The Treasury Department, which oversees the I.R.S., has been under pressure from lobbyists and lawmakers to find a solution to the widespread confusion before taxpayers begin receiving the tax forms in the coming weeks.
“I urge the I.R.S. to use their authority now to delay the implementation and allow Congress to continue working to find a lasting solution that prevents this harmful regulation from impacting small businesses,” Senator Joe Manchin III, Democrat of West Virginia, said in a statement on Thursday.
Confusion over how the change to the tax code would be applied had created widespread concern in recent weeks and threatened to create another chaotic tax season next year. Taxpayers were bracing for 1099-K forms that might inaccurately characterize their earnings, creating a customer service crisis for the I.R.S. just as it is embarking on an $80 billion modernization project.
In its statement on Friday, the I.R.S. emphasized that the law is “not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill.” However, it defended the policy change as a “hugely important” way to ensure better compliance with the tax code.
The resistance to the tax change demonstrates the challenge that the Biden administration faces as it tries to crack down on tax evasion and narrow the $7 trillion “tax gap” of revenue that is projected to go uncollected over the next decade.
The administration has said that efforts to reduce tax-dodging will be focused on big companies and the rich, but the policy of requiring digital wallet users to report small transactions to the I.R.S. primarily hit people working in the “gig economy” and those operating small side businesses. The change is projected to raise about $8 billion in additional tax revenue over 10 years.
Arshi Siddiqui, a partner at the law firm Akin Gump who is representing a coalition of businesses trying to change the new tax requirements, said on Friday that consumers and small businesses “dodged a bullet” with the delay but that more must be done.
“We look forward to working with our bipartisan champions in Congress for a permanent fix,” Ms. Siddiqui said.