The US IRS sent a new round of letters, CP2000 to crypto traders last week. The notices were sent because tax report inconsistencies were found.
According to reports, the IRS uses information offered by payment systems, crypto exchanges and other third-party systems in order to determine how much the crypto traders owe. The calculated amount was included in notices. Those that receive the notice have to pay the listed amount in one month.
Some users complained online that crypto exchanges offered details to the IRS but this is something that is forced through regulation. Also, third-party network transactions and transaction payment cards have to report activity to the IRS. However, there are no specific guidelines in place that were published in regards to crypto exchanges.
Data that is gathered from the crypto exchanges is compared by the IRS with the trader’s 1099-K tax report. When there is data that does not match, the CP2000 notice is sent in. In addition, interest might be added. The interest is calculated from returns due date to one month from notice date. Interest keeps mounting up.
If you received a CP2000 letter, there are 2 options available for you:
- When the amount is accurate
An included response form needs to be completed, signed and then mailed, together with the payment.
- When the amount is incorrect
You still need to complete the included response form and then return it to the IRS. Together with it, you have to add a signed statement in which you mention the reason why you do not agree with the listed amount. Supporting documentation needs to be included.
If you decide to contest the amount, you have to offer a really comprehensive supporting calculation, together with proof of wallet transactions and activities.
What has to be understood is that 1099-k reports are often inaccurate, mainly because cost basis is not included. In order to calculate crypto trading, this is mandatory. 1099-K just needs gross activity amount. In the crypto reports you have to know the costs, the amount you paid during the purchase, not just the amount you got when the cryptocurrency was exchanged. Capital gains tax is paid for profits made.
Simply put, before you reply to the notice from the IRS, all crypto activity has to be calculated and then compared with the tax filing.