Second Realm

Eric P. Rhodes, Artist


Navigating the New Tax Code Requirements for Crypto Assets: A Guide for Artists (Part 2)

Category:

Assessing the Enforceability of the New Tax Amendments in the Evolving Crypto Landscape


NOTE: On January 16, 2024, the IRS has announced that that businesses do not have to report certain transactions involving digital assets until regulations are issued.


Artists are facing transformative changes due to the Infrastructure Investment and Jobs Act’s amendment to the Tax Code. As outlined in Part 1, this new law mandates reporting for crypto transactions exceeding $10,000. However, it also introduced both legal and practical challenges. Specifically, Coin Center’s ongoing lawsuit against the Treasury Department that casts doubt on the constitutional soundness and the immediate enforceability of the reporting requirements.


Despite the January 1, 2024 effective date mentioned in the Tax Code, the IRS’s stance, as inferred from the lawsuit, is that regulations are necessary for the law to be enforceable.”


Aside from the challenge of determining whether this regulation applies to individuals as Shehan Chandrasekera, Head of Tax Strategy at CoinTracker, has pointed out. The challenges of compliance are further compounded by the law’s vague directives, especially for anonymous transactions or when appraising cryptocurrency in USD. A lack of explicit IRS instructions has left a cloud of uncertainty over businesses and individuals.

Jerry Brito’s January 2, 2024, blog post articulates these complications, casting doubt on the law’s feasibility and constitutionality. This is especially problematic for transactions that can’t be clearly traced to an individual, such as those by miners or within decentralized exchanges.

A pivotal aspect of the lawsuit is the claim that the reporting requirements are not self-executing. As noted in the court document below and echoed by Jason Schwartz, Tax Partner & Co-Head of Digital Assets at Fried, Frank, Harris, Shriver & Jacobson LLP, this term means the requirements don’t automatically take effect on the specified date. [1] Instead, we’re awaiting detailed regulations from the Secretary.

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Image Source: CryptoTaxGuyETH

Despite the January 1, 2024 effective date mentioned in the Tax Code, the IRS’s stance, as inferred from the lawsuit, is that regulations are necessary for the law to be enforceable. This interpretation, highlighted by Schwartz and awaiting confirmation by the IRS, calls for a clear and non-retroactive regulatory approach.

As we edge forward, the resolution of this lawsuit and the clarity of the impending regulations will significantly shape the cryptocurrency environment. For artists and digital asset holders, these developments necessitate a vigilant, informed approach to navigate this uncertain terrain. The community must closely watch how these legal processes will define the operability of digital asset reporting and compliance in the near future.Subscribe

Disclaimer

The information provided here is for informational purposes only and should not be construed as professional tax advice. The contents are intended to offer a general understanding of the subject matter and do not address the complexities and nuances specific to individual circumstances. For personalized advice and guidance on tax-related matters, it is strongly recommended that you consult with a qualified tax professional who can provide expertise tailored to your specific situation and needs.