Devin Black

The IRS is now sending CP2000 notices to crypto users

Last month, crypto users began receiving letters 6173, 6174, and 6174-A from the IRS advising them to properly report their crypto taxes. Now, in continuing demonstration of the IRS's new attention towards crypto, people are receiving CP2000 notices from the IRS as well.

The IRS sends a CP2000 notice to taxpayers when a tax return's data doesn't match what the IRS has received from entities like institutions or employers. While the letter doesn't indicate an audit, it suggests an adjustment to tax paid and requires a response in 30 days. The recipient must either agree to pay the updated amount or disagree and provide supporting documentation.

What do I do if I receive one?

The IRS sends this letter based on differences between what you reported and what information they've received from institutions. We know that exchanges like Coinbase have sent users a Form 1099-K. When a user is sent a 1099-K, the IRS receives a copy of it as well.

Unlike an 8949 or 1099-B, the 1099-K reports cumulative transaction value, and on only the exchange it's from. This means that it may not be reporting losses or totals including other exchanges you've traded on. For example, if you buy 1 BTC for $12,000 and later sell it for $10,000, the 1099-K represents the values you've transacted, but not the loss you took.

How do I make sure my crypto taxes are accurate?

Whether or not you are responding to a CP2000, it's important to calculate your crypto taxes utilizing your full transaction history across all exchanges. TokenTax works by taking all of your historical transaction data and calculating your Form 8949, which reports your capital gains/losses.

Remember that the CP2000 requires a response within 30 days. If you don't respond, the IRS will follow up with a Statutory Notice of Deficiency, a more severe call to action where you have 90 days to confirm your decision regarding the letter.

If you disagree with the updated amount, you must provide supporting documentation, which may include an 8949 and other supporting documentation.

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