Whenever Congress decides to “fix” something, they usually make life more complicated. Not to disappoint you, they’ve just about done it again. Buried in the new “infrastructure bill” is a new provision about Crypto Currency reporting.
Now, one has to wonder what Crypto Currency tax reporting has to do with roads and bridges, but then, when does Congress ever make any sense?
To be clear, the new reporting requirements do not change anything for individuals other than dealing with new potentially WRONG 1099s from Crypto Currency Exchanges. Individuals are already required to report all Crypto Currency transactions and to answer a special question on their return in the affirmative if they had any crypto currency transactions or held crypto currency at any time during the year.
What is going to change, is the requirement for Crypto Currency Exchanges to track all transactions and report a summary for every taxpayer at the end of the year. If you have a business, you are already used to the 1099-K that you get from the credit card companies reporting all credit card receipts to the IRS. If the actual gross income you report on your tax return is LESS than the total on that 1099-K, then you get a “friendly” letter from the IRS asking you to explain the difference. Usually leading to a full-blown audit if the IRS suspects you are not reporting all your income.
The new 1099 (yet to be created) will probably look something like a 1099-B stock sale broker statement though. It will probably show date purchased, date sold, original cost and sales price. It might take the Crypto Currency Exchanges a few years to create the necessary software for tracking and reporting this kind of information. The potential start date required by the IRS may not be until 2023 to give them time for getting it all set up.
The penalties to a Crypto Currency Exchange could be HUGE for not doing it right. Basically, it will piggy-back onto current 1099 reporting failure penalties. Currently, for every customer that they fail to report their crypto transactions, the penalty will most likely be $250. The cap per year is currently $3,000,000. BUT, if the IRS determines the Crypto Currency Exchange engaged in “intentional disregard” in not sending out statements, there is no cap on total penalties. Think about that for a second. Figure the average Crypto Currency Exchange has 100,000 customers. 100,000 x $250 is $25,000,000. Do you think that is enough of an incentive to comply and just send out something, even if it isn’t correct? You bet! Expect the first couple years of these reports to be full of errors, so, when you start receiving them, check them VERY carefully. That means you need to be keeping very accurate and detailed records on all your crypto currency transactions.
Did you hear? Prov 12:17 says, “Whoever speaks the truth gives honest evidence, but a false witness utters deceit.” Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also