In spite of frequent corresponding warnings by the Internal Revenue Service (IRS) for cryptocurrency investors to pay their taxes on their gains. The IRS is worried that numerous U.S. citizens may not be precisely reporting the profits they have generated from their cryptocurrency transactions. Given the IRS are fully aware of the nature of profit and losses of bitcoin, therefore, has a justifiable reason to be concerned.
Less than 100 people declared crypto gains
Evidence points to this issue of tax evasion. For example, less than 100 individuals out of the 250,000 people who have just filed for federal taxes this year through Credit Karma, a startup providing free credit monitoring, revealed a cryptocurrency transaction to U.S. tax authorities. Of those 100 that had disclosed their taxable sales, only one individual’s gain or loss was significant enough to be reported to the IRS according to Credit Karma. That is far less than the seven percent of Americans who are deemed to possess bitcoin or another digital currency.
While at the very early stages of tax season, the IRS has received $18.3 million individual tax returns so far this year, which is 13 percent of the total expected. These results hold despite the fact 57 percent of the 2000 Americans surveyed by Credit Karma in January stating that they were aware of some gains from cryptocurrencies.
A similar percentage of people also said they had never reported cryptocurrency gains to the IRS, while almost 50 percent of those surveyed said they saw how owning digital currencies influenced their tax assessments, the study revealed. Research indicates that investors still appear disproportionately hesitant to report their earnings, which is not surprising given the philosophical backbone of most bitcoin advocates.
As a result of such tax evasion, the IRS has taken action by suing Coinbase, a leading cryptocurrency exchange, last year for access to customers records. After the gains or losses from bitcoin was reported by 802 individuals. (A previous court, had requested Coinbase to reveal 14,000 customer records to the IRS.) In August 2017, the IRS partnered with Chainalysis to track tax evaders using software that determines when bitcoin users exchange for fiat, as reported by BTCManager.
Tax evasion is the norm for bitcoin
While Credit Karma may not represent the entire US population, one million users have signed up for their service of online tax preparation. Resulting in Credit Karma positioning to be the third largest tax preparer.
The general director of Credit Karma, Jagit Chawla, states given the low reporting of bitcoin adoption among their clients, it is not surprising only a small number of people had reported their cryptocurrency gains. Additionally, he says that the low reporting may be explained by taking into account that it is common for Americans to declare their taxes closer to the deadline.
Chawla also states that he expects the declaration of bitcoin taxes to increase over the coming years due to growth in adoption in 2017, “However, given the popularity of bitcoin and cryptocurrencies in 2017, we’d expect more people to be reporting.”
156 million individuals cases are remaining to declare taxes on April 17, 2018, according to IRS predictions. However, whether the reporting of tax declaration would increase remains unclear.