IRS memo: Cryptocurrency earned from a microtasking job is taxable income


An Internal Revenue Service memo written in late June and published on August 28 states that cryptocurrency earned from microtasks conducted on crowdsourcing platforms is considered taxable income.

The memo was written in response to a query from the U.S. agency's Small Business/Self Employed Division. While the document itself focuses on what may ultimately constitute a minor element of the tax authority's oversight of crypto-related income, it nonetheless offers a window into the depth of the IRS's thought process in this area.

As stated, the memo explores this question: "Is convertible virtual currency received by an individual for performing a microtask through a crowdsourcing or similar platform taxable income?"

The answer is yes, according to the memo's author, Ronald Goldstein of the Income Tax and Accounting Division, who wrote:

"Yes, a taxpayer who receives convertible virtual currency in exchange for performing a microtask through a crowdsourcing platform has received consideration in exchange for performing a service, and the convertible virtual currency received is taxable as ordinary income."

Goldstein notes that there are a variety of microtasks for which a user or contributor might be paid, citing how "a firm may offer to pay workers in units of Bitcoin or other convertible virtual currency if the worker processes data or reviews images" as one example. 

"Other examples include an offer of convertible virtual currency in exchange for downloading a particular app from an app store and leaving a positive review including a comment, downloading games and reaching certain milestones, completing online quizzes and surveys, or registering accounts with various online services. These types of microtasks may provide individuals with “rewards” in the form of convertible virtual currency. The value of convertible virtual currency paid in exchange for a single microtask often is a small amount that may be less than $1," he went on to write.

And as he later notes: "Section 61(a)(1) provides that, except as otherwise provided by law, gross income means all income from whatever source derived, including compensation for services. Under § 61, all gains or undeniable accessions to wealth, clearly realized, over which a taxpayer has complete dominion, are included in gross income."

"A taxpayer who performs a task through a crowdsourcing platform, including a microtask, has performed a service for the party that requested the task with the expectation that he or she will receive compensation. If the taxpayer receives convertible virtual currency for performing the task, regardless of the value and the manner in which it is received, then the taxpayer has been compensated with property," Goldstein continued. The IRS has considered bitcoin and other cryptocurrencies to be a form of taxable property since 2014.

The memo's release came several days after word spread that the IRS had begun issuing letters to U.S. taxpayers who may have failed to report their cryptocurrency transactions correctly. The IRS first sent letters of this kind to U.S.-based crypto owners in 2019. 

The full memo can be found below:

202035011 by MichaelPatrickMcSweeney on Scribd

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