Bitcoin Investors Aren’t Paying Their Cryptocurrency Taxes

Despite months of warnings to pay their taxes on cryptocurrency profits, American Bitcoin investors aren't in a hurry to tell Uncle Sam what they owe.

Early data from one popular tax preparation service shows that only a minuscule proportion—just .04%—of U.S. tax filers have reported their cryptocurrency gains and losses to the Internal Revenue Service so far this year. That's far fewer than the 7% of Americans who are estimated to own Bitcoin or another cryptocurrency, and who are likely to owe taxes to the IRS on those investments.

Of the first 250,000 people to file their tax returns using Credit Karma, fewer than 100 of them disclosed any taxable event for cryptocurrency. Of those, only a single person disclosed a crypto gain or loss big enough to be "significant," according to Credit Karma, a free credit-monitoring startup.

While it's still early in tax season—at last count, the IRS had received only 18.3 million individual tax returns so far this year, or some 13% of the total expected this tax season—cryptocurrency investors still seem disproportionately reluctant to report their earnings. (Read our guide on how to pay Bitcoin taxeshere.)

For example, in a survey of more than 2,000 American cryptocurrency owners conducted in January by Credit Karma Tax along with research firm Qualtrics, some 57% of respondents said they'd realized gains on their crypto investments—profits the IRS considers taxable. And yet even more Americans (59%) said they had never reported any such gains to the IRS.

Although users of Credit Karma's tax prep service aren't representative of all U.S. taxpayers, they do account for a significant part. One million people filed their tax returns through Credit Karma Tax last year, the first time the company offered the online product. That makes the service the nation's fifth largest tax preparer, though Credit Karma expects to become the third largest this year, just behind TurboTax and H&R Block.

When it comes to paying taxes, Bitcoin investors have a history of being evasive. The IRS last year successfully sued Coinbase, a leading cryptocurrency exchange, for access to customer records after only 802 people reported gains or losses from Bitcoin in 2015. (A court last fall ordered Coinbase to identify more than 14,000 customer accounts to the IRS.)

Meanwhile, high-profile Bitcoin investors have been warning their crypto compatriots to comply with IRS rules. "When I talk to the blockchain community, I'm always pushing them—I'm like, 'Dudes, A), pay your taxes.' Because nobody in that space pays taxes," Mike Novogratz, a billionaire hedge fund manager who now primarily invests in cryptocurrencies, said at a conference in June. "Listen, the IRS is going to come after people. People are making real money now. So the IRS isn’t stupid."

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