Crypto Interest & Tiny Payments
What Doctors Need to Know About Reporting Income
“I got a 1099-MISC from a crypto company that paid me interest. Since it’s under $600, I don’t have to report it.”
I heard one of my colleagues say something like this.
Wrong.
This is a common misinterpretation of the tax rules.
The confusion often comes from the rule that requires businesses to issue a Form 1099-MISC to non-employees when they pay $600 or more in the course of a trade or business during the calendar year. But that threshold applies to the payer’s reporting obligation, not the taxpayer’s reporting obligation.
Here’s the key: even if you don’t receive a 1099, you are still required to report the income.
So What Income Needs to be Reported on Your Tax Return?
All of it.
That’s the simple answer — all income, from any source (yes, even illegal income) must be reported regardless of whether you receive a tax form.
This principle comes straight from Internal Revenue Code §61, one of the most fundamental provisions in the tax code.
To paraphrase the statute:
“Gross income means all income from whatever source derived, unless specifically excluded.”
But What Exactly Is Income?
The definition comes from the landmark Supreme Court case:
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).
In that case, the Court defined income as:
“Undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”
In plain English: if you receive an economic benefit, whether it is wages, interest or crypto rewards, from an event that has happened, and the money is in your control, that is income.
And there is no de minimis rule saying “under $600 does not count”.
Let’s go back to that crypto example:
If a crypto exchange sends you $50 in interest and does not issue a 1099-MISC because it falls below the $600 threshold, you still have taxable income.
You’re $50 richer, and that money is sitting in your bank account.
Therefore, you must report it.
The IRS is crystal clear on this:
“Whether or not you receive a Form 1099, you must still report any income on your tax return.”
Want a wild example?
If you find a treasure trove, say, $50,000 worth of gold coins buried in your backyard, and take possession of it (without turning it over to the authorities), that is taxable income in the year you dig it up and take control.
So, if you found those gold coins in 2025, you would report $50,000 of gross income on your 2025 tax return.
Why?
Because you just became $50,000 wealthier, and the IRS wants its cut.
The Good News:
Not all income is taxable. There are certain magical sections in the Internal Revenue Code, specifically IRC §§101–139, that describe types of income that are excludable from tax.
One of the most well-known examples is IRC §121, the home sale gain exclusion. A married couple can exclude up to $500,000 of gain (which is income under Glenshaw Glass) when they sell their primary residence, as long as certain conditions are met.
So, smart tax planning often starts with understanding what income can be excluded — and how to qualify for those exclusions. That’s how wealthy people stay wealthy.
The Bad News:
What happens if my colleague does not report that 1099 income?
The IRS uses an automated computer system, called the automated Underreporter (AUR) Program, which matches 1099s, W-2s and other income statements filed by third parties with what you report on your tax return.
If there’s a mismatch - say, the IRS receives a 1099-MISC from a crypto company, but my colleague doesn’t report it - the AUR system will likely flag it and issue a notice.
First, the IRS may send a CP2501 notice, alerting him that there is a discrepancy and requesting more information. If there is no resolution, the IRS usually follows up with a CP2000 notice, proposing an adjustment to his tax return — which often includes additional tax, interest, and possibily penalties.
The AUR system doesn’t catch every discrepancy. But seriously — who wants to play with fire when that fire is the IRS?
Final Thoughts:
You are required to report all income that meets the Glenshaw Glass definition — any increase in wealth that you have control over, regardless of whether you received a 1099, unless other tax rules specifically say otherwise.
Failing to do so could trigger the IRS’s Automated Underreporter (AUR) system, which may issue scary notices, proposing additional tax, penalties, and interest, and cause a headache you don’t want.
So do yourself a favor: report all your income, no matter how small.
Better safe than audited.
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