DEX users, brace yourselves. New tax reporting obligations took effect on January 1, 2024, and they are jaw-dropping in their scope and consequences. The new rule mandates any American citizen receiving a minimum of $10,000 in cryptocurrency to report the transaction to the Internal Revenue Service (IRS) within 15 days.
The details must include the name, address, Social Security number of the money sender (sic!), the amount received, and the date and nature of the transaction. Failure to comply entails the risk of facing… felony charges.
Crypto reporting regulations may be unconstitutional
The provision was sneaked into the Infrastructure Investment and Jobs Act (IIJA) passed by Congress and signed into law by President Joe Biden in November 2021. The IIJA is a comprehensive infrastructure spending bill with a focus on addressing and improving various aspects of the US infrastructure, including transportation, broadband, energy, water, and resilience to climate change. It's funny how it managed to include a crypto-related Tax Code amendment that may shake the DEX market and limit its availability to US citizens.
The new law has been contested by Coin Center, a leading non-profit dealing with crypto-related policy issues. In June 2022, the NGO filed a lawsuit against the Treasury Department questioning the constitutionality of the amendment, but the case is still pending.
"This is the 6050I law that Coin Center challenged in federal court and our case is in appeals. Unfortunately for the time being there is an obligation to comply – but it's unclear how one can comply," Jerry Brito, Coin Center's executive director, wrote in a post on Twitter.
The IRS doesn’t provide guidance on how to report crypto transactions
Indeed, the obligations instituted by the new regulations seem unfeasible. Miners receiving block rewards of $10,000 and above are unable to provide names, addresses, or Social Security numbers. The same regards crypto users trading on DEX platforms. On-chain decentralized exchange of crypto for crypto makes it virtually impossible to report all the required details. New regulations fail to clarify this conundrum. The IRS doesn't provide any guidance, either.
Individuals subject to the law don't even know how and where to report. The regulations require that a person send a report "in such form as the Secretary may prescribe." The Secretary of the Treasury requires "cash" – and considers cryptocurrency a form of "cash" – to be reported via Form 8300, but it is unclear how to report cryptocurrency on this form. What's more, Form 8300 is sent to both the IRS and FinCEN (the Treasury' bureau dealing with AML/TF issues). However, the latter institution is not authorized to collect crypto-related reports.
Coin Center considers the new law unconstitutional. Unfortunately, it's not enough to do away with it. For now, it seems that US citizens dealing with mining or trading on DEX have two options: either they demonstrate goodwill to comply or simply give up what they do.
