IRS Releases Guidance on Reporting Digital Asset Transactions

On January 16th, 2024, the Treasury Department and Internal Revenue Service (IRS) released information regarding digital asset transactions for employers. In summary, the IRS released Announcement 2024-4, informing businesses about updates to the reporting of digital asset transactions. Explicitly, employers will not need to report the receipt of digital assets like they must report the receipt of cash. This change is an update to the 2021 Infrastructure Investment and Jobs Act (the Act). According to Announcement 2024-4, this change is in effect until the Treasury and IRS issue additional regulations. Previously, in November 2023, the IRS announced an increase to 2024 retirement contribution limits.

Background of the Infrastructure Investment and Jobs Act

Chiefly, the Act revised Internal Revenue Code rules requiring taxpayers engaged in a trade or business to report receiving more than $10,000 cash. As a result, digital asset transactions of more than $10,000 will be considered “cash.” Specifically, a “digital asset” is anything transmitted or located digitally that has value, establishes ownership, and is discoverable. Accordingly, Announcement 2024-4 provides transitional guidance as the Treasury and IRS implement the Act’s new provisions. Under the update to the Act, the provision requiring the reporting of digital asset transactions cannot go into effect until the agencies issue final regulations. However, the agencies have not released any final regulations or provided a date for when that might occur.

Key Highlights of Announcement 2024-4

The following are some highlights of the Treasury’s and IRS’s release:

• Temporary Exclusion of Digital Assets in Reporting. Employers are not currently required to include digital assets when determining if a cash transaction exceeds $10,000.
• Future Regulation Plans. As has been noted, the Treasury and IRS plan to introduce regulations for reporting digital asset transactions. This upcoming framework will provide additional details and procedures under section 6050I of the Internal Revenue Code.
• Continued Reporting for Cash Transactions. For businesses receiving cash (excluding digital assets) over $10,000 in a single or related transaction, the existing reporting obligations under section 6050I remain in force.

Employer Takeaways

In conclusion, Announcement 2024-4 introduces a critical transitional phase in reporting digital assets. Indeed, businesses that utilize digital assets should stay informed and prepare for the upcoming regulations that will further define this topic. Meanwhile, it is important to note that Announcement 2024-4 does not affect current rules for the cash a business receives. Employers must still report all cash transactions exceeding $10,000 on Form 8300, Report of Cash Payments over $10,000 Received in a Trade or Business. In particular, the business must submit Form 8300 within 15 days of receiving the cash. Subsequently, after submitting Form 8300, employers should save a copy of the form on file, much like they store the five types of employee records they must keep.