As tax time approaches for many, taxpayers and tax professionals alike are engaging in the annual ritual of gathering their cryptocurrency transactions and seeking out the latest and greatest guidance from the IRS on the subject. As luck would have it, the IRS recently released an internal memorandum fleshing out its stance on the taxation of virtual currency received in exchange for providing services. The memorandum describes the taxation of virtual currency received in the “crowdsourcing labor market”—for example, for performing microtasks or other projects—but its principles are applicable much more broadly.
The IRS memorandum was quietly made public on August 28. It is a reminder that the IRS continues to receive requests for additional cryptocurrency tax guidance. In the memorandum, the IRS lays out its view that convertible virtual currency is “property” for federal tax purposes, and that its receipt in exchange for performing services gives rise to gross income. But let’s look a little deeper at the IRS’s reasoning. For starters, the IRS memorandum poses the following question: