But according to a survey conducted by Credit Karma, only a handful of people who have filed their taxes using Credit Karma’s tools have reported bitcoin holdings or holdings of some other cryptocurrency – fewer than 100 out of a total of 250,000 filers, or a whopping 0.04% in total.
In all likelihood, this means that (tens of) thousands of bitcoin traders are refusing to pay the IRS, either betting on the anonymity of the blockchain to conceal their identities, or perhaps in some cases they simply don’t have the money to pay, having lost most of their profits during the market’s spectacular meltdown, as was the case for one anonymous trader who complained on Reddit that he owed the IRS $50,000 that he didn’t have, according to CNBC.
“If I had to guess, there’s probably a lot of underreporting,” said Elizabeth Crouse, a Seattle-based partner at law firm K&L Gates. “Most of the people in the cryptocurrency world tend to have a pretty high risk tolerance.”
Bitcoin had its best week in four months last week as selling pressure that appeared to coincide with the US tax season appeared to dissipate.
Meanwhile, Fundstrat’s Tom Lee and other analysts have predicted that “a massive outflow” of cryptocurrency to fiat ahead of tax day in the US had created a massive overhang, and that the bitcoin price could shoot higher after tax day.
In a report last week, Lee noted that, since US households owe an estimated $25 bln in capital gains taxes due to their crypto holdings, and crypto exchanges also will owe income taxes, both households and exchanges will be selling their crypto to pay the US government:
“We believe there is selling pressure by crypto exchanges who are subject to income tax in U.S. jurisdictions. Many exchanges have net income in 2017 [of more than] $1 bln and keep working capital in [Bitcoin]/[Ethereum], not USD — hence, to meet these tax liabilities, are selling BTC/ETH.”
While it’s possible that crypto traders just aren’t using Credit Karma for whatever reason, the data should be a concerning sign for Lee and other crypto bulls. It means that the forced selling might not be over – and in fact could be just getting started – as nonreporters are hunted down by the IRS.
In the past, crypto traders have mostly ignored warnings and guidance about reporting crypto-related gains. Of course, traders who ignore the IRS do so at their own peril. They could be subject to fines or other penalties once the federal government learns their identities. But as one might suspect given their high risk tolerance, like Crouse mentioned above, some crypto traders might be crazy enough to mix it.
This article is brought to you courtesy of ZeroHedge.