New IRS and FinCEN Reporting Requirements for Businesses that Accept Payments in Digital Assets

Although the Internal Revenue Service (IRS) has postponed broker-related digital asset reporting,¹ a less publicized requirement that applies long-standing reporting rules for physical cash payments to businesses that accept digital asset payments may be in effect as of January 1, 2024.² These rules likely will affect many companies operating in the crypto space or receiving digital asset payments, and reporting for transactions falling under these rules is required within 15 days of each transaction, necessitating proactive preparation for compliance. However, the absence of clear guidance for how to report under these new rules, coupled with certain statements made by the U.S. Treasury in ongoing litigation, may imply that reporting is not mandatory until specific regulations are issued. We recommend that clients review the summary below and consult with their tax advisers to be adequately prepared to meet their compliance requirements.  

Established Reporting Rules for Cash Payments

Under existing law, any person who, in the course of a trade or business, receives physical cash payments in excess of $10,000 in a single transaction (or in a series of related transactions) is required to report such cash payments to the IRS and the Financial Crimes Enforcement Network (FinCEN) on Form 8300. Reporting on Form 8300 must be completed within 15 days of receiving each reportable cash payment. Key details to be included on the form include the name, address, and taxpayer identification number of the person making the cash payment. If the recipient is aware or has reason to believe that the cash payer acted as an agent for another person, the form must also include the information of that other person. Additionally, the form must identify the amount of cash received and include details regarding the date and nature of the transaction.

Certain taxpayers are required to e-file each Form 8300 if they are otherwise required to e-file at least 10 information returns (not including a Form 8300) during a calendar year. Other taxpayers may elect to either e-file or paper file their Form 8300s.

There are exceptions to the Form 8300 reporting requirements for certain financial institutions or for transactions that occur entirely outside of the United States.

Application of Cash Payment Reporting Rules to Digital Assets

As of January 1, 2024, digital assets are treated as cash for purposes of the Form 8300 reporting requirements. The definition of digital assets for this purpose comes from the digital asset broker reporting rules (the effectiveness of which has been delayed) and provides that digital assets include any digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the US Treasury Secretary. While the scope of this definition is not entirely clear and has been the target of comments and criticism in certain contexts, the definition likely includes all of the major stablecoins, cryptocurrencies, and other tokens that represent value, and it may also include nonfungible tokens and other challenging-to-value crypto assets.

The IRS has yet to offer guidance on the scope of this rule and its relevant definitions or how to value digital assets for the $10,000 threshold, and it has yet to clarify the application of the exception for transactions occurring entirely outside the United States to digital asset transfers. Despite the uncertainty on these and other questions, it is important for companies to take these reporting rules seriously due to the potential penalties for noncompliance, which are outlined briefly below.

We note that the U.S. Treasury has stated in ongoing litigation that it does not view the reporting requirements for digital assets to be self-executing without further guidance or regulations from the U.S. Treasury.³ As a result, it may be reasonable for companies to delay compliance with the reporting obligations until further guidance is released by the IRS or U.S. Treasury, but each company should work closely with its tax advisers to determine an appropriate approach.

Potential Penalties for Noncompliance

Penalties for failing to comply with Form 8300 filing requirements generally may be assessed at $330 per Form 8300, up to $4 million per year in total penalties. These amounts can escalate if the failure is deemed to be due to intentional disregard of the filing requirements. Willful failure to make the necessary filings may be subject to criminal prosecution.

We are available to address any client inquiries regarding their compliance obligations and risks under these reporting rules. Feel free to reach out for further assistance.

^[1] See IRS Announcement 2023-2. The digital asset broker reporting rules (which are not currently in effect) and the digital asset nonbroker reporting rules discussed in this summary were enacted as part of the Infrastructure Investment and Jobs Act of 2021.
^[2] See Internal Revenue Code Section 6050I(d).
^[3] Appellees’ Br. 32, Carman v. Yellen, No. 23-5662 (6th Cir. filed Dec. 4, 2023) (“Like other provisions of the Internal Revenue Code that have similar language, Section 6050I’s reporting requirements are not self-executing and will become effective following the promulgation of implementing regulations.”).

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.