There have been a lot of headlines and buzz regarding the §6050I reporting requirements applying to crypto. We want to clarify these requirements, who is subject to them, and when you must worry about them.
Question 1. What is the requirement under §6050I?
Answer 1. According to §6050I, individuals, partnerships, corporations, trusts, or estates receiving $10,000 or more in cash in the course of their trade or business must file a Form 8300 with the Internal Revenue Service (IRS) detailing specific transaction information. The Infrastructure Investment and Jobs Act (TCJA) (enacted in 2021) modified the definition of cash to include crypto. This modification is effective on January 1, 2024.
Although the law's effective date is January 1, 2024, on January 16, 2024, the IRS announced that any entity or individual running a trade or business does not have to report crypto payments exceeding $10,000 until the Treasury Department issues further guidance.
The Form 8300 is for informational purposes only. There are no taxes due when filing.
Question 2. Who is required to file?
Answer 2. Any entity (an individual or a business) involved in a trade or business receiving $10,000 or more in a transaction (or related transactions) must file Form 8300. The factors determining if a trade or business exists include activity regularity, transaction frequency, income production, and ongoing business efforts. Running an activity for profit and livelihood suggests a trade or business.
For example, a car dealer sells a car and receives one bitcoin (BTC) (valued at $40,000 at the time of receipt) in return. The dealer must collect information about the buyer to complete the form since they are running a business as a car dealer.
You are not subject to this reporting if you don’t have a trade or business.
For example, you sell your car through an ad. The buyer pays you one BTC (valued at $40,000 at the time of receipt) in return. You don't have a filing requirement since you aren't running a business.
Question 3. What information do I need to gather to meet the filing requirements?
Answer 3. To complete Form 8300, you will need to be able to identify the individual(s) from whom the payment was received:
- First and last name
- Taxpayer identification number
- Full address
- Date of birth
- Occupation, profession, or business
- The date payment was received
- Total value received
- Type of transaction
The IRS may introduce a new version of the form, Form 8300-DA, to capture crypto transactions in the future.
Question 4. When is the filing deadline?
Answer 4. You must file within 15 days after receiving each payment over $10,000. If the 15th day falls on a Saturday, Sunday, or holiday, you have until the next business day.
Question 5. How do I comply if I don’t know the other party (Ex. DeFi protocol, native staking)?
Answer 5. The IRS hasn’t issued regulations and guidelines on how to comply when crypto is involved. We suggest that anyone with a filing requirement keep detailed records as best as possible and be ready to comply once the guidelines are released.
Question 6. Can an individual crypto investor ever have a trade or business for tax purposes?
Answer 6. Full-time crypto traders may qualify as running a trade or business if they seek daily profits, regularly engage in substantial activity, and continuously trade. That said, the IRS regulations and guidelines don’t provide clear guidance on how the existing rules apply for crypto traders to treat their trading as a trade or business (the rules are for securities and commodities traders; crypto is property).
Therefore, It is unlikely that an individual crypto investor will need to report crypto receipts related to rewards and trades at this moment. The IRS intends to release regulations that should provide clarity for this situation.
Question 7. Can crypto miners and stakers have a trade or business?
Answer 7. Anyone running a staking or mining business receiving more than $10,000 in a transaction could be subject to reporting. However, the IRS needs to issue guidance for these types of transactions. It is best to keep detailed records (amount, payor/wallet address, and transaction date). We recommend discussing your situation with a tax professional if you receive more than $10,000 in crypto rewards.
Question 8. My business accepts crypto as a form of payment. Do I have a requirement?
Answer 8. The filing requirement applies if your business accepts crypto as a payment method and when you have receipts over $10,000.
Question 9. I am a non-fungible token (NFT) artist. Am I subject to this?
Answer 9. Maybe. Each case’s facts and circumstances will dictate if you run a trade or business. If you continuously make new NFTs and sell, you most likely run a trade or business because you do this regularly, subjecting you to the filing requirements. If it is a hobby and you are doing this for fun with no regularity, this would not be a business activity and, therefore, not subject to the filing requirements. Anyone doing NFT artistry part-time should discuss their situation with a tax professional because everyone’s situation is different.
Question 10. What are the consequences for not complying?
Answer 10. There are civil penalties if you don’t file on time. In addition, there are civil penalties if you don’t include all the required information or don’t provide the correct information. The penalty is $310 per return, not exceeding $3,783,000 per calendar year. If you correct any failure to file on or before the 30th day after the required filing date, the penalty reduces to $60 instead of $310, and the maximum amount imposed shall not exceed $630,500 per calendar year.
Suppose there is an intentional disregard to meet the requirements. In that case, these penalties increase to the greater of $31,520 or the amount received in the transaction, not to exceed $126,000 (with no calendar year limitation). Please see the IRS website for more details on the civil penalties.
If you have any questions or comments, let us know on Twitter @CoinTracker.
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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.