Have You Received a CP200 Tax Notice Related to Your Cryptocurrency Taxes?Articles/News, Hot Topics
Posted on November 30, 2020 | Share
Just like other types of investment transactions, cryptocurrency sales and trades are considered taxable events under the Internal Revenue Code. This does not necessarily mean that you owe tax on the transaction (if you lost money on a trade, for example, you would not owe tax), but it does mean that you have an obligation to report the transaction to the Internal Revenue Service (IRS) and pay tax if tax is owed.
While you have an obligation to report your taxable cryptocurrency transactions to the IRS, so does your cryptocurrency exchange. If your exchange reports a transaction and you do not, this will raise red flags at the IRS, and it may result in a CP2000 tax notice being sent to your home or business. Here, Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what you need to know if you have received a CP2000 tax notice pertaining to your cryptocurrency transactions.
What is a CP2000 Tax Notice, and How Does it Relate to Cryptocurrency Taxes?
As summarized by the IRS, a CP2000 tax notice is sent in order to inform you that, “[t]he income or payment information we have on file doesn't match the information you reported on your tax return.” Essentially, it provides you with an opportunity to correct your previous years’ tax filings, if necessary, before the IRS initiates an audit or investigation.
If the cryptocurrency-related income you reported on your annual income tax return differs from the information reported by your cryptocurrency exchange, this can trigger the issuance of a CP2000 tax notice. Recently, there have been reports that the IRS is sending a large volume of these notices to cryptocurrency traders and investors.
Why Have You Received a CP2000 Tax Notice?
If you have received a CP2000 tax notice pertaining to your cryptocurrency-related income, this is likely because your returns do not match the information submitted by your exchange. This might be the result of your exchange using Form 1099-K—which has been used by exchanges such as Coinbase but which does not provide an accurate reflection of traders’ and investors’ taxable income. However, there are other possible causes as well, including the submission of inaccurate information on your annual returns.
What Should You Do After Receiving a CP2000 Tax Notice?
If you have received a CP2000 tax notice from the IRS, you will need to carefully review your prior years’ returns to determine whether you have accurately calculated the income tax you owe on your cryptocurrency transactions—and you will need to correct any inaccurate filings. If you believe that your filings are correct, you may need to work with the IRS, your exchange or both to address the information that your exchange has reported to the IRS. In any case, you must respond to the notice, and you must do so with a clear understanding of your federal income tax liability.
Request a Confidential Consultation with Boston Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group
Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, has decades of experience helping individual and business taxpayers resolve complex issues with the IRS. If you have questions about a CP2000 tax notice related to your cryptocurrency trading or investment activity, you can call 617-692-2989, email email@example.com or contact us online to request a confidential consultation.