June 13, 2024

IRS Pauses $10,000 Cryptocurrency Reporting Rule for Businesses

The Internal Revenue Service handed a temporary victory to businesses Tuesday, saying they don’t have to report cryptocurrency transactions of more than $10,000 until the tax agency issues final rules on the matter.

The unexpected announcement puts a temporary hold on a hotly contested requirement that went into effect barely three weeks ago. The IRS did not explain its decision to rescind implementation. A spokesperson referred to the announcement and an accompanying technical document.

The nation’s tax collector is concerned that people operating as a trade or business — a term of art  — may be avoiding taxes on their operations with digital currencies. Businesses have long had to report cash transactions exceeding $10,000 within 15 days of receiving the money, and the new law, which went into effect on Jan. 1, was meant to put bitcoin and other cryptocurrencies under the same rule as for cash. The paused rule particularly impacts small businesses, crypto traders and nonprofits that receive charitable donations of digital currencies.

The pause doesn’t affect a separate law that also involves digital transactions. 

Under that separate rule, e-commerce and payment platforms including PayPal, Venmo, Zelle and Etsy will have to send tax forms to customers who receive $5,000 or more for all forms of payments, including digital coins, for goods or services a year starting in 2024. The IRS had originally set a threshold of more than $600 — a level that would have ensnared sellers of sneakers and Taylor Swift concert tickets — but rolled it back last November. Now sellers on eBay and the like won’t have to report customer transactions until they file their taxes in 2025.

The new reporting rule for $10,000 in cryptocurrency transactions has raised questions, including how the IRS will distinguish between investments and business payments in digital currency. Also outstanding: What if the value of the crypto received has increased through a “hard fork,” which is when a digital currency splits in two?

Cryptocurrency advocacy groups have railed against the rule. On Jan. 2, Jerry Brito, the executive director of CoinCenter, a lobbying organization in Washington, D.C., wrote in a blog post that it was “virtually impossible to comply with,” given the outstanding questions and lack of final guidance from the IRS.

Once the IRS hammers out final rules, businesses will have to report to the agency the name, address and Social Security number of the person from whom they receive digital funds, along with amount received and the date and nature of the transaction. Failure to tell the IRS is a felony.

The IRS doesn’t consider cryptocurrencies to be money, and instead treats them for tax purposes like a stock. So profits on sales or trades of digital assets are taxed at long-term capital gains rates, now a top 23.8%.

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