Cryptocurrency Investors Could Face New Risks If They Fail To Report Transactions to the IRS

Thanks to a few key provisions tucked into the long-awaited Senate infrastructure bill, cryptocurrency investors could soon face new risks if they fail to report transactions to the IRS. As Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, while the bill does not address cryptocurrency investors’ tax obligations directly, it proposes new third-party reporting requirements that would facilitate enhanced enforcement by the Internal Revenue Service (IRS).

Why Does the Senate Infrastructure Bill Include Provisions Regarding Cryptocurrency Reporting?

The bill proposes new third-party reporting requirements for cryptocurrency transactions as a way to generate revenue to help pay for the Senate’s infrastructure proposals. If the new reporting requirements become law, congressional accountants estimate that they would lead to the collection of an additional $28 billion in cryptocurrency-related tax liability over the next 10 years.

What are the Cryptocurrency Reporting Requirements in the Senate Infrastructure Bill?

If passed in its current form, the Senate infrastructure bill would establish three new reporting requirements for cryptocurrency transactions. Under the relevant provisions of the bill, the IRS would be able to gather information about cryptocurrency investors’ transactions (and thus their tax liability) through:

• A requirement for digital asset brokers to report cryptocurrency sales similar to the requirement for stockbrokers to report their customers’ securities transactions;
• A requirement for the reporting of transactions that result in assets being moved out of cryptocurrency exchanges; and,
• A requirement for reporting all cryptocurrency transactions with a total value in excess of $10,000 (similar to the $10,000 cash transaction reporting requirement for financial institutions).

How Would the Senate Infrastructure Bill’s Cryptocurrency Reporting Requirements Lead to Enhanced Revenue Collection?

By collecting cryptocurrency transaction data from brokers (the definition of which remains a subject of debate in the House), the IRS will be able to identify taxpayers who have underreported and underpaid their cryptocurrency-related tax liability. The IRS has already been using “John Doe” summonses to gather data from cryptocurrency exchanges, but the ongoing reporting requirements proposed in the Senate infrastructure bill would provide the IRS with a steady stream of information it could use to enforce investors’ federal income tax obligations.

What Should Cryptocurrency Investors Do if the Reporting Provisions in the Senate Infrastructure Bill Pass?

Technically, if the reporting provisions in the Senate infrastructure bill pass, nothing will change for cryptocurrency investors. They will still have the same obligation to report their own cryptocurrency transactions, and they will still have an obligation to pay all taxes they owe. However, with more resources at its disposal – and with a mandate to use those resources to help fund the government’s infrastructure initiatives – the IRS will likely be placing even greater emphasis on enforcing cryptocurrency investors’ tax obligations. As a result, it will be more important than ever for investors to ensure that they are fully complying with the Internal Revenue Code.

Request an Appointment with Washington D.C. Tax Attorney Kevin E. Thorn

If you need to speak with an attorney about your cryptocurrency tax liability, we encourage you to contact us for a confidential consultation. To request an appointment with Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 202-349-4033, email ket@thornlawgroup.com or inquire online today.