The IRS issued new guidance clarifying how cryptocurrencies are treated for tax purposes when they are received in exchange for certain services.
The tax agency recently released a memorandum stating that an individual who receives digital currency through a crowdsourcing platform in exchange for providing a service should report the convertible virtual currency as ordinary income.
A question was brought to the agency’s attention regarding crowdsourcing for “microtasks” in particular, which refers to subdividing larger tasks into smaller jobs that are distributed via an online platform.
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The IRS noted that convertible virtual currency received for these tasks, regardless of how small – noting that sometimes payment are for less than $1 – is taxable as ordinary income.
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The IRS has begun cracking down on taxpayers who owe on virtual currency transactions. Last year, it sent letters to 10,000 taxpayers who may have had tax liabilities.
Under current U.S. tax laws, cryptocurrencies are treated like property.
Taxpayers who fail to pay the taxes they owe on their virtual currency transactions can be subject to penalties and interest – in more serious cases even criminal prosecution.