Treasury Department Proposal Would Require Reporting of All $10,000 Cryptocurrency Transactions

Under federal law, taxpayers and certain businesses are required to report all cash transactions of $10,000 or more to the IRS. This requirement is intended to prevent tax evasion through the use of undocumented transactions. The U.S. Treasury Department’s American Families Plan Tax Compliance Agenda, released in May 2021, proposes a similar reporting requirement for transactions involving cryptocurrency. Here, Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what this would mean for cryptocurrency investors and other businesses.

What if the IRS Extends the $10,000 Cash Reporting Requirement to Cryptocurrency?

Since its introduction in 2009, cryptocurrency has been viewed by many as a tool for protecting financial transactions from government oversight. This, in turn, has led to efforts to establish government oversight—and these efforts have gained significant traction in recent years. As it has become clear that digital currencies are here to stay (and are likely to continue to play a growing role in the world economy), the IRS and other agencies have sought out ways to effectively regulate the market and enforce investors' legal obligations.

Extending the $10,000 cash reporting requirement to cryptocurrency transactions will help to expand the IRS’ oversight of the cryptocurrency market. It will also create substantial burdens for cryptocurrency investors and other businesses.

Many cryptocurrency transactions involve $10,000 or more in market value. If each of these transactions needs to be reported, investors and other businesses will need to be extremely careful to ensure that they comply with the law. Additionally, as the cash reporting obligation applies not only to one-time payments but to related transactions as well, investors and other businesses will need to scrutinize many transactions below the $10,000 reporting threshold. As the IRS explains, a reportable cash “transaction” includes:

• Two or more related payments within 24 hours;
• All payments made as part of a single transaction within 12 months; and,
• Payments made as part of two or more related transactions within 12 months.

Cryptocurrency Investors Have Reporting Obligations Already

To be clear, cryptocurrency investors have reporting obligations already. Cryptocurrency investors must report their investment-related income on their federal tax returns. Those who hold cryptocurrency assets in foreign accounts may have offshore disclosure obligations as well. The IRS is already aggressively enforcing cryptocurrency investors’ reporting and payment obligations, and it is using “John Doe” summonses to obtain taxpayers’ information from cryptocurrency exchanges.

Since businesses that accept or facilitate cryptocurrency payments of $10,000 or more would also have reporting obligations, extending the cash reporting requirement to cryptocurrency would add yet another weapon to the IRS’ enforcement arsenal. If a business reports a cryptocurrency transaction that a taxpayer does not, not only could this lead to enforcement action based on the taxpayer’s failure to report the transaction, but it could also trigger an audit of the taxpayer’s federal returns.

Contact Washington D.C. Tax Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have questions about the tax laws that pertain to cryptocurrency in the United States, we encourage you to get in touch. To request an appointment with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 202-349-4033, email ket@thornlawgroup.com or contact us confidentially online today.