IRS Extends Cryptocurrency Reporting Obligations To New Tax Forms

US IRS Expands Cryptocurrency Reporting Requirements

In a significant development for the cryptocurrency community, the Internal Revenue Service (IRS) has broadened its scrutiny of digital assets by adding a cryptocurrency income tax question to the existing tax forms. In its official statement, the IRS urged all taxpayers to provide comprehensive information about their digital asset activities and report related income for the tax year 2023.

The newly introduced question, present on various income tax forms, inquires whether the taxpayer received digital assets as a reward, award, or payment for property or services or if they sold, exchanged, or disposed of a digital asset (or a financial interest in a digital asset) at any point during 2023. This move demonstrates the IRS’s commitment to ensuring tax compliance in this rapidly growing sector.

Comprehensive Reporting Obligations

Initially confined to three areas of the Form 1040 income tax return, whether for individual ownerships, senior residents, or non-resident aliens, the question has now been integrated into four additional forms. Form 1120-S (US Income Tax Return for an S Corporation), Form 1065 (US Return of Partnership Income), Form 1065 (US Return of Partnership Income), and Form 1041 (US Income Tax Return for Estates and Trusts)

What’s new is the IRS’s emphasis that all taxpayers must respond to the cryptocurrency income tax question, regardless of whether they own these digital assets. Also, they must answer whether they held digital assets briefly, transferred them between wallets or accounts, or made purchases with US dollars or other fiat currencies.

It is worth noting that the complexities of the reporting obligations vary based on the nature of digital asset transactions. For instance, taxpayers who received digital assets as payment or reward from mining and staking, or via a hard fork, or those who sold or disposed of digital assets in various ways must answer “yes” and report their income accordingly.

On the other hand, individuals who did not engage in digital asset transactions but held or transferred digital assets or made purchases with fiat currencies may answer “no.” Investors must note that the cryptocurrency income tax question is distinct from the controversial $10,000 reporting rule, which currently applies to cash transactions but not digital assets.

Last week, the IRS clarified that businesses must report transactions above $10,000 within 15 days, a rule that pertains specifically to cash and not digital assets.

Indonesia’s Crypto Tax Revenue Plummets

Meanwhile, Indonesia witnessed a 62% drop in its crypto tax revenue for 2023, generating $31.7 million, despite BTC’s price 159% surge during this period. Introduced in May 2022, the dual taxation system, comprising a 0.1% income tax and a 0.11% value-added tax (VAT), along with an additional 0.04% tax for local crypto exchanges, faced backlash from the crypto community.

Despite the significant market upturn, Indonesia experienced a 51% decrease in crypto transaction volumes in 2023 compared to 2022. Local exchanges attribute this decline to the high tax rates, prompting calls for a shift towards income tax only for crypto transactions.

Financial Services Authority Prepares For 2025 Oversight

Furthermore, the Financial Services Authority (OJK) is set to start performing crypto oversights beginning in January 2025, with changes to the nation’s tax framework. Local exchanges believe this adjustment could reclassify crypto as more of a security than a commodity.

Prominent Indonesian exchange INDODAX raised concerns that total taxes on crypto transactions have now surpassed trading fees, noting that users might shift to overseas or illegal exchanges for cost-effective transactions. Also, the Blockchain Association of Indonesia reported in May 2023 that 303 illegal exchanges were operating within the country and were not paying taxes.