Tax Reporting For Cryptocurrency Received Via Crowdsourcing
Cryptocurrency, a virtual or digital currency that can be exchanged online for goods and services, has become a “hot” topic for the IRS. In 2019, the IRS issued more than 10,000 letters to taxpayers regarding cryptocurrency underreporting and the draft 2020 Form 1040 (Individual Income Tax Return) asks if the taxpayer has interacted with digital assets at all during the year. Underreporting of income may lead to penalties and interest.
The IRS is doing its best to educate taxpayers on the reporting of cryptocurrency, and on June 29, 2020, issued a memorandum regarding crowdsourcing and convertible virtual currency. Crowdsourcing is when a person or company seeks the collective knowledge of the public via the internet to complete a project or task. A smaller task that is part of a larger task is referred to as a microtask. The IRS defines convertible virtual currency as virtual currency that has an equivalent value in real currency.
In its memorandum, the IRS noted that the receipt of convertible virtual currency must be reported as ordinary income, even if the amount received is less than one dollar. In addition, the receipt of the virtual currency may be subject to self-employment tax.
To read the IRS memorandum, please visit https://www.irs.gov/pub/irs-wd/202035011.pdf.