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August 09, 2017 at 02:22 PM
“Obviously, the people who first got into digital currency were not all that interested in living in the system. Those people aren’t going to pay taxes, no matter what,” according to Perry Woodin, founder of Node40.
For the rest of us, not reporting gains from digital currencies is more likely a result of not knowing how to get started.
(Related: Experts Disagree on Role for Regulators in Cryptocurrency)
More traditional investors “who are used to paying taxes on their investments started looking at, ‘well, how do I pay my tax liability?’ It was nearly impossible to figure out,” Woodin said.
The Internal Revenue Service released guidance in 2014 that states virtual currency is treated as property for tax purposes. Investors who receive digital currency must report the gain in their gross income based on the fair market value of the currency at the time it was received.
Digital currency miners who receive the currency as compensation for their work may also be subject to self-employment tax.
Fortune reported in March that just over 800 investors reported bitcoin gains in 2015, while Woodin says Bitcoin users number in the “tens of millions.”
Coinbase is a digital wallet platform with over 9 million users of its own who hold Bitcoin, Ethereum and Litecoin. In March, the IRS sued Coinbase to get customer records and look for unreported income. The agency later narrowed the types of information it wanted to see, our sister publication The Recorder reported in June.
Woodin said that before some of his customers were trying to use spreadsheets to track their gains from digital currencies.
