The new tax law appears to have a huge impact on cryptocurrency users, but who it might impact and when doesn't seem to be that simple.

As 2024 begins, a loud cry is heard from all corners of the crypto community: The IRS is coming! The IRS is here!

The uproar was sparked by a circulating section of the 2021 federal infrastructure law that would require reporting of key details related to certain cryptocurrency payments over $10,000, including payments starting on January 1, 2024. The person's name, address, and Social Security number. Penalties for filing felony criminal charges with the Internal Revenue Service (IRS).

Cryptocurrency users quickly began to panic, unsure whether they would suddenly be at risk of jail time for failing to report large on-chain transactions.

But tax and policy experts advise staying calm. They said the law may not apply to most cryptocurrency investors and NFT speculators. Furthermore, they stressed that the regulation is not yet in effect and actual implementation could be months or even years away.

Jason Schwartz, a tax partner and cryptocurrency expert at law firm Fried Frank, told reporters, “There are some unanswered questions here that have to be resolved, but I don’t think people should really despair because obviously the IRS Don’t think any of this applies right now.”

This refers to a statement made by the IRS during ongoing litigation with cryptocurrency advocacy group Coin Center over the requirement that the agency does not intend to enforce the law before lengthy public comment and review.

So what exactly are the requirements of the law, and who does it apply to?

The regulation states that anyone who receives at least $10,000 worth of cryptocurrency in the course of “trade or commerce” must report identifying information about the money paid to them. The same laws have long been enforced on cash transactions.

Who the law may affect in cryptocurrency all boils down to what constitutes financial transactions conducted in “trade or commerce,” a term in tax law that, while inspired by decades of legal precedent, has no literal definition.

"I think it's pretty clear that it applies to almost any transaction where someone is exchanging goods or services for more than $10,000 worth of crypto assets," said Miller Whitehouse-Levine, CEO of the cryptocurrency lobby group DeFi Education Fund.

But what does this mean in practice? If you're an artist selling an NFT for $12,000, this rule might actually apply, Whitehouse-Levine said. If you're an NFT collector and resell the same NFT for $20,000, it probably won't.

What about trading cryptocurrencies? Whitehouse-Levine expressed uncertainty. The IRS website defines a trade or business as "...an activity honestly conducted for the purpose of obtaining a profit," which sounds a lot like tossing a meme coin.

But Jason Schwartz disagrees. He maintains that the IRS is leaning toward classifying only professional, full-time cryptocurrency market participants as traders, meaning the vast majority of cryptocurrency users would be exempt from reporting obligations.

His perspective: “I would be very surprised if these reporting requirements apply to typical cryptocurrency users, or even so-called DeFi degens. They just don’t do this as a full-time job.”

This does not mean that cryptocurrencies are transparent. Schwartz believes that this law, if adopted and enforced, could provide crypto benefits to individuals who receive payments from DAOs (What social security number do you leave for the payee? Do you list an Ethereum home address?) Even cryptocurrency exchanges like Binance and Kraken may have to start recording every transfer over $10,000 on their platforms.

But he hopes the issues will be resolved, which he and other experts say will be a long way before the IRS enforces the law.

Does the law actually work?

The revised IRS regulations (the same text circulating on Twitter) do specify an effective date of January 1, 2024. But recent legal developments suggest it could take months or even years for the IRS to actually enforce the law.

The disconnect stems from crypto lobbying group Coin Center, which says the new crypto tax law is unconstitutional and is currently suing the IRS to repeal it. Last month in a federal appeals court, Justice Department attorneys representing the IRS sought to have the lawsuit thrown out, declaring that the law would not automatically take effect this year and would in fact be enforced after a lengthy period of public comment and review.

The DeFi Education Fund’s Whitehouse-Levine said the process could take years. The Internal Revenue Service (IRS) first proposed a similar proposed rule regarding cryptocurrencies in January 2022; after two years and three rounds of public comments, it has yet to become official IRS policy.

"Assuming the Department of Justice and Treasury didn't lie to the Federal Circuit, who knows how long that would have gone on," Whitehouse-Levine said. "They haven't even begun the proposed rulemaking and process."

Coin Center insisted this week that the law was already in effect, acknowledging in a blog post that the Justice Department disagreed with that interpretation.

But Jerry Brito, executive director of Coin Center, said focusing on whether the law is technically valid now misses the point.

Brito told reporters, "It's pointless to ask whether the law is actually valid. For example, the current speed limit is 55 mph and you are sure there are no police around, so you drive 80 mph, which is legally valid." Is there any practical significance?”

He argued that the threat posed by the IRS's new tax law exists now, whether the federal agency says it will enforce the rule today or a year from now.

He continued, "The law is there, and you violate it even though you're almost certain you won't get caught."#IRS #加密交易征税