New IRS Guidance Provides a Spot of Certainty Amid Digital Asset Limbo

Per recent transitional guidance, the IRS will not require taxpayers to report transactions involving receipt of digital assets under Section 6050I.

The US Treasury Department (Treasury) and Internal Revenue Service (IRS) recently provided in Announcement 2024-4 an update to taxpayers on the regulatory status of the digital asset reporting rules under Section 6050I of the Internal Revenue Code of 1986, as amended, (the Announcement). Until the issuance of regulations under Section 6050I, the Announcement clarifies that digital assets are not required to be included when determining whether cash received in a single transaction (or two or more related transactions) meets the $10,000 reporting threshold.

Section 6050I requires any person engaged in a trade or business, who in the course of such trade or business, receives more than $10,000 in cash in one transaction (or two or more related transactions) to file information returns reporting such receipt of cash.[1] “Cash” historically included foreign currency and any monetary instrument with a face amount of no more than $10,000.[2]

The Infrastructure Investment and Jobs Act[3] (IIJA), signed into law on November 15, 2021, amended Section 6050I to add “digital assets” to the list of assets included in the definition of cash in Section 6050I(d).[4] The term “digital assets” for this purpose is defined in Section 6045(g)(3)( d) to mean “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” The change under the IIJA with respect to the reporting of digital assets applies to returns required to be filed, and statements required to be furnished, after December 31, 2023.

The Announcement makes it clear that until the Treasury and the IRS publish regulations under Section 6050I to implement the IIJA amendment to include digital assets in the definition of cash, taxpayers “will not be required to include those digital assets when determining whether cash received has a value in excess of the $10,000 reporting threshold for purposes of determining if reporting is required under section 6050I with respect to those transactions.”[5]

Although taxpayers are not currently required to include digital assets in the definition of cash until regulations are published, the Treasury and the IRS intend to prescribe regulations to provide additional information and procedures for reporting the receipt of digital assets under Section 6050I. The timeline of these regulations is unknown as of the date of this publication.

Taxpayers that receive cash (other than digital assets) in the course of their trade or business in excess of $10,000 in one transaction (or two or more related transactions) must continue to file information returns under Section 6050I as otherwise required. Additionally, taxpayers should continue to comply with Notice 2014-21,[6] which establishes that digital assets and other virtual currency are treated as property for federal income tax purposes and longstanding tax principles that apply to transactions involving property apply to virtual currency.