A new Internal Revenue Service (IRS) rule requiring the disclosure and reporting of cryptocurrency transactions valued at $10,000 or more took effect in January 1, 2024. However, crypto policy advocate Coin Center has challenged the rule, arguing that “many will find it difficult to comply with”.

The Infrastructure Investment and Jobs Act, passed by Congress in November 2021, expanded existing cash transaction reporting requirements to also include cryptocurrencies.

Now, anyone receiving $10,000 or more in crypto “in the course of their trade or business” must file a report with the IRS within 15 days. This includes providing personal details on the sender, including name, address, and Social Security Number (SSN), as well as the date, amount, and nature of the transaction. Failure to comply could result in felony charges and penalties.

‘Straightforward’ Law May Be Impossible to Follow

Even some lawmakers like House Representatives Patrick McHenry and Tim Ryan pointed out that this clause would be “difficult or impossible” to follow for many brokers when it was moving through Congress.

In a blog post published yesterday, Coin Center’s executive director Jerry Brito agreed with the pro-crypto representatives. He said that even though the law appears to be pretty “straightforward”, those who engage in transactions involving cryptocurrencies may find many obstacles to comply with it primarily due to a lack of guidance.

For Coin Center, various aspects of the rule like how the amount of the transaction will be calculated and how the data required from regulators – i.e. full name and other details of the recipient or sender – will be obtained are unclear.

For example, if the transaction is executed by using an independent blockchain, which are networks through which assets are transferred to relatively anonymous crypto wallets, the parties involved may have no way to access this kind of information.

Details on Crypto Transactions Could be Hard to Provide

“If a miner or validator receives block rewards in excess of $10,000, whose name, address, and Social Security number do they report?” Brito asserted. “If you engage in an on-chain decentralized exchange of crypto for crypto and you therefore receive $10,000 in cryptocurrency, who do you report?”

If a Bitcoin miner was able to singlehandedly mine a block it would earn vastly more than 10,000 as each block rewards miners with 6.25 Bitcoin, worth well over $250,000 at the time of writing.

Brito also raised concerns around determining equivalency values for cryptocurrencies and handling private donations sent to public addresses, which is how the institution he leads typically supports its efforts.

“The really tricky nature of this requirement will become clear when someone makes such a donation, but does so anonymously by simply sending us Bitcoin or Ether to our public addresses. Who could we possibly list as the sender in that case?” Brito asked.

Coin Center’s Lawsuit Against the US Treasury Department is Still On Course

Coin Center filed a lawsuit against the Treasury Department in June 2022, arguing that these reporting requirements are unconstitutional. However, Brito made it clear that “the case is still in the courts” and the rules now apply and will probably be enforced by regulators this year.

In the meantime, the IRS has provided no guidance or reporting mechanism for crypto transactions yet. Brito noted that the Infrastructure Act points to using Form 8300 for the reports. However, this form is jointly handled by the IRS and the Financial Crimes Enforcement Network (FinCEN), which does not have authority over cryptocurrencies.

With no direction from the IRS and the threat of felony charges, many crypto users may attempt to comply by improvising reports. However, the lack of clarity around providing the required details or handling privacy coins remains a significant roadblock to adequately submit the required information.

The Rule Could Impact a Large Group Including Crypto Miners and Traders

While the Infrastructure Act language focuses specifically on those receiving crypto funds “in the course of their trade or business,” Coin Center notes that this could cover a wider group.

“The obligation applies to individuals if they receive $10k+ in the course of their trade or business, not just ‘businesses’” said Brito in a post published on the social media platform formerly known as Twitter and now called “X”.

“So, if I’m a miner (even as an individual) I’m covered. Also, if I’m a day trader (even as an individual) I’m covered.”

He added that the rule would likely also cover individual crypto artists and creators of non-fungible tokens (NFTs) who may not have registered businesses.

The new reporting requirements fit into an evolving patchwork of crypto tax guidance that has already proven confusing and controversial.

The IRS first clarified in 2019 that federal tax obligations apply to crypto gains and transactions. However, determining the cost basis and specific tax liability has continued to challenge many traders and investors.

Some crypto advocates hoped to obtained further clarifications about the matter via the Infrastructure Act, like expanding the legal definition of brokers and determining how transactions would be valued. However, the ambiguity regarding who qualifies as a broker and frustration over duplicative reporting instead sparked widespread pushback within the crypto community.

A Group of US Senators Complaints About a Lack of Guidance as Well

The crypto reporting rules align with a growing focus from the Treasury Department and the IRS on cryptocurrency taxes. In a joint statement published on August this year, Senators Elizabeth Warren, Bob Casey, Richard Blumenthal, and Bernie Sanders cited that the tax gap for crypto transactions could be valued at over $50 billion according to some studies.

As a result, crypto transactions are viewed as a significant target for increased oversight and enforcement.

“Given the chance, tax evaders and the crypto intermediaries willing to aid them will continue to game the system, exploit loopholes, and siphon off billions of dollars a year from the U.S. government”, the press release reads.

Also read: Best Crypto Tax Software: Top Solutions for 2023

However, the legislators expressed concerns regarding the absence of guidance from the Treasury Department and the IRS that are pretty much aligned with what Coin Center is demanding today.

“Without quick action, your agencies are at risk of failing to meet their congressionally-mandated deadlines for implementation of a final rule”, the four senators claimed.

Without proper guidance, millions of crypto users and brokers now face new reporting requirements that both advocacy groups and legislators believe are difficult or even impossible to comply with. The incoming reports from those attempting to engage in good faith efforts may thus create their own troublesome workload for the IRS and the rest of the agencies involved.

For crypto businesses, miners, traders, and investors, there is also an open question concerning how aggressively these new rules will actually be prosecuted. The threat of felony charges underscores the precarious new tightrope now in place across much of the crypto economy.