IRS Whiplash: Section 6050I Updates and Form 8300 Filing for Digital Asset Transactions

Summary

Learn about the recent updates to Section 6050I of the Internal Revenue Code, which now includes digital assets in the definition of cash. Discover the new requirements for filing Form 8300 within 15 days of receiving cash or digital assets exceeding $10,000. Find out about the transitional guidance provided by the IRS, and the ongoing work by the Treasury Department and the IRS to finalize regulations for reporting digital asset transactions. Stay informed, maintain robust record-keeping systems, and seek professional guidance to navigate the complexities of reporting digital asset transactions accurately. Compliance with these regulations is crucial for transparency and avoiding penalties.

The ever-evolving landscape of financial transactions with more people adopting Digital Assets has prompted regulatory agencies like FinCEN and the IRS to adapt to this evolving landscape. In this blog, we will explore the recent updates to Section 6050I of the Internal Revenue Code to add digital assets to the list of assets included in the definition of cash in section 6050I(d), focusing on the new requirements for filing Form 8300 and the welcome of transitional guidance published 2 days ago on January 16th. If you have any questions, please don’t hesitate to contact Interim CFOs for any of your tax needs.

Understanding Section 6050I, Cash is king but not too much.

Section 6050I of the Internal Revenue Code serves as a critical tool in combating money laundering and other financial crimes. Originally designed to monitor large cash transactions, recent amendments have extended its reach to include digital assets. Under this section, any person that receives cash in excess of $10,000 in one transaction (or two or more related transactions) must file an 8300 Form within 15 days of the receipt of cash. This is nothing new and I wonder how many Americans fail to do this just because they have no idea they have to do this.

Key Updates to Section 6050I, Cash = Digital Assets

Here comes the infrastructure Investment and Jobs Act and the definition of Cash is expanded. Effective on January 1, 2024, Section 6050I(d) now explicitly expanded the term of “cash” to cover digital assets defined in section 6045(g)(3)(D), ensuring that transactions involving cryptocurrencies, tokens, and other virtual currencies are subject to reporting requirements.If you are thinking this is outrageous and an excessive burden on crypto companies, you are correct and if you happen to be a payments company that handles digital assets now you have a lot of reporting to do.

Transitional Guidance, An IRS Miracle

According to a transitional guidance published by the IRS on January 16, 2024, digital assets are not currently required to be reported on Form 8300, stakeholders should remain vigilant for updates from the Treasury Department and the IRS. Most people in the industry were not ready and the IRS had not even updated their forms. There were many questions including how to report it and how to handle decentralized transactions and how to obtain SS numbers names and addresses. This was a train wreck and I am so glad that the IRS decided to delay this action.

Anticipating Future Requirements: Don’t pop the champagne yet

We don’t have to do this yet but we will have to do it some time soon. The Treasury Department and the IRS are actively working on finalizing regulations that specifically address the inclusion of digital assets in Form 8300 reporting. Once these regulations are in place, individuals and businesses involved in digital asset transactions will be required to report this information in accordance with the provided forms and instructions.

Guidance for the Transition Period

Stay Informed

Regularly update yourself on changes to tax codes and regulations, especially those related to digital assets. Engage in continuous learning to ensure a comprehensive understanding of evolving compliance requirements. Need more help? At Interim CFOs, we offer tax advisory services! Check out more information here.

Implement Robust Record-Keeping Systems

Establish and maintain systems for thorough record-keeping of digital asset transactions. This not only ensures compliance but also serves as a valuable resource in the event of an audit. You will need to tag your on-chain transactions by name so you know when Joe Schmo hits the $10k mark. You will also have to collect SSN and personal information from your vendor freelancers etc so you can properly report. This will be a heavy lift.

Seek Professional Guidance

Given the complexities of tax regulations, consider seeking professional advice to navigate the nuances of reporting digital asset transactions accurately. If you need financial advice for your cryptocurrency company, we will be happy to give you free consultation with a group of crypto experts at Interim CFOs. Learn more about our crypto advisory services here.

Conclusion

The amendments to Section 6050I reflect the government’s war on crypto. However I have to applaud the IRS commitment to adapting tax regulations to the digital assets era. They totally made the right call by delaying this. I don’t think the IRS was looking forward to receiving more 8300 forms but the Jobs Act pushed this on them. Transitional guidance published by the IRS this week buys us time to be able to prepare and perhaps lobby to change this burdensome law. Stakeholders should remain vigilant for updates from the Treasury Department and the IRS. Once the proposed regulations are finalized, compliance will be crucial to ensure transparency in digital asset transactions and avoid potential penalties.

Resources

IRS Announcement 2024-4: https://www.irs.gov/pub/irs-drop/a-24-04.pdf
Internal Revenue Code: https://uscode.house.gov/browse/prelim@title26&edition=prelim