The IRS has been sending CP2000 crypto letters to virtual currency investors as part of the agency’s ongoing efforts to collect revenue from cryptocurrency taxes.
Letters 6174, 6174-A, and 6173 were the IRS’s opening salvo in its fight to claw back token-related taxes. Now, it’s sending Letter CP2000 to everyone suspected of not paying their share of taxes on crypto-related capital gains and income.
What is the IRS CP2000 notice?
The CP2000 letter is not reserved for cryptocurrency traders; anyone with a discrepancy on their federal tax returns could receive the notice.
CP2000 notices state the amount the IRS believes the recipient owes, which includes accrued interest.
If you receive a CP2000 crypto letter, think the amount is correct, and you want to pay the debt and be done with it, then fill out the form and remit it with a check. Voila. You’re done.
However, the IRS may not be correct. For cryptocurrency investors in particular, CP2000 letters can be notoriously inaccurate; read on to learn why.
Why did I receive a CP2000 crypto letter?
If you received a CP2000 notice about cryptocurrency, it’s because the IRS has information about your trading activity, and this information doesn’t match what you’ve reported on your tax return.
The IRS has powerful data comparison tools, and it routinely checks the information on your tax returns against information from third party sources.
For example, if your employer sends you a W2 form at the beginning of the year, they must also send the same form to the IRS. The IRS will compare the income reported by your employer to the number you report on your tax return. The same is true of capital gains acquired through cryptocurrency trading.
Increasingly, crypto exchanges are sending information about their users’ trading activity to the IRS using Form 1099-K or 1099-B. But the 1099-K for crypto traders is often wildly inaccurate because it reports only your total sales volume.
Form 1099-B is typically more accurate, but it can still be lacking if you use more than one wallet or exchange. (For example, moving your crypto from one wallet to another could be recorded as a taxable transaction when it’s actually not.)
So, if the IRS has received Form 1099-K or 1099-B reporting your crypto activity from a company like Coinbase, and you did not fully report crypto on your tax return, then you’re a prime target for a CP2000 notice claiming that you owe additional tax.
I don’t agree with the amount on my crypto CP2000. What should I do?
If you disagree with the amount the IRS claims you owe, be sure to hang onto the CP2000 cryptocurrency letter and contact our cryptocurrency tax lawyers right away.
We’ll get to work responding to the IRS, and creating all supporting documentation, by the deadline stated on your notice.
We’ll build your complete crypto tax report for the year(s) in question (we can amend a previous report or start from scratch). This includes recording every single cryptocurrency transaction that you made. We’ve been working with crypto taxes for years and have built hundreds of these reports, so you’ll be in good hands.
The worst thing you can do is ignore the notice; the IRS can, and eventually will, take extreme collection measures like filing a lien on your property or even levying your bank account.
Don’t wait; schedule a consultation with our experienced cryptocurrency lawyers and we’ll get your tax issue sorted quickly and easily!