- A new memo from the IRS says all cryptocurrencies received from microtasks are taxable
- Cryptocurrency is treated as property and must therefore be reported in the taxpayer’s income tax return
- The news comes as the IRS sent new letters to U.S. crypto holders about their reported crypto transactions
The Internal Revenue Service (IRS) confirms that cryptocurrencies earned from microtasks are taxable.
The IRS said in a new memorandum that these types of tasks provide individuals with rewards (cryptocurrency) that are subject to the same regulations as the U.S. dollar.
A memo was issued in response to a question from Carolyn A. Schenck from the Small Business/Self Employed Division of the IRS regarding whether or not convertible virtual currency received by an individual performing a microtask through a crowdsourcing or similar platform is a taxable income.
In response, Ronald J. Goldstein, senior technician reviewer from Income Tax & Accounting Division, said the received convertible virtual currency is taxable as ordinary income if it is earned in exchange for performing a service through a crowdsourcing platform. He said cryptocurrency here is referred to as “convertible currency” because it has value and acts as a substitute for real currency, and therefore is considered a property for federal tax income purposes, Coindesk explained.
“Accordingly, general tax principles applicable to property transactions apply to transactions involving convertible virtual currency,” Goldstein continued in the IRS memo.
Some examples of microtasks include reviewing images, downloading apps and leaving a positive review, playing games, completing online quizzes and surveys and even registering accounts in various services in exchange for “rewards” in the form of convertible virtual currency. These microtasks are paid for as low as $1, Goldstein added.
The memo clarifies that no matter how small the amount of cryptocurrency received, it is still received in exchange for service rendered and therefore part of the individual’s gross income that is taxable. Goldstein points to Section 26 of the Internal Revenue Code that defined Gross Income as all income from whatever source derived, including compensation for services and gains derived from dealings in property.
The official added that receiving virtual currency in exchange for service means the taxpayer has been compensated with “property” and must therefore be reported on the individual’s income tax return as ordinary income and may be subject to self-employment tax.
Coindesk said the memo was released days after the IRS has sent letters to crypto holders warning them about their reported crypto transactions.