Do people who hold cryptocurrencies really pay taxes?

Written by: Olga Kharif

Translated by: Saoirse, Foresight News

The IRS building in Washington, D.C. Photographer: Eric Lee / Bloomberg

Tyler Menzer stated that to gain a deeper understanding of cryptocurrency investors’ situations, he has been analyzing IRS data for several consecutive years, ultimately concluding: these investors may be deliberately avoiding taxes.

Just like a widely circulated internet meme from years ago — where the late coach Dennis Green of the Arizona Cardinals famously said about a winning opponent, “They are who we thought they were” — when it comes to fulfilling tax obligations to Uncle Sam, typical crypto players are probably the same. (Meaning, as expected, crypto investors just don’t want to pay taxes to the IRS.)

Tyler Menzer is an assistant professor of accounting at the Neeley School of Business at Texas Christian University, authorized to access millions of anonymized taxpayer data provided by the IRS for research. He and his recent co-authors found that, at least between 2013 and 2021, very few taxpayers reported cryptocurrency transactions on their tax returns; even when they did, this group was markedly different from traditional stock investors.

“Crypto holders are more likely to hold trendy concept stocks than other investors,” Menzer said in an interview. “They tend to be younger, and their income may also be lower. The core conclusion of our paper is that this is a distinct group of taxpayers and investors. Their trading behaviors differ, and their compliance performance may also vary. Many probably haven’t reported their crypto assets to the IRS.”

The IRS building in Washington, D.C. Photographer: Samuel Collem / Bloomberg

Multiple other surveys and studies show that by 2021, about 12% to 21% of American adults had held cryptocurrencies, but Menzer and his team found that only 6.5% of people had reported crypto transactions to the IRS. The timeframe of this study predates the early 2024 approval for ETFs to hold physical cryptocurrencies, a policy that has since completely reshaped the overall investor landscape.

This paper titled “Who Will Report Cryptocurrency to the IRS?” was co-authored by Jeffrey Hoopes, a professor at the University of North Carolina at Chapel Hill; Tyler Menzer; and Jaron Wilde, a professor of accounting at the University of Iowa. It was published in March this year in the journal “Accounting Research” under Springer Nature. The research mainly focuses on Bitcoin and Ethereum trading activities.

The IRS has not responded immediately to this.

Data from crypto asset investment tracking and tax compliance software company CoinTracker shows that in 2025, the average loss for digital asset accounts held less than a year was $636; for assets held over a year, the average profit was $2,692. In the 2025 tax year, crypto investors generated an average of 836 taxable transactions.

Crypto traders often sell holdings without considering tax implications at all. Menzer attributes this phenomenon to investors’ lack of professionalism and the high volatility of crypto assets themselves. Since hitting a record high in October, Bitcoin has fallen about 40%. Many traditional stock investors deliberately choose selling points to benefit from lower tax rates.

However, this situation is soon to change. The IRS has tightened reporting requirements for 2026, pushing crypto regulation closer to the framework of the stock market system. U.S. exchanges like Coinbase are required to issue transaction forms, and taxpayers must honestly report whether they hold cryptocurrencies regardless of whether they receive the new Form 1099-DA. Rules related to wash sales and other compliance loopholes are also under review.

Whether the libertarian anti-tax ideology that has been prevalent in the crypto space since its inception can continue remains to be seen, especially as tax season approaches.