$10,000 Digital Asset Reporting Requirement Starts in 2024 Under IRC Sec. 6050I

Note: Treasury and the IRS announced on January 16, 2024, that this requirement will not be effective until regulations related to the provision have been published.

The requirement to treat digital assets as cash in transactions with a fair market value over $10,000 under IRC Sec. 6050I is still expected to be effective for returns required to be filed after December 31, 2023 despite remaining questions and a lack of guidance from the IRS or FinCEN. These transactions must be reported and filed within 15 days.  This requirement is a result of the Infrastructure Investment and Jobs Act (IIJA) in 2021, which also included the much-more discussed digital asset broker reporting requirements. 

IRC Sec. 6050I Requirements

IRC Sec. 6050I requires any person who is engaged in a trade or business (applicable sellers) and who receives more than $10,000 in cash in one transaction (or two or more related transactions) to report that transaction to the IRS and FinCEN. The information is provided on Form 8300, Report of Cash Payments Over $10,000 in a Trade or Business. The person who receives the cash is required to file that form within 15 days of the transaction. 

Transactions are broadly defined, and include:

• a sale of goods or services;
• a sale of real property;
• a sale of intangible property;
• a rental of real or personal property;
• an exchange of cash for other cash;
• the establishment or maintenance of or contribution to a custodial, trust, or escrow arrangement;
• a payment of a preexisting debt;
• a conversion of cash to a negotiable instrument;
• a reimbursement for expenses paid; or
• the making or repayment of a loan.

The Applicable sellers who receive the cash are required to report certain information on the Form 8300. For individuals, these sellers must report their full name, taxpayer identification number, address, date of birth, and occupation. Additionally, they must verify the individual’s identity through a government-issue identifying document, such as a driver’s license or passport, and report the document’s number. 

The definition of cash includes “the coin and currency” of the United States and foreign countries. It also includes cashier’s check, bank drafts, traveler’s checks, and/or money orders with face values less than $10,000 in certain situations. Under the changes made by the IIJA, this definition will also include “digital assets” as defined under IRC Sec. 6045(g). 

Penalties

Failure to provide the information within 15 days can result in both civil and criminal penalties. The current civil penalty for a willful failure to file Form 8300 is the highest of:

• $500, multiplied by the number of failures,
• $25,000, or
• The amount of cash received in the transaction (capped at $100,000 per failure).

Additionally, the willful failure to file a Form 8300 is considered a felony. The person must have had knowledge of the requirements and knowingly acted to avoid them to be prosecuted.  

Lack of Guidance

Although the IRS delayed the implementation of the broker reporting regulations from the IIJA, to date there has been no formal announcement that the requirement to report transactions with digital assets with an FMV over $10,000 will be delayed. Accordingly, many taxpayers are operating under the assumption that the requirement will be effective on January 1, 2024. 

As of this writing, the IRS has not provided guidance to taxpayers on this new requirement. Outstanding questions include:

1. When will a transaction with a digital asset be considered a trade or business transaction versus an investment?
2. What form will be filed – Form 8300 or a new form?
3. How will the recipient of a digital asset file the form when they do not know the sender and have no way to obtain the required information?
4. How will receipt of digital assets in situations such as airdrops or hard forks be treated if the FMV exceeds $10,000?
5. How will mining and staking rewards be treated?
6. How will “related” transactions be determined with digital assets?
7. How will the form be filed for taxpayers involved in decentralized exchange transactions?

Accordingly, there are many unanswered questions surrounding the implementation of this new requirement. Taxpayers who believe they may be impacted by this new requirement should engage a trusted tax advisor to help them navigate these new compliance requirements.