I’ve always been interested in managing my finances efficiently, and like many people, I try to reduce my tax burden within what is legal. The topic of taxation took on a new dimension when I began working with Gitcoin and earning income through crypto-related work. This opened up some questions:
How should crypto earnings be reported?
How do people in the ecosystem handle it?
What even counts as taxable in the first place?
Those questions led me down a deeper exploration of what tax evasion is, why it matters, and how organizations - from DAOs to foundations - think about compliance.
Why Tax Evasion Is Harmful
Tax evasion is illegally avoiding taxes by hiding income, misreporting it, or concealing financial activities. It is harmful because:
-
It undermines public services that rely on tax revenue (infrastructure, schools, healthcare).
-
It shifts the burden onto compliant taxpayers.
-
It exposes individuals or organizations to serious legal consequences including fines, repayment with interest, or even criminal charges.
-
It erodes trust in the systems that support economic and social stability.
Legal tax minimization (tax avoidance) is allowed; tax evasion is not.
What Counts as Tax Evasion?
Exact definitions vary by jurisdiction, but in the U.S., tax evasion generally includes:
1. Failing to report income
For crypto, this includes:
-
Profits from selling tokens
-
Airdrops
-
Staking or yield rewards
-
Income earned through grants or payments
Even if income is paid “on-chain,” the IRS considers it taxable the moment it is received at fair market value in USD.
2. Underreporting value
Purposely minimizing the USD value of crypto received or sold.
3. Not reporting self-employment income
Many contributors to DAOs, open-source projects, and crypto organizations unknowingly fall into this category if they receive payment for work.
4. Crypto grants and retroactive funding
In the U.S., grant income is generally taxable unless specifically categorized otherwise. Both retroactive public goods rewards and project-funding grants typically count as income.
How a DAO Might View Tax Evasion
DAOs don’t operate like traditional corporations, but most still rely on the reputation and legal safety of their contributors. Generally:
-
DAOs expect contributors to handle their own tax obligations, since DAOs rarely act as employers or withholding agents.
-
Many DAOs emphasize legal compliance because noncompliance by members can create broader risks to the ecosystem.
-
Some DAOs publish guidelines reminding contributors that crypto income is likely taxable in their jurisdiction.
What You Can Do If You Suspect Tax Evasion (U.S.)
If someone appears to be intentionally hiding taxable crypto income, there are legal pathways to report it:
-
IRS Whistleblower Office (Form 211) – Submit a tip if you have credible information about deliberate underreporting or hidden taxable assets. Rewards may apply if the tip leads to additional tax collection.
-
General Tax Fraud Reporting (Form 3949-A) – Use this form to report inaccurate or false tax reporting, even if you are not seeking a whistleblower reward.
In Summary
The rise of crypto has added complexity to taxation, especially around grants, DAO work, and borderless payments. But the core principle remains simple:
If it’s income, the IRS generally taxes it.
Understanding this - along with the distinction between lawful tax reduction and illegal evasion - helps protect both individuals and the broader ecosystem.
-
Keep detailed records of earnings.
-
Report crypto income accurately, even from DAOs or decentralized projects.
-
Seek guidance from tax professionals familiar with cryptocurrency.
-
Understand the difference between legal tax avoidance and illegal tax evasion, and know the channels to report suspected evasion safely.