New IRS Mandate Impacts Crypto Transactions Over $10,000

As of January 1, 2024, businesses and professional traders dealing in cryptocurrencies face stringent reporting requirements, stipulated by Section 6050I of the Infrastructure Investment and Jobs Act. Failure to comply may result in felony offenses. 

The legislation compels crypto brokers to furnish the IRS with personal information on transactions exceeding $10,000, including sender details within 15 days.

With the expansion of reporting obligations for crypto transactions, the IRS hopes to improve tax reporting and bridge the U.S. tax gap. However, the lack of clarity regarding who is subject to these reporting requirements raises concerns among traders, especially those engaging in decentralized finance (DeFi) protocols.

Nevertheless, to ascertain reporting obligations, individuals or businesses must be engaged in a "trade or business" per the IRS definition. Crypto investors who don't conduct activities in a business-like manner may be exempt. Determining factors include full-time engagement, main income source, and year-round activity.

‍

Challenges for DAO Contributors, Airdrop Farmers, and Stakers

The IRS's lack of clarity on what constitutes trade or business activity adds to the complexity. 

Stakeholders, airdrop farmers, and contributors to decentralized autonomous organizations (DAOs) face the same ambiguity. Those engaged in these activities as a full-time occupation may fall under reporting obligations. However, specific circumstances, such as staking through entities or receiving one-off airdrops, could influence reporting requirements.

Crypto think tank Coin Center has taken legal action, challenging the IRS provisions as unconstitutional.