Two big announcements from the IRS today will have a major impact on 2022 tax returns (returns filed in 2023). First, the IRS announced a delay in implementing the $600 reporting for third-party payment platforms (Form 1099-K). Quoting from the announcement:
“The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Commissioner Doug O’Donnell. “To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”
I’ll change the verbiage to reality: The IRS is currently in no position to handle the flood of 1099-K’s that would come in, and this transition guidance gives them a year to (hopefully) get ready and smooth out a whole bunch of wrinkles. Do note that if you have a side business, income from that business is taxable (that’s been the law and nothing has changed).
Second, the IRS announced that brokers are not required to report additional information regarding disposals of digital assets (aka cryptocurrency) until final regulations are issued. This does not impact taxpayers’ responsibility to both report all dispositions nor answer the question regarding cryptocurrency that appears at the top of Form 1040. Announcement 2023-02 notes that the IRS plans to issue regulations with a notice of proposed rulemaking.
A notice of proposed rulemaking will be published that sets forth proposed regulatory text, explains the proposed rules, solicits public comments, and announces a public hearing. This process will allow the Treasury Department and the IRS to accept comments from affected taxpayers, industries, and other interested parties and enable the public to meaningfully participate in the regulatory process. After careful consideration of all public comments received and all testimony at the public hearing, final regulations will be published.
Depending on when the notice of proposed rulemaking is issued, this could delay the new rules until either the 2024 or 2025 Tax Seasons (2023 or 2024 tax returns).
Overall, this is good news for taxpayers, tax professionals, and the IRS. The IRS still has ~12 million returns to be processed, and computer systems that are older than I am. Had the IRS received the flood of 1099-K’s and issued notices when taxpayers properly don’t include erroneous items on their returns, the IRS wouldn’t have been able to handle the volume of correspondence. Putting this off a year makes it at least possible the IRS will be ready.
