IRS Postpones Unworkable Crypto Tax Reporting Rule

After comments that the rules were impossible to follow, the IRS has delayed the new requirements.

What do the new rules require of crypto businesses?

Following an update from the Internal Revenue Service (IRS), businesses and individuals in the US will no longer have to report crypto transactions they receive that are over $10,000. While the rule, which was supposed to come into effect at the beginning of January, will still ultimately be implemented, the IRS is delaying it until a regulatory framework and appropriate processes have been created.

The new rules had been in the works for many months, but the majority of the crypto community only recently started to catch on about the implications. The requirements have been branded as unworkable by critics, since they appear to apply to settings in which the sender cannot be known, as well as having significant implications for privacy.

Felony Offence

The IRS's aim was to bring crypto into line with existing rules, that require businesses to report cash transactions of over $10,000 within 15 days, providing information about the identity of the sender, including address and social security number. Failure to comply is a felony that can be punished by jail time.

However, the nature of the crypto space means that this information may simply not be available. In fact, it's possible that the law would even apply to DeFi transactions where users interact with liquidity pools, such as when using an AMM. In this instance, it is literally impossible to provide the necessary information.

Moreover, the IRS has not yet offered the necessary framework, including tailored forms, for users to submit the required information. All of this made for an impossible situation, as Coin Center and other critics noted.

As a result of pushback by the community, the IRS has delayed implementation of the new rules, stating:

At this time, digital assets are not required to be included when determining whether cash received in a single transaction (or two or more related transactions) meets the reporting threshold.

The rules, and their necessary delay, is part of a wider regulatory and enforcement battle taking place in the US, as different agencies (including the SEC, CFTC, DOJ, and IRS) attempt to lay claim to the crypto space. In the process, the lack of clarity desperately needed by crypto businesses is perpetuated, and progress has to be forced through litigation in the courts.

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