TITGA Reports on Status of IRS Digital Asset Monitoring and Compliance

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TL Fahring focuses on helping individuals and businesses with a wide variety of matters involving state, federal, and international taxation. He has represented clients in all stages of federal and state tax disputes, including audits, administrative appeals, litigation, and collection matters. Mr. Fahring also has used his tax knowledge to assist clients in planning complex domestic and international transactions, including advising as to potential reporting and withholding requirements.

Mr. Fahring received his J.D. from the University of Texas School of Law, where he graduated with high honors and was inducted into the Order of the Coif and Chancellors honors societies. After clerking for a year at the Texas Eleventh Court of Appeals, he attended New York University School of Law, where he received an LL.M. (Master of Laws) in Taxation and served as a student editor on the Tax Law Review.

The Treasury Inspector General for Tax Administration (“TITGA”) recently has released a report on the status of efforts by the Internal Revenue Service (“IRS”) to develop the digital asset monitoring and compliance strategy mandated by Congress with the Inflation Reduction Act of 2022.

For purposes of federal taxation, a “digital asset” is defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.”[1] This includes non-fungible tokens and virtual currencies.

As part of the Infrastructure Investment and Jobs Act of 2021, Congress had amended sections 6045 and 6050I to require reports from digital asset brokers and from any person engaged in non-financial trades or business who receives more than $10,000 at least in part in digital assets.[2]

TITGA noted that the IRS has created the Digital Asset Advisory Committee (“DAAC”) in February 2022 to provide service-wide collaboration, planning, and information sharing with respect to digital assets. The DAAC has the following goals:

In addition, the IRS created the Digital Asset Initiative Project Office (“DAIPO”) in October 2022 to act on a temporary basis to coordinate efforts to develop forms, instructions, and guidance, information systems to receive, store, and access the new digital asset information reporting returns, and conduct other outreach activities.

One of the sticking points in accomplishing these goals, however, is the length of time it’s taking the IRS to finalize regulations under section 6045 and 6050I. The IRS considers these regulations to be “significant regulations because they are a legal mandate for third parties, i.e., digital brokers and persons in a trade or business that receive more than $10,000 in digital assets, to supply information to the IRS regarding transactions in digital assets with customers.” The IRS has issued proposed regulations for Section 6045 and is currently drafting proposed regulations for section 6050I.

If you have questions about how these measures could affect you, do not hesitate to give us a call at 214.984.3000 to set up a free consultation.

[1] I.R.C. § 6045(g)(3)(D).

[2] I.R.C. §§ 6045(c)(1)(D), (g)(3)(B)(iv), 6050I(d)(3).