implementation of a new tax statute has been postponed. It raises the question of whether the IRS has the authority to delay the implementation of laws passed by Congress, even if the delay is welcomed or if the law is flawed. The IRS Commissioner has discretion to administer and manage tax laws, but selectively applying this power to inconvenient or burdensome laws could be seen as problematic.
It is worth noting that the crypto industry has been awaiting guidance on various issues for over a decade now, which predates the current reporting requirement. With the new notice providing the green light to wait for regulations, businesses may have ample time to prepare for the reporting requirement once the regulations are established.
