IRS: Crypto income can be taxed as ordinary income

A recent memo from the Internal Revenue Service (IRS) attempted to clarify the tax rules for receiving crypto assets as payment.

“Is convertible virtual currency obtained by individuals for performing micro-tasks through crowdsourcing or similar platforms taxable?” said an August 28 document, adding:

"Yes, the taxpayer has obtained convertible virtual currency through the crowdsourcing platform in exchange for performing micro-tasks, and has received consideration for the performance of the service, and the convertible virtual currency received is taxed as ordinary income."

U.S. Director of National Intelligence Concerns about China’s Dominance in Crypto: U.S. Director of National Intelligence John Ratcliffe wrote to SEC Chairman Jay Clayton earlier this month expressing concerns about China’s dominance in the cryptocurrency space. The letter appears to imply that the U.S. Securities and Exchange Commission (SEC) should implement rules to help U.S. cryptocurrency firms compete with those based in China. The SEC has yet to comment on the matter. (ambcrypto) [2020/11/26 22:08:42]

Coinbase Chief Tax Officer: The IRS is likely to characterize staking gains as taxable transactions: Coinbase Chief Tax Officer Lawrence Zlatkin shared his views on taxation and the outlook for the global cryptocurrency market at a panel meeting on July 7. He said that the United States lacks clear regulations on digital currency taxation, the complexity of digital assets and the strong complexities of various types and characteristics of digital assets. The IRS has been urging taxpayers to declare digital currencies for years, but clear guidelines have been lacking. The IRS will likely characterize staking proceeds as a taxable transaction. These uncertainties are likely to cause funds to flow to jurisdictions with clearer regulations on digital assets. He said that this is Coinbase's growth strategy, preferring markets with more customers and more assets that can be traded. Most of the customers in this field are from jurisdictions such as Canada, the United Kingdom, and the European Union. (cointelegraph)[2020/7/8]

Crowdsourcing – calling for multiple participants to contribute to a project or task – is a common business model in the blockchain space. The memo describes microtasks as smaller workloads that distribute parts of a larger task to multiple workers.

News | The U.S. Congress has passed a bill to study the use of cryptocurrencies for illegal transactions: According to Cointelegraph, the U.S. House of Representatives passed a bill "Combating Illegal Networks and Detecting Trafficking Act of 2019" (H.R. 502), authorizing the use of cryptocurrencies Conduct research on online marketplaces facilitating the sex and drug trade. According to previous news, the bill was first proposed by California Representative Juan Vargas in June last year and passed by the US House of Representatives in August last year. [2019/1/30]

The United States has a strong influence on the free market economy, and the employment market has flexible and diverse occupations. Therefore, there are a large number of "micro-task" work models such as short-term outsourcing or small-scale employment of freelancers in the United States.

In this regard, Ronald Goldstein, head of the Office of Accounting and Income Tax of the IRS, said, "Any cryptocurrency that can be converted (to cash) should be considered ordinary income. For example, users obtain cryptocurrencies by completing micro-tasks such as data processing or image review. Rewards are also taxable income."

Regardless of the composition, the memo underscores one important point – payments in cryptocurrency, no matter how much, are taxable income. “Receipt of convertible virtual currency must be reported on the taxpayer’s income tax return as ordinary income, possibly subject to self-employment tax,” the document concluded.

The memo surfaced on June 29 as an internal IRS document but was not made public until several months later.

In recent years, the U.S. Internal Revenue Service (IRS) has increasingly regulated cryptocurrencies. One of the latest developments is the 2020 U.S. tax form, which requires citizens to disclose whether they have interacted with digital assets in the most recent year.

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Author Amy Liu

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