Virtually Nobody Is Reporting Crypto Profits To The IRS
Despite the IRS's victory late last year in a lawsuit against Coinbase - the most popular cryptocurrency exchange in the US - that forced the organization to hand over transaction data pertaining to more than 14,000 users, surprisingly few Americans are reporting income from cryptocurrency trading as income this tax season.
That's even more surprising considering the astronomical gains realized, not just by bitcoin, but by dozens of coins.
Fewer than 100 people out of the 250,000 who have already filed federal taxes this year through Credit Karma reported a cryptocurrency transaction, Reuters reported Tuesday.
This, despite nearly 57% of the 2000 Americans surveyed by the credit score startup and research firm Qualtrics last month saying they had realized some gains from cryptocurrencies last year, according to a Credit Karma study. About the same percentage of respondents said they had never reported a crypto transaction to the IRS. Meanwhile, about half said they understood how cryptocurrency gains might impact their taxes.
As Reuters explains, the IRS considers cryptocurrencies to be property for federal tax purposes, meaning any profits or losses from the sale or exchange of the virtual coins must be reported as capital gains or losses. Still, it remains unclear exactly how many Americans hold cryptocurrencies, which were initially designed to protect the identities of their holders and can be difficult for federal authorities to trace. Coinbase famously surpassed retail brokerage Charles Schwab in terms of the number of accounts last year, but its unclear how many of those accounts are actively trading.
However, there could be a more innocuous explanation than widespread tax dodging. Jagjit Chawla, general manager for Credit Karma Tax, said the company was not too surprised that few people had reported cryptocurrency gains as Americans with more complex tax situations tend to file closer to the deadline.
"However, given the popularity of bitcoin and cryptocurrencies in 2017, we’d expect more people to be reporting," Chawla said in a statement.
That, or even simpler: most of those reporting cryptoprofits for public survey purposes are lying.
Around one million people filed their taxes with Credit Karma last year, the company said. The IRS expects 156 million individuals to file taxes this year.
As we explained last year, because every cryptocurrency transaction exists on a public blockchain ledger, an enterprising organization - say like the NSA or IRS - could conceivably implement blockchain analysis tools to track down Bitcoin fund transfers around the globe. Moreover, most exchanges now require a driver’s license, passport and even a phone number in order to approve your account for trading.