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23 June 2021

More IRS crypto reporting, more danger

More IRS crypto reporting, more danger

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The tax impact might even be made more difficult by the wild fluctuations in value that tend to characterize crypto investments.

The contractor you pay might keep the crypto or might sell or transfer it the same day, but that doesn’t impact your taxes.

You could pay some cash and some Bitcoin and withhold plenty on the cash, but that can be complex and messy.

It is no secret that the IRS wants you to report your crypto gains.

Treasury Department expects to publish new rules saying businesses that receive crypto worth more than $10,000 would have to file a currency transaction report with the government naming names and giving details.

The Department of Justice’s Tax Division successfully argued that the mere failure to check a box related to foreign bank account reporting is willfulness, per se; the same argument could get applied to crypto accounts.

Curiously, the government is taking pages of its playbook from the rules surrounding cash transactions, even though the IRS said way back in 2014 that crypto was property, not currency.

For many years, businesses have been required to report cash payments of more than $10,000, which has prompted all sorts of (usually ill-advised) behavior by people to try to avoid doing so.

Therefore, if the $10,000 baseline is implemented for crypto reporting, my guess is there will be people trying to keep something private who end up in trouble for trying to sidestep a reporting trigger.

If the new crypto reporting threshold of $10,000 goes the same way as cash reporting has, some people may try to structure around the reporting.

If they do, and if the rules are similar to the cash reporting rules, that could be quite dangerous

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