IRS ‘Testing’ of Statutory Boundaries Prompts Ire of Lawmakers

The IRS has issued guidance giving e-commerce companies and crypto brokers more time than the laws require before reporting rules kick in, raising red flags among some lawmakers.

Recently enacted laws have laid out new and updated requirements for e-commerce platforms and crypto brokers on disclosing customer transactions to the IRS. But leading up to the statutory start dates for these disclosure requirements, the IRS and Treasury Department issued guidance delaying when the effective dates would begin for both types of companies.

The IRS in August released guidance delaying when brokers will be required to report the crypto disclosure requirements, now starting in 2026, depending on the type of reporting—a two year pushback from the statutory deadline. In December 2022, the IRS delayed requirements for e-commerce companies such as eBay and PayPal from the statutory date of the 2022 tax year to the 2023 tax year.

“There are a number of examples where the administration is just ignoring statutory deadlines,” Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) said in a recent interview, after he raised concerns in a September hearing on the nomination of Marjorie Rollinson as IRS chief counsel. “I’d like the chief counsel to tell them they need to follow the statute.”

A Treasury Department spokesperson said the department “is working diligently to implement key legislation in a manner that ensures a smooth transition and clarity for taxpayers.”

Sen. Mike Crapo (R-Idaho) is calling on the IRS to follow statutory deadlines on regulations. “There are a number of examples where the administration is just ignoring statutory deadlines,” he said recently.

Photographer: Tasos Katopodis/Getty Images

Taxpayer-Friendly Delays

Extending the deadlines for companies to comply is taxpayer favorable and may also give the IRS more time to set up its own processes to receive the incoming information. And while tax professionals agreed that the IRS does have the authority to give transition relief, some say it’s been happening more often than usual.

“Clearly, the IRS has the authority to provide transition relief when it makes sense,” said Dustin Stamper, a managing director at Grant Thornton LLP. “How far is too far when you’re stretching the bounds? They are definitely testing those boundaries.”

These third-party companies are essentially getting a new job that will require them to build tools to make sure they are meeting the requirements, said Linda Galler, a professor at Hofstra University’s law school.

“That’s asking them to do a lot, and so the question is how long do you give them?” Galler said.

The 2021 infrastructure law created requirements where US-based cryptocurrency exchanges would have to disclose detailed information to the IRS on their clients transactions starting for 2023, but the IRS announced in December 2022 that the requirements wouldn’t go into effect until after final regulations were released. In August, the agency released proposed rules providing that rules for broker reporting on gross proceeds will not apply until 2025 and the reporting of adjusted basis and the character of gain or loss will not apply until 2026.

Marisa Coppel, senior counsel at the Blockchain Association, said even the current extension isn’t enough, especially in light of other aspects of the proposed regulations released in August.

“Essentially, in order to comply, they would have to build entirely new systems, which would take tens of millions of dollars, but also just a ton of time,” Coppel said.

The proposed rules broadened who would be subject to the IRS reporting—including both centralized and decentralized exchanges—some of which are waiting to build systems until after the IRS issues final regulations, Coppel said.

The 2021 American Rescue Plan Act required e-commerce platforms, like Venmo, eBay, and Paypal, to send tax forms to users and the IRS in instances of transactions on their platforms of more than $600. This threshold change was originally slated to start for tax year 2022. But in December 2022, the IRS created a transition period pushing the requirement effective date to the 2023 tax year.

EBay, AirBnB, and PayPal are among the several e-commerce platforms who’ve been lobbying lawmakers to raise the $600 threshold for the 1099-K forms. The Coalition for 1099-K Fairness, a group of the platforms dedicated to changing the requirement, reported $300,000 in lobbying in the third quarter of 2023, up from $200,000 reported in both the first and second quarters of the same year.

“We’re fully prepared to implement,” said Ashley Shillingsburg, head of eBay’s federal government relations. “It’s not really about us. It’s about Americans who are going to be getting these forms when they’re not generating any taxable income and the amount of confusion and frustration that that’s going to be generating come early next year.”

IRS Commissioner Danny Werfel said last week that the IRS will release more guidance on 1099-Ks in the coming weeks. He did not comment on whether the IRS would extend the delay further.

Separate from these third-party provisions, the IRS also extended when taxpayers over a certain income threshold would have to make all catch up contributions on a Roth basis, a requirement created as part of SECURE 2.0 in 2022. The requirement was supposed to start in 2024 but was extended to 2026.

Pushback in Congress

Republican and Democratic lawmakers have questioned the IRS over its delayed implementation of reporting requirements.

“Congress are the folks in the position to complain,” Stamper said “So even if they don’t have legal recourse, certainly the IRS and Treasury are politically sensitive, and the bigger deal that Congress makes over complaining about this activity, the harder it’s going to be for IRS and Treasury to continue to do it.”

In addition to Crapo’s concerns, Sen. Elizabeth Warren (D-Mass) has blasted Treasury and the IRS for failing to carry out the crypto broker reporting rules on time. Warren led a group of senators in an October letter saying the lawmakers were “alarmed” at the two-year delay of the rule, leaving the government to lose billions of dollars in the meantime.

The crypto reporting requirements as passed by Congress are expected to add about $28 billion over 10 years to the government’s coffers, according to the Joint Committee on Taxation.

The senators urged Treasury to swiftly come out with the rules, though the department has said the delay gives brokers more time to orient themselves with the requirements.

Other lawmakers have acknowledged how the IRS’s delay of some reporting requirements benefits taxpayers, but questioned the agency’s authority to do so. Rep. Carol Miller (R-W.Va.), a member of the tax-writing House Ways and Means Committee, introduced a bill earlier this year to raise the 1099-K threshold back up to $20,000 on at least 200 transactions.

Miller said it’s Congress that needs to act to halt the $600 threshold from going into effect, doubting that the IRS has the authority to do so. Leading up to the IRS’s delay last year, Sens. Joe Manchin (D-W.Va.) and Shelley Moore Capito (R-W.Va.) had attempted to attach amendments to the omnibus spending bill to fund the government that would’ve delayed the $600 rule, but their efforts ultimately failed.

“The IRS’s own commissioner has said that changing the 1099-K threshold will be complicated and onerous for taxpayers, so it’s not surprising the IRS has continued to delay implementation,” Miller said, adding that “two wrongs don’t make a right,” referring to the agency’s postponement of the rule.